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INDIANA UPDATE:
IU REPORT: STATE ECONOMIC WOES IN 1980s NOT CAUSED BY DECLINE IN MANUFACTURING
BLOOMINGTON, Ind. -- Conventional wisdom about Indiana's last major economic
downturn would indicate that it was caused by restructuring in manufacturing, particularly in
the steel industry, but a new Indiana University School of Business report indicates otherwise.
After peaking in 1978, Indiana's economy went into a deep slump during the 1980s. Even
though the state has greatly recovered during the 1990s, the effects of that downturn have not
been completely overcome, said a report in the July issue of Indiana Business Review Update.
In 1978, Indiana had 2.46 percent of all earnings in the United States. By 1995, the state's
share of earnings had declined to 2.11 percent. This 0.35 percent difference equaled $15.3
billion in 1995, or about $5,000 for each Hoosier worker.
Morton J. Marcus, director of the Indiana Business Research Center at IU and author of the
report, said it is wrong to blame this shortfall on restructuring in northwest Indiana's steel
industry. Of the $15.3 billion that Hoosiers would have earned if its industries had grown at
the national rate between 1978 and 1995, only 9.5 percent is associated with manufacturing.
"Indiana lagged behind the nation in almost every area of economic activity. Farming
contributed 5.8 percent of that deficit," Marcus said. "Earnings from business and personal
services, including health care, grew less rapidly in Indiana than in the United States,
accounting for $1.7 billion -- or 10.8 percent -- of the Indiana earnings deficit."
While others tend to blame state manufacturing and other export sectors, Marcus points out
that the economy also grows when Hoosiers provide services to themselves, rather than
buying them from sources outside Indiana.
"When we look at manufacturing, we see that only a very few Hoosier industries lagged behind the nation by any substantial dollar amount," he said, adding that the state's
industrial sectors actually had growing shares of the nation's earnings.
"The leader in adding to Indiana's earnings was the motor vehicle industry. For all the talk of
restructuring in the auto industry, Indiana saw substantial relative benefits in the period under
study," he added. "Another leader was the chemical and allied products industry, which
includes pharmaceuticals. Note that primary metals, which includes the steel mills, is among
the winners."
Among the state industries that lagged behind the nation in growth between 1978 and 1995
were stone, clay and glass products, paper and printing, and agriculture. But the industries
that suffered the most were transportation equipment, excluding motor vehicles, and
electronics and electronic equipment.
"Indiana does not have significant players in those industries," Marcus said. "We do not
manufacture much transportation equipment that moves through the air or water. Our output
goes over land.
"The Hoosier state has not participated in the electronic/computer revolution as have
California, Washington and other states."
For more details about the state's economic performance, Indiana Business Review Update and other state data are available on the Indiana Business Research Center's Web site, located at www.iupui.edu/it/ibrc