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Indiana Is Open for Business

Mitch "“the Blade”" Daniels is putting the state on the free-market cutting edge. Original Article

There’s about to be a building boom in Indiana, which is desperate good news for a state that has been severely challenged by the global manufacturing shift and years of ambivalent leadership.

The chief architect of the boom is the state’s decisive Governor Mitch Daniels, President Bush’s former budget director. In Washington, Daniels drew scorn from congressional big spenders, acquiring the nickname “the blade” for his cost-cutting and privatizing ways. (The moniker could just as easily apply to his sharp wit and intellect.) The spenders in Washington, however, won those battles — big time — swallowing the blade and earning today’s enmity from the Republican base. But now Daniels is back home and in charge, and he is engineering a turnaround of an entire state with sophistication.

In the state’s short legislative session, just completed, Daniels achieved two sweeping victories. The first is the nation’s most aggressive telecommunications deregulation, which will spur hundreds of millions of dollars of investment in invisible infrastructure — the “fibers and frequencies” of the digital age, as Daniels describes it. The second is a $4 billion privatization lease of the Indiana Toll Road and the new I-69 interstate. This will fund the largest-ever upgrade of Indiana’s visible infrastructure: its antique roads and bridges.

Indiana is more dependent on manufacturing than any other state in the union. Low-cost Asian manufacturing and the troubles of Big Auto in nearby Detroit have drained employment in Indiana and depressed income growth. Daniels’ telecommunications reform was thus a major component of his strategy to connect Indiana to global markets, to diversify the state’s economy toward services, technology, and life sciences, and to make the state’s manufacturing base more productive.

Indiana’s telecom laws had not been updated since 1985, while the state’s Utility Regulatory Commission has administered some of the most severely anti-investment rules and price controls in the nation. But in a single leap, Indiana has moved from the back of the pack to number one in terms of the modernity of its telecom regime. By the end of this month, most of the state’s obsolete telecom rules will lapse. By 2009, the industry will be almost totally deregulated in the state.

An Indiana-wide video-franchise process was also adopted to replace the fragmented and wasteful cable TV franchising system that has 300 towns and counties telling global communications firms what to do. The new system opens up the investment valves by granting easy and quick approval to new providers of broadband communications services. With the reform, companies like Verizon and AT&T are now planning major new build-outs of the world’s most advanced fiber-optic links to homes and businesses in the state. Cable TV companies will be forced to respond in a beneficent upward spiral of new technology and consumer choice that could boost state economic output by more than half a percentage point annually for the next five years.

Ironically, Daniels’ “Major Moves” plan to lease the Indiana Toll Road, the seemingly more tame and obvious measure, turned out to be far more controversial. It passed by a single vote with just 15 minutes remaining in this year’s legislative session. Weeks before anyone had heard of Dubai Ports World, the bid by Australian-Spanish consortium Macquarie-Cintra to manage Indiana’s 157-mile stretch of I-80/90 had already ignited a xenophobic melee in the heartland. But unlike the DP World roll-out, Daniels had actually sought bidders for the Toll Road. His proposition was simple: The winning contractor will pay Indiana $4 billion for an asset that has never been profitable in government hands; the state gets to keep that asset; the contractor upgrades the asset with new technology and an additional $4 billion in improvements; and the state gets to fund a decade’s worth of other major infrastructure projects, some of which have been on the drawing board for twenty years. (Just last year Chicago leased its “Skyway” to Macquarie-Cintra for $1.8 billion. The Skyway connects Indiana’s Toll Road to Chicago, thus yielding a seamlessly managed road from Ohio to the Windy City.)

The day after this deal squeaked through the legislature, the Indianapolis Star concluded that “the protectionist, xenophobic rhetoric … used to fight the lease was an embarrassment to the entire state.” But Daniels won the day, sending a loud message to foreign investors that Indiana is indeed open for business.

Indiana native Bret Swanson is a senior fellow at Seattle’s Discovery Institute and an editor of the Gilder Technology Report.