Minnesota and Wisconsin: How did two peas in a pod grow apart?

I have lived most of my adult life in Minnesota, but I grew up in Janesville, Wis., and graduated from the University of Wisconsin-Madison. Driving east on Interstate 94, it's easy to imagine that I'm returning home. Such drives make a good time to reflect on the similarities and differences between my two states.

Right now, of course, lots of people are making such comparisons — mostly looking for political ammunition by suggesting that Wisconsin Gov. Scott Walker, a Republican, and Minnesota Gov. Mark Dayton, a Democrat, are largely responsible for the economic conditions of their states, even though each has only been in office since 2011.

The story goes back farther than that.

From the 1940s to the 1960s, Minnesota and Wisconsin were as alike as "two peas in a pod." They were ethnically similar — almost all white, with hearty helpings of Scandinavian and German immigrants. They were also economically similar. Most people earned their living from manufacturing, farming, or extracting natural resources from the ground and forests. Each state had a powerhouse metropolitan area; in 1950, the Milwaukee and Twin Cities areas each had about 1 million residents. And both states had first-rate public universities.

Overall, Wisconsin was somewhat wealthier than Minnesota back then. In the late 1940s, Wisconsin's per-capita income was about equal to the national average, while Minnesota's was below the national average.

But then something happened: Minnesota rose while Wisconsin fell.

This trend is clear when we look at the populations of the Minneapolis-St. Paul and Milwaukee metropolitan areas. The Twin Cities grew rapidly and is now home to almost 3.5 million people. Greater Milwaukee grew, too, but at a much slower rate; it had only 1.5 million people in 2013. As a consequence, Milwaukee slipped from one of the nation's leading cities to 39th place, sandwiched between Providence, R.I., and Jacksonville, Fla.

Wisconsin and Minnesota also traded places in per-capita income, an important measure of material standard of living. Professor Louis Johnston of St. John's University compared per-capita incomes in the two states since the end of World War II. His findings show a crossover in the late 1960s, when Minnesota surpassed Wisconsin. This trend has persisted. It is fair to say that Minnesota is now an upper-income state, while Wisconsin is below average.

Why did this happen? I don't have the complete answer to this question, but I will offer several explanations that are part of the answer. I have organized these explanations under four headings.

This is probably the most important piece of the puzzle. Edward Glaeser of Harvard University has found that industrial diversity contributes more to economic growth than specialization does.

Heavily dependent on manufacturing, Wisconsin has struggled to diversify its economy. Its automobile and machine tool industries were especially hard-hit by competition from Germany and Japan.

During summer breaks from college, I worked at the Chevrolet automobile assembly plant and Parker Pen in Janesville. I'm a long-lapsed member of the United Auto Workers and United Rubber Workers unions. The last time I was in Janesville, I drove by the Chevy plant. It was locked, and weeds were growing in the parking lot. Parker Pen is long-defunct.

In 1993, Sherwin Rosen, an economist at the University of Chicago, pessimistically predicted that the long-run economic decline of the Midwest would continue for decades. He was wrong — about Minnesota. When the milling industry departed in the 1960s and 1970s, Minnesota switched to making computers and later to medical technology. Seymour Cray, who hailed from Chippewa Falls, Wis., helped to establish Control Data Corp. and founded Cray Research.

The health care sector has played a key role in Minnesota's economic diversification. In addition to providing world-class medical care and training physicians, the University of Minnesota and the Mayo Clinic are incubators for innovation and invention. C. Walton Lillehei completed the first successful surgical repair of the heart at the University of Minnesota on Sept. 2, 1952. In 1958, Earl Bakken, an engineer at the University of Minnesota, invented the first external cardiac pacemaker for a patient of Dr. Lillehei's. Bakken's invention became the Medtronic Corp., the world's leading medical technology company.

The transformation of the health care sector continues with the rise of UnitedHealth Group, the nation's largest health insurer, which employs 18,000 people in Minnesota. In 2012, 10 of the top 25 employers in the state were health care organizations, and other major employers, such as the University of Minnesota and 3M, had significant health care components.

It's useful to compare the percentages of workers in manufacturing and health care over time in Wisconsin and Minnesota. Manufacturing employment is more important in Wisconsin, but its share of the workforce is falling in both states. The major difference between the two states is that health care employment is rising faster in Minnesota — in fact, it can absorb all of the slack created by having fewer workers in manufacturing. This is not to say that every worker who loses a manufacturing job can find one in health care, but the aggregate loss of manufacturing jobs in Minnesota could be replaced entirely by health care jobs.

Many of those jobs pay middle-class wages, and unlike manufacturing jobs, they cannot easily be moved offshore. The Mayo Clinic is a major "exporter" of medical care for patients who come to Rochester to be treated.

Wisconsin and Minnesota both have good schools, but Minnesota has the edge over its neighbor. Fewer Minnesotans drop out of school before completing the 12th grade (7.6 percent vs. 9.1 percent) and more go on to college (66.1 percent vs. 58.9 percent). The differences become more pronounced when we compare those with four-year college degrees and graduate and professional degrees: Roughly one-third of Minnesotans have a sheepskin, compared with 27.8 percent of the Badger State.

Given that full-time workers with college degrees earn twice as much as those with high school diplomas, the education gap between Wisconsin and Minnesota is an important piece of the puzzle.

Education is also correlated with the labor force participation rate, which is the percentage of the population that is working or looking for work. Minnesota has very high labor force participation rates for both men and women. This contributes to our above-average incomes.

One thing is clear: Don't blame Walker for Wisconsin's economic problems. They started a long time ago and will take a long time to fix. By the same token, don't applaud his performance if Wisconsin has a few short-term dips in the unemployment rate.

In addition to creating jobs, Minnesota's investment in health care has another effect: Minnesota is healthier than Wisconsin. This difference can be seen in many indicators, such as adult obesity rates (25.5 percent in Minnesota vs. 29.8 percent in Wisconsin), adult smoking rates, and rates of diabetes and low-birth-weight babies. However, we shouldn't be complacent. Minnesota's overall health ranking slipped to sixth in the most recent state comparisons published by America's Health Rankings (Wisconsin is rated 23rd).

Spending on parks and recreation is a plausible contributor to differences in health. Minnesota will spend $211.3 million on state parks and trails this biennium. Additional funding for parks and trails comes from local government budgets. As a result, Bicycling magazine rated Minneapolis as the most bike-friendly city in the United States in 2010. Meanwhile, Walker is proposing to cut all general revenue from Wisconsin's already small state parks budget. (So, OK, we can blame him for some of Wisconsin's problems.)

Spending on parks and recreation also creates a "virtuous cycle" in which these amenities attract people who like outdoor activities and are willing to pay taxes to support them. This is another reason why the Twin Cities is growing and Milwaukee is not.

I will close with a suggestion that is speculative: I think it was a mistake for Wisconsin to locate its state government and its leading university in the same small city, Madison. By doing so, it missed out on what economists call "externalities of agglomeration."

This means that when you put a critical mass of business, academic and governmental institutions in the same large urban area, you get a "stew of ideas" that is larger than the sum of its parts. The externalities make the city more attractive. This may be one more reason why the Twin Cities area attracts more people than does Milwaukee, which lacks externalities of agglomeration.

Lately, another drawback to locating both state government and the University of Wisconsin in Madison has surfaced: The rest of the Badger State looks at Madison as a bastion of isolated, liberal elitism. While this change of attitude could not have been foreseen when these location decisions were made, loss of popular support for the university and state government could be toxic. I have not seen anything like this in 37 years at the University of Minnesota, and I hope it doesn't happen here.

One more thing I remember as I continue driving east through Wisconsin: Watch out for those pesky state troopers and their zero-tolerance policy toward speeding.

Roger Feldman is a professor at the University of Minnesota.