Wall Street Journal - August 31, 2006

Commentary

The Great Plains

 

ISMARCK, N.D. — At a time when the much-celebrated coasts creak from rising interest rates, faltering income levels and soaring energy prices, this windswept, energy-rich city of 57,000 on the western edge of the Dakota plains is experiencing the best of times. Cities like this one out in the far-off hinterland — Iowa City, Sioux Falls, Fargo, Grand Forks, Rapid City — now are enjoying job growth rates that, if they don't rival Las Vegas, certainly put to shame those of most major metropolitan areas. Unemployment is negligible and wages are rising across virtually all job categories.

Over the past five years, the fastest growth in per capita income has taken place in energy-rich Wyoming, Montana, North Dakota, New Mexico and West Virginia, while highly urbanized places like California, New York, Michigan and Illinois gather dust at the bottom of the pack. Tax revenues in these once hard-pressed states are also soaring; North Dakota's surplus is now estimated at $527 million, representing more than a quarter of the state's $2 billion annual budget.

Behind the good times are numerous factors, such as an Internet-enabled shift of technology and business service firms into the region, and a growing migration of downshifting boomers and young families. But perhaps the most dramatic change has come from an upsurge of energy prices that is turning places like North Dakota into a Nordic Abu Dhabi.

"We're on the verge of a gold rush driven by energy," crows Bob Valeu, state coordinator for North Dakota Sen. Byron Dorgan. Mr. Valeu and other leaders here in both political parties see their state as a growing bastion of energy production for the U.S. Already North Dakota is among the major exporters of energy to the rest of the country, exporting roughly three-fourths of its 4,000 megawatts of electricity.

Mr. Valeu and other boosters see this as just the beginning — particularly if more transmission lines to the rest of the country can be built. Unlike in Malibu or Manhattan, renewable energy here makes for more than cocktail party chatter. Four ethanol facilities are already in operation and a new biodiesel plant in Minot has just been announced; 11 wind power plants have been put into operation since 1997.

But it's still fossil fuels that are driving things the most in North Dakota. Huge deposits of lignite coal, estimated at 35 billion tons, remain a primary source of electrical generation and synthetic natural gas. This makes the cost of energy half as expensive or less than in New York or California. Oil, as well, is booming. Five years ago, with oil prices low, notes Ron Ness, president of the North Dakota Petroleum Council, there were virtually no rigs operating in the state's Williston Basin. Today his members, consisting of around 140 oil and gas firms of all sizes, are on a hiring spree. They've added 1,500 new jobs — most paying $23 an hour and up — and have still another 200 openings to fill.

This spike in employment could just be the beginning if the largely untapped Bakken oil formation proves to have the reserves, upwards of 200 and 300 billion barrels of crude, that some geologists expect. Development of the Bakken could turn western North Dakota, as well as parts of Montana and Canada, into one of the world's largest new energy centers. Even without it, things are busy as can be in places like Dickinson, located in Stark County, population 25,000, not far from rugged Badlands country. The county now has over 800 job openings, not all of them energy-related. Unemployment barely exists — under 3% — notes Gaylon Baker, a director of the Stark County Development Corporation. "Anyone who wants to show up for work around here," he told me, "has a job."

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Two decades ago the academics Frank and Deborah Popper described the development of the Great Plains as a mistake — an expansion of too many people and farms into an environment unable to support them. They pointed, with some justification, to the depopulation of much of the area and suggested that it be "de-privatized," brought back to its "original pre-white state" and turned into "the ultimate national park." This notion was widely described as the "buffalo commons," and it gained some traction among environmentalists — many of whom seem to regard people as a kind of blot on the landscape. Indeed the Plains — parts of which are now suffering from a severe drought — as a kind of human disaster area remains a popular theme among Eastern journalists: irresistible decline, dying towns, aging populations, a place to visit now before it all blows away.

The portraits of a dying region are increasingly dated; last year North Dakota gained population while Massachusetts, Rhode Island and the District of Columbia all lost people. More to the point, although some parts of the Plains, particularly small towns, continue to lose people, others are enjoying growth in jobs, population and income — in many cases more so than parts of urban, coastal America.

Fargo-Moorhead, the pair of cities straddling the Red River (the boundary between North Dakota and Minnesota), is a thriving metropolis of slightly less than 200,000 that grew by over 20% between 1990 and 2000 and has added an additional 4,300 people over the past five years. One in five newcomers was an immigrant. Bismarck has seen a similar surge in population, growing by 3% over the past five years.

This resurgence has its basis in some often underestimated assets that are reasserting themselves in the Great Plains. For one thing, as Alexis de Tocqueville observed, the rural American was never a pliant peasant. Rather he was an entrepreneur whose restless "industrial pursuits" demanded he improve his land, or sell his farm and move on. Almost all the farmers of the U.S., Tocqueville wrote, "combine some trade with agriculture; most of them make agriculture itself a trade."

Such characteristics were, if anything, more evident later on, when the Great Plains experienced a sudden and highly speculative agricultural explosion. In the great expansion of the area around the turn of the last century, farmers and ranchers often went into processing and land speculation; they readily abandoned one profession or one homestead for a more promising one. When the market for grain dissipated in the 1920s, and even the land itself seem to give way to the "dust bowl," the region's residents experienced a crisis of confidence. Once fiercely independent, many Plains farmers were forced to look to Washington for subsidies.

Yet it is clear now that decades of dependence did not erase the entrepreneurial spirit of the Great Plains. As early as the 1980s lower business costs helped spark the growth of companies — covering everything from business and financial services to manufacturing and high-tech. Later, new telecommunications technology would play the decisive role. Native sons like Doug Burgum and Mike Chambers found they could return home again and, through the use of telecommunications technology, run a world-wide business from places such as Fargo.

Today the Fargo facility of Great Plains Software — the firm Doug Burgum founded — serves as the headquarters for Microsoft's business systems division. It employs over 2,000 people and helped spawn a statewide mini-boom in new technology firms in everything from biotechnology and aerospace. According to the National Science Foundation, North Dakota ranks No. 2 in academic R&D dollars per $1,000 of gross state product, right behind Maryland and right ahead of Massachusetts. It ranks fourth in technology companies as a percentage of all business startups.

As entrepreneurial activity has expanded, Fargo in particular is being transformed. A decade ago, it was just another fading Plains town, with a doughty downtown, few decent restaurants and almost no good coffee houses. Today Fargo-Moorhead boasts the complete opposite. And while it may not be Soho, its downtown is home to hip clothing stores and a great boutique hotel. There's even a thriving local arts scene.

Microsoft's Mr. Burgum, Mr. Chambers — president of Aldevron, a growing biotech firm — and other North Dakota employers welcome these changes but, unlike their competitors in places like Boston or San Francisco, have no illusions that being "cool" constitutes their competitive edge. Instead they pitch employees based on such often underestimated factors like good schools, reasonable housing prices (the median home price is under $150,000), short commutes, the nation's lowest crime rate and ample outdoor recreation.

If the energy and technology booms bring more high-end workers to Bismarck, the broader labor shortages are driving up salaries, on average some 15% across the board between 2002 and 2005. This movement is even helping those workers who have historically had the lowest salaries. Bismark's McDonald's restaurants now start pay at upwards of $8 an hour, with some stores offering "signing bonuses" of between $100 and $150 to work under yellow arches.

Even the most sickly of industries, like the newspaper business, are thriving in Bismarck. Unlike most editors around the country, the Bismarck Tribune's Dave Bundy hasn't had to think about layoffs. Instead he still actually adds new staff on occasion, while circulation and advertising sales at the paper continue to rise at a healthy clip.

"The newspaper that is growing and doing well is a rarity, but we're feeling pretty solid," Mr. Bundy explained from his newsroom. "There's a bigger city feel here than when I got here a decade ago. We're not the middle of nowhere anymore."

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