The Global Index of Economic Openness

Indianapolis is dominated by thriving high-tech industries including aerospace, chemical manufacturing and all five bioscience sectors, from pharmaceuticals to research and laboratory testing. Its high-quality transport infrastructure and central location has made it an important logistics center, consisting of some 1,500 distribution firms employing over 100,000 people. It excels at making some of the most advanced technologies in the world and is a testament to the renaissance of American manufacturing.

Indianapolis is the story of how the American heartland can prosper through openness and reinvention, after decades of deindustrialization including the high-profile decline of US automobile manufacturing. Indianapolis saw the plant closures of Chrysler, Ford and General Motors and the loss of tens of thousands of manufacturing jobs in the first decade of the millennium. Back in the golden years of US manufacturing during the late 1970’s, nearly 20 million Americans earned a good living by making things, but by the end of the twentieth century approximately 2 million of these manufacturing jobs were lost.

So, how has Indianapolis been successful, while other Midwestern cities have stagnated? Indiana’s pro- business, low tax, enterprising environment has attracted major foreign investment from new automobile firms such as Honda and Toyota; from specialist engineering firms like Rolls-Royce, that first came to Indianapolis over one hundred years ago and continues to invest heavily today, providing 4,300 high- skilled jobs in aircraft engine development and manufacturing; and from domestic giants such as health insurance company Anthem Inc and pharmaceutical company Eli Lilly, the largest private employer in the city. Purdue University is another draw for firms to locate here. As one of America’s leading engineering universities renowned for advancing discoveries in science, technology, engineering and math, it provides high calibre talent to the locally based high tech firms to ensure they can innovate and compete globally, feeding a culture of enterprise.

Much of this success is due to Indiana’s economic openness. An openness that has attracted international investment, created new opportunities and alternative employment in high-tech industries that has replaced lost jobs in ‘old’ manufacturing and kept the workforce globally competitive.

Trade between communities, states, countries and regions is fundamental to the advance of innovation, knowledge-transfer and productivity that creates economic growth and prosperity. Our research shows that economically open countries around the world are more productive, with a clear correlation between increased openness over time and productivity growth. In contrast, in an uncompetitive market, or one that is not designed to maximize welfare, growth stagnates, productivity wanes and crony capitalism thrives. Once protected industries become entrenched, it is difficult for governments to unseat them, especially when they lack institutional resilience. Inefficiency and corruption soon follow, when incentives arise for officials to prioritize the interests of powerful producers over the welfare of citizens.