What's to come for Lincoln, Omaha economies

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BY MATT OLBERDING / Lincoln Journal Star

When it comes to business, there’s really no comparison between Lincoln and Omaha. Omaha has Warren Buffett, the world’s second-richest person, as well as two other billionaires. It’s home to the headquarters of four members of the Fortune 500 and other companies that are household names, a la Ameritrade.

Lincoln, on the other hand, is a government and university town. It’s three largest employers, and five of the top nine, are government entities. Only three publicly traded companies call Lincoln home, and its wealthiest resident is not even close to being a billionaire.

Still, Nebraska’s two largest cities have a lot in common. They are home to numerous insurance and financial services companies and have very diversified economies. They also are vibrant, growing communities that are adding people and jobs.

And the two cities, once fiercely competitive, are starting to collaborate more on economic development and other issues.

With that in mind, the Journal Star asked two business experts —  Eric Thompson, director of  University of Nebraska-Lincoln’s Bureau of Business Research, and Creighton University Economics professor Ernie Goss — to look into their crystal paperweights and predict what the two cities’ business futures might hold.

Following are the questions and each expert’s response:

Q: What do you think the economies of Lincoln and Omaha will be like in the short term (10 to 20 years) and the long term (50 years and beyond)?

Eric Thompson: There are at least two factors that suggest a bright future for both Omaha and Lincoln:

n Both communities will continue to attract migrants from rural Nebraska who will add to each community’s population and workforce. This will underpin continued growth in both economies.

n Both communities have an advantageous mix of industries. Both have strength in “producer services” industries such as insurance, financial services and business services that will be an important and growing part of the U.S. economy for decades to come. In terms of manufacturing, Omaha will benefit from its strength in the food processing industry since its production is likely to stay in the United States rather than move overseas. Mid-size cities such as Lincoln also should continue to gain a larger share of the U.S. manufacturing industry in the future.

Overall, both these factors and a fairly good business climate should allow both communities to continue to expand at a moderate to strong pace. However, my best expectation is that a combination of factors such as climate/topography and state taxes and regulation will prevent either city from becoming a “boom-town” in the sense of a Denver or various cities in Texas.

Ernie Goss: In my estimation both economies will be driven by three forces: globalization, productivity and technology.  As such, jobs, tasks and occupations that can be easily outsourced will face a very precarious future. These jobs, in both Omaha and Lincoln, will experience very little growth in terms of both earnings and job availability as they compete head-to-head with foreign competition. On the other hand, jobs with a significant human capital content that are “idiosyncratic” will continue to grow in terms of earnings and job available.  However, these jobs will require significant and on-going retooling via education and skill development. The community that builds a wall to protect itself from these forces will be the loser.

 Q: Omaha is thought of as a business town, Lincoln as a government and university town. Is it likely to always be that way? What does Lincoln need to do if it decides it wants to be more like Omaha?

Thompson: Whatever the perceptions, it is important to remember that private sector growth is just as robust in Lincoln as it is in Omaha. Data from the U.S. Bureau of Labor Statistics indicate that private sector employment has grown by more than 35 percent in the Lincoln metropolitan area since 1990 versus around 30 percent in the Omaha metropolitan area. Growth in Lincoln has been broad-based, including much growth in higher-paying industries.

Even with all this private sector growth, state government and the University of Nebraska-Lincoln (as well as other local post-secondary institutions) will continue to be an important part of the Lincoln economy. Further, being a university town has many advantages. In my opinion the University of Nebraska-Lincoln is a great asset for the economy due to its contributions to the workforce, but also due to technology transfer and its contributions to entrepreneurship.

Goss: While this is certainly a widespread belief that Lincoln is not a business town, Lincoln has performed quite well over the past decade in terms of business development. For example over the past decade, while Omaha lost over 1- percent of its durable goods manufacturing jobs, Lincoln actually grew its heavy manufacturing sector by 6 percent. Likewise as Omaha lost insurance jobs over the past 10 years, Lincoln gained jobs in this important sector. Evidence does indicate that the state of Nebraska, and the cities of Omaha and Lincoln have not fully engaged the colleges and universities in economic development.  Doing so would certainly advance Lincoln in terms of business and non-business economic development in the years ahead.

 Q: Gallup recently left Lincoln, where it was founded, for Omaha. Do you see more homegrown Lincoln companies such as Ameritas or Nelnet eyeing a move to Omaha in the future? Are there any Omaha-area companies that might look to move to Lincoln?

Thompson: Lincoln should work hard to retain and encourage its major employers. However, the critical issue for Lincoln is how it competes, and attracts businesses from, communities around the country rather than its ability to lure firms from Omaha.

Goss: In my judgment, Gallup’s move to Omaha was driven by their need for access to a larger airport.  Those companies that have a need for improved access to an airport and other amenities that are inherent in a larger metropolitan city will consider Omaha in terms of relocation. On the other hand, there are many businesses that will accrue greater economic advantages by locating in a city with a larger university/college community. 

 Q: After a long history of competing, Omaha and Lincoln now seem to want to work together on economic development. Is that sort of approach likely to change Lincoln's standing as second fiddle? Or, could it further widen the gap by making Lincoln look like a big suburb of Omaha?

Thompson: Joint efforts at economic development are appropriate given the proximity of the two communities. Growth in one community is likely to encourage growth in the other. Further, the outside world does need to understand the combined size of the population and economy in Southeast Nebraska.

Goss: Cooperative arrangements between and among cities in terms of economic development have very positive impacts on the communities involved.

What we need to see is each city taking advantage of its comparative advantages. By virtue of Lincoln's linkage to private and public university education, it has significant advantages in terms of developing industries and jobs that depend heavily on college educated individuals to drive growth. Communities such as Austin (Texas), San Jose (Calif.) and the research triangle (Raleigh-Durham-Chapel Hill (North Carolina) have been very successful advancing this model of development. Omaha, on the other hand, is one of the few cities of its size to have two medical schools. The development possibilities stemming from the research dollars flowing into the two schools is immense, and in my judgment, untapped. To summarize, I contend that each city has comparative advantages for certain types of development that could enhance economic growth in the city and ultimately the state. 

 Q: There’s a song in “Annie Get Your Gun” titled “Anything You Can Do I Can Do Better.” It seems you can apply that philosophy to almost any major industry in Lincoln — whatever Lincoln does, Omaha does better. While Lincoln is a major insurance center, Omaha is even more of one. Telemarketing is big in Lincoln, but it's even bigger in Omaha. Lincoln's health-care industry, one of its largest employers, can't hold a candle to Omaha's.

Is there any industry other than government in which Lincoln can carve its own niche and be a bigger player than Omaha?

Thompson: Lincoln has many businesses that are as successful as or more successful than their counterparts in Omaha and cities around the country. On the other hand, Omaha is a larger city than Lincoln. Larger cities will tend to have more major employers.  Large cities also will have a larger health care industry, and will have some specialized services not found in a mid-size city such as Lincoln.

Perhaps a more important point is that Lincoln should also compare itself to cities besides Omaha. A number of mid-size cities with a large university and a state capital (or a state capital nearby) come to mind such as Madison, Wis., or Lexington, Ky. Comparison with these places would provide a much better benchmark of Lincoln’s economic performance.

Goss: Businesses that benefit from a strong linkage to a large university/college community will tend to perform better in Lincoln.

Many of the graduates of the post-secondary educational institutions in Lincoln have the potential to spur economic development via entrepreneurship.  Furthermore, there are businesses across the nation that are attracted to communities with a large pool of educated workers from which to draw employees. Likewise, amenities that typically surround colleges and universities tend to attract certain types of businesses.  I do not think Lincoln, Omaha or Nebraska have taken full advantage of this type of development.

 Q: Omaha has a history of having an “old boy network” of business bigwigs and others who work together to make sure things get done there. On the other hand, Lincoln’s elite have tended to protect their own turf and shy away from or even oppose big projects that don’t directly benefit them. Do you see that mentality changing? Or, if not, is it likely to?

Thompson: I’m not sure your characterization is accurate. Another point is that it is probably not a good idea to focus on “big projects” as a key to Lincoln’s future. Business and community leaders are important to our city. Entrepreneurs who have built successful businesses have made a critical contribution to Lincoln. However, growth and economic development are more a function of underlying business conditions and the efforts of many individuals rather than those of a select group of leaders or “big projects.”

Underlying conditions for business – taxes, regulation, education levels, the quality of services and infrastructure – that affect all businesses are the critical factor. At the same time, all individuals can make a key contribution to the community’s future economy through the quality of their work, through their efforts to improve their own skill and education, or those of their children, and even through the upkeep of their property. Deliberations about economic development should focus more on these issues, in my opinion.

Goss: Communities benefit from the presence of headquarters of large private companies and corporations.  It is true that Omaha has significantly more development surrounding the location of headquarters than Lincoln.

This type of development extends from philanthropy to economic development leadership. This is an often under-appreciated element of economic development and one in which Omaha has benefited greatly.

Reach Matt Olberding at 473-2647 or molberding@journalstar.com