Economic Growth

By Olson, Mark | Independent Banker, March 2006 | Go to article overview

Economic Growth


Olson, Mark, Independent Banker


Lessons from the Sioux Falls Experience

According to the U.S. Department of Agriculture (USDA) and the Census Bureau, both Minnehaha and Lincoln counties have grown rapidly in recent years compared with the rural counties* of South Dakota and neighboring states. Rates of unemployment roughly parallel these population trends. In particular, the unemployment rates in the metropolitan areas of South Dakota have consistently been lower than in rural areas, and this relative abundance of job opportunities has tended to encourage migration to areas such as Sioux Falls.

An important cause of the migration from rural areas to metropolitan areas has been the phenomenal growth in farm productivity in recent decades. According to data from the USDA, two farmers can now produce enough to feed 100 people, a labor requirement that is down by a factor of at least 10 from a few decades ago. In many rural areas, the resulting decline in the number of farmers meant a decline in population. One of the keys to the growth of Sioux Falls has been its ability to attract many of those who left the farm by providing good jobs and an attractive level of services. Indeed, employment growth in your locale compares favorably with comparably sized metropolitan areas in the rest of the country. Since 1990, the rate of job growth in Minnehaha and Lincoln counties has been more than twice that of other U.S. counties that include a metro area of similar size. And compared with similarly sized metropolitan counties in other upper Great Plains states, the rate of growth in jobs in your area since 1990 has been almost 50 percent faster.

Economists offer several general hypotheses to explain why some cities prosper. I think that the success of Sioux Falls reflects two in particular. The first is what economists term the concentrated- market theory, which emphasizes the benefits to a business of having consumers that are near at hand. Transportation costs are a key component of this factor.

In this context, some of Sioux Falls's economic success reflects its location along natural trade routes. Today, of course, the intersection of Interstate highways 29 and 90 makes Sioux Falls an obvious transportation hub. But even before the city was established, the falls of the Big Sioux River were a landmark that, in the early nineteenth century, provided a gathering place for Native Americans and fur buyers. Near the end of that century, the completion of railroads helped to make Sioux Falls an important trading hub in the region, even as agriculture and resource extraction remained the principal generators of wealth and income.

Building upon their early successes in promoting growth, your business forebears here in Sioux Falls were finding innovative ways the great exodus from the farm to the cities after World War I. A good example of this innovation is the John Morrell meat-packing plant that was established here in the early twentieth century. The plant processed and added value to agricultural products and lowered transportation costs by reducing the volume of meat to be shipped. The success of the facility helped to diversify an economy otherwise dominated by agriculture and primary extractive industries. The John Morrell enterprise also helped to create an employment anchor for the local economy, and it continues to provide jobs today.

A second economic rationale that is often advanced for the development of cities and that seems applicable to the Sioux Falls experience is that of labor market pooling-the ability of an industry to take advantage of a labor force possessing a specific set of skills, thereby raising productivity compared with competing areas with a more dispersed set of skills. Perhaps the best example of this advantage in Sioux Falls is the extensive health care system, which not only delivers top-quality medical care throughout the region but also supplies a large number of good jobs.

However, I submit that there is an additional factor underlying Sioux Falls's success in generating jobs and attracting people.

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