Iron Range: Economic Development

History

In 1941, former Minnesota Governor Howard Stassen opened a new era for the Iron Range by starting the predecessor to the Iron Range Resources and Rehabilitation Board (IRRRB).  The purpose of the board, then called the Iron Range Resources and Rehabilitation Commission (IRRRC), which was funded by a very small portion of the state iron shipment tax, was to provide economic development through diversification for a region hard hit by various changes in the steel industry and the national economy and the depletion of timber resources.  More than just a regional extension of the mining money reinvestment already long in practice, however, the IRRRC is more significant to the Range as being the first institutionalization of the Range’s economy being driven by a public body rather than by private companies.  Beginning in 1941, this trend toward government-assisted economic development would only increase in importance all the way through today, when most of the new economic development occurs with at least some government funding and input.  Additionally, the IRRRC was significant in that it was the first large-scale attempt to diversify the Range’s economy away from high-grade iron ore, which had be the raison d’etat for the Iron Range thus far.  Diversification remains a keyword on the Range today.

Another interesting development in the establishment of the IRRRC, although less central to the region’s economy, was recognition of the Iron Range as one cohesive region.  The Range is split into a large number of municipalities and two counties.  For the first time with the IRRRC, a governmental body would be responsible for the region as a whole and could engage in region-based planning.  The website for the IRRRB proclaims that “Stassen considered the Iron Range to be one large community comprised of many cities and towns sharing common economic and social conditions. He felt that a rehabilitation program benefiting any one area of this community would be a benefit to all.”However, the department was not restricted to funding only Iron Range projects until its revitalization in the late 1970s, when the department’s jurisdiction was strictly defined according to a series of statutes and given the name the Taconite Assistance Area (TAA).

The Taconite Assistance Area (TAA) is shown in purple. The Iron Range region, as defined by this web site, is outlined in bold. Map by Brent Hecht.

This revitalization was spurred by both need and opportunity.  By the mid-1970s, Rangers began to get concerned that the Range’s taconite supplywould run out.  They wanted to reinvest some of the taconite money into diversification and the future economy of the Range.   In 1977, when the famous Hibbing-native Rudy Perphich became governor of the state, he and several other Rangers that were high-up in the state political power structure crafted and passed legislation that created the IRRRB that is in existence today, and armed the IRRRB with an increased taconite tax to engage in its regional mission. As noted above, Perpich and team also managed to push through a mandate that limited the charter of the IRRRB to the TAA.  It is important to note the TAA’s odd boundaries.  Surely, there was never – and will never be – iron mining activities in the arrowhead of the of the state, but the political maneuverings of Perpich and his allies resulted in the TAA we know today.

The IRRRB has never been a charity organization – Rangers would probably hate the idea of being assisted by a charity organization.  Rather, it is a regionally self-sufficient economic development agency that serves to reinvest money from the iron ore industry into the future of the economy in the region. In simpler terms, it is the charge of the agency to prevent the region from suffering the bust part of the standard boom and bust mining cycle by reinvesting money during the boom times.  If the boom and bust cycle is viewed as a sine wave, it is the job of the IRRRB to attenuate the tops and bottoms of both the negative and positive peaks.  Because its only external funding comes from per ton taconite taxes, and the agency by definition serves all the area in the state where taconite is produced, the agency is entirely funded by the region it serves.  (Even though the IRRRB is a state agency, it receives absolutely no money from the state’s general fund.) The IRRRB is not the only local public institution funded by taconite taxes. As mentioned in the section about the increase in taxes in the beginning of the twentieth century in the Cities and Towns section, most of the region’s local governmental bodies are funded at least partially from the taxes.  In fact, these bodies – which include school districts, cities, townships, and counties – receive most of the money from the taxes, and the IRRRB gets the remaining funds.

The history of the IRRRB, as a 1999 Minnesota Public Radio report said, is marked by “massive successes and huge failures.”  As such, the agency’s actions have always been scrutinized, and during some periods the agency has found itself embroiled in massive controversies.  Regardless, in its 65-plus years, the agency has carved out a role as an instigator of economic development schemes of all types and has also established itself as a source of community development funds.

As mentioned above, the catalysts for the development of the agency were threefold.  In the early 1940s, the Range found itself in a very precarious position.  As discussed in the section about the end of the timber industry in Minnesota, the forest resources of the region that once employed thousands were more or less completely gone.  Additionally, the Range suffered greatly from the huge slump in steel demand during the Great Depression and had not yet recovered from the loss of iron industry jobs, which went from 12,000-plus in the 1920s to less than 2,000 in the height of the depression.  Finally, and most importantly, it had become well-known that the supplies of high-grade ore on the range, once thought to be nearly inexhaustible, were nearly gone.  With World War II in its beginning stages, the region was aware that what remained of the ore was likely to be used up by the massive demand for steel inherent to a large war effort. With these three factors providing an ominous tone to the economic future of the Range that had been for so long a key driving force of the Minnesota economy, Stasson signed a bill that on April 27, 1941 that created the IRRRC, the predecessor of today’s department, most referred to by the name of its board.

From the beginning, the charge of the department has been to focus on four industries, now known as the “four Ts”: taconite, tourism, timber, and technology. Although taconite is a product closely related to the iron ore business, in the 1940s, taconite represented a diversification of economy because the technology of the day was not yet able to take advantage of the massive reserves of low-grade taconite ore that exists in Minnesota (for more information, see the section on taconite). Stasson and the other supporters of the IRRRC were only concerned with diversifying the region’s economy away from high-grade ore, not away from the iron ore industry as a whole.

Indeed, it was taconite and one of the other “Ts,” timber, that the department would find its greatest successes.

Taconite

The first of these successes was the development of the taconite industry in Minnesota, which would soon entirely supplant the high-grade ore industry. The importance of the taconite success to the Range cannot be understated; taconite continues to drive much of the Range’s economy today.

An extensive amount has been written on the story of Range taconite, the most complete of which is a book written by the key scientist in the development of the taconite process, Edward Wilson Davis.  The story is long, detailed, and fascinating.  It is summarized briefly here, but further reading is recommended.

As is mentioned above, by the late 1930s, leaders on the Iron Range were beginning to become very concerned about the imminent demise of the Range’s supply of high-grade ore, once thought to be inexhaustible. After the second World War, which caused mining companies to intensely utilize the Range’s remaining ore deposits, the future of iron on the Range looked bleak.

Mining on the Range did have one thing going for it: massive reserves of a low-grade ore called taconite.  However, while the high-grade ore was approximately 60 to 65 percent iron, taconite is only 25 percent iron.  Taconite could not be economically mined, as the costs of removing it exceeded the profit from the iron yielded.  The IRRRB spent over $2.5 million (over $19 million in 2005 dollars) to fund University of Minnesota researcher Davis in his efforts to find a way to economically mine taconite.  Davis was successful by the early 50s, and by the tail end of that decade, taconite had become an economic force on the Range.

Variants of the method invented by Davis are still in use today.  The general process is as follows:  First, the taconite is mined using the similar open pit techniques as those used for high-grade ore.  The modern version of this technique includes exploding the rock to break up the ore and removing the ore using the famous trucks that have become so common in the images of mining on the Range.  The ore is then crushed into four-inch chunks.  More crushing is done in later stages, and a fine powder results.  The powder is then combined with other products and rolled into pellets the size of marbles.  Finally, the marbles are baked at 2,400°F to harden them for shipment.

The taconite technology was so simultaneously powerful and economically efficient that it soon superceded high-grade ore. Buyers of iron ore like the integrated steel mills of the lower lake states actually preferred taconite pellets to high-grade ore. Geographer Dr. Peter Mason wrote in 1969 that “high grade natural ore is passed over by a [taconite] process better suited to the exploitation of low-grade ore.” Mason credits this unique situation to the technology developed by Davis and partially funded by the IRRRB: “In effect, technology has enabled low-grade ore to supplant high-grade ore…and this substitution has been an improvement.”

Timber

The Blandin Paper MIll at Grand Rapids. Source: Brent Hecht.

The department’s lesser known, but equally important, success began with the replanting of the great forests of northeastern Minnesota.  As discussed in the section on the timber industry, Minnesota once provided a massive reserve of forestry products, but this reserve was all but gone by the late 1930s.  The department mapped the region’s forestry resources and began to replant the forests of Minnesota.  Several decades later wood products companies began to return to Minnesota.  This web site is iron-focused, and the full history of the timber industry on the Range, culminating in its resurgence, is omitted.  However, it is important to note that the timber industry in Minnesota does not produce lumber like its equivalent in the western states.  Rather, pulp and paper products are the focus of Range forestry.  Indeed the prominent Grand Rapids Blandin Paper Mill is engaged in such pursuits.

Tourism

Some may argue that one of the department’s other large successes is the development of Giants Ridge Golf and Ski Resort, which falls well within the “T” of tourism.  The resort is somewhat unique to the department’s projects as the department owns and operates the resort instead of just being a financial partner in the resort’s development.  The resort project was very controversial in its early years.  The department bought the resort in 1983 and spent millions of dollars on improvements, but the resort did not succeed in attracting tourists until much later.  In 1985 the resort came under much scrutiny from Twin Cities press.  However, today, the resort is a large economic growth pole for the region.  A recent independent study commissioned by the IRRRB found the resort to have an impact of at least $23 million on the region.  Additionally, nearly all of the city websites for the municipalities located near the resort identify their proximity to the resort in a prominent location on the front page, an informal indication of the importance of the resort to bringing tourists to the region.

Lately, the “T” of tourism has gained importance in the IRRRB’s set of priorities. Far more of the pages of RangeView, the IRRRB’s newsletters, seem to be devoted to tourism than  to timber, for instance.  The agency seemsto be courting two types of tourists: the tourist interested in history and the tourist looking for outdoor activities.  For both types of tourist, the range has much to offer, and the IRRRB does its best to leverage and promote the Range’s tourism resources.

The Iron World Discovery Center logo. Notice the exclusive focus on tourism. Source: Iron World Discovery Center.

The Ironworld Discovery Center is the cornerstone for the IRRRB’s activities in the historical tourism market.  Owned entirely by the IRRRB and located in Chisholm, the Ironworld Discovery Center bills itself as the “living museum showcasing the heritage of northeastern Minnesota.”   Despite being a money-losing operation for the agency to the tune of $1 million to $2 million a year, a 2004 task force found that Ironworld is “of tremendous value to the region and must be sustained.” The task force was not able to provide an economic impact study, but concluded that “anectodal information indicates that Ironworld’s impact on the regional economy is significant.”  According to the task force, the center draws tourists from the following locations, in order of number of visitors: the Twin Cities, the northern Midwest, and the rest of the country.  The IRRRB hopes to turn the center into the cornerstone of an effort to create an Iron Range National Hertitage Area.  The National Heritage Area program – admittance to which is decided by the United States Congress – would provide $1 million in revenues for 10 years to the region, as well as greater access to heritage tourists, who both tend to spend more money and engage in longer stays than other types of tourists, according to a recent issue ofRangeView.

The tourism industry on the Range suffers from the common Minnesotan problem of climate.  A whole second level of creativity is needed to negotiate sustained tourism yields during the highly divergent temperatures and precipitation patterns of the four seasons in Minnesota.  In other words, the IRRRB and associates must not only find a way to attract tourists to the region, but also to do so on a consistent year-round basis.   The main approach taken by the IRRRB is to support and promote summer-oriented and winter-oriented activities separately.  The Giants Ridge project is an excellent example of this strategy.  In order to enable the facility to harvest year-round revenues, it was necessary to essentially build two different resorts: one for the summer (golf) and one for the winter (skiing).   This double-pronged tourism strategy can also be seen in Ely, where the agency helps outfitters to promote canoe trip outfitting in the summer and dog sledding outfitting in the winter.  Even the historically-oriented tourist attractions are hampered by Minnesota’s harsh winters.  The museum at Ironworld, for instance, is only open during the summer months.  The IRRRB has not yet found a way to leverage the facility for winter activities, given the transportation difficulties that the Range’s heavy snowfalls provide.

Outside the “Four Ts”

The now-vacant Hibbing chopsticks factory. Source: MN Power.

The department has diverged from the “Four Ts” on a very large number of occasions by both funding a large variety of creative economic endeavors and by establishing itself as an operative for community development in the region. Early efforts of the department included failed attempts to establish cash cropping and fish packing as viable industries on the Range.  A particularly colorful early failure – colorful failures would mark the history of the department up to the present – was a foray into rutabaga processing in Grand Rapids.  Probably the most important colorful failure of the department, and one that played a role in the Rudy Perpich’s loss in the 1988 gubenatorial election was that of the famous Hibbing chopsticks factory.  The IRRRB sank $3 million into the factory, which opened in 1987 and closed in 1989.

Measuring the IRRRB’s Success

So has the IRRRB succeeded in its main goal to diversify and bolster the region’s economy?  The answer to this question changes seemingly overnight as the region goes through the massive economic changes identified throughout this report.  At times, the IRRRB was hailed as the savior of the Range. At other times, it was derided as a corrupt waste of state resources and a department defined by large failures.  The vacillation in public opinion about the department caused the aforementioned 1999 Minnesota Public Radio report to label the IRRRB “either Minnesota’s least-effective state agency, or its least understood.”  How successful is the IRRRB these days?  The answer to this question is difficult to determine.

Diversity of the Economy

On the one hand, the Iron Range’s economy is becoming quite diverse.  Data from the 2000 census indicates that the Range has a smaller variation in employment in the basic NAICS (North American Industry Classification System) sectors than does the state of Minnesota as a whole.  Relative employment in the Range is slightly more evenly distributed (standard deviation of 4.06% of employees) across the twenty NAICS basic sectors than relative employment in Minnesota (standard deviation of 4.3%).

The Top Industries

Health care and social assistance is the leading employment sector on the Range, employing 13.5% of the Range’s working population.  Indeed, hospitals, clinics, and nursing homes are the top employers in many of the region’s larger urban centers including Hibbing and Ely.  In several others – Virginia, Eveleth – a health care provider is one of the top three employers. Grand Rapids, Mountain Iron, and Cohasset are the only cities with more than 2,000 people without a very significant health care, nursing home, or clinic presence.  While this may seem like a surprising statistic, the health care and social assistance NAICS sector employs 12.3% of Minnesota’s working population, only 1.2% less than the sector’s share of the Range. While the health care sector is being aided to a small extent by the IRRRB’s Rural Health Care Tax Force initiative, the sector has, unlike many other industries, grown largely without direct government incentives.  The IRRRB estimates that the industry will continue to grow and will add 4,500 new jobs by 2010, a change that would actually make the region heavily reliant on health care jobs and reduce the region’s economic diversity.

The retail trade sector is the second most important sector in the Region, with 12.5% of employees.  This sector includes a wide variety of businesses, from supermarkets to liquor stores to novelty and souvenir shops.  The majority of the employment in this sector appears to come from supermarket, fast food, gas station, and discount superstore jobs.  Wal-Mart operates two stores in the region – one in Grand Rapids and one in Hibbing – and employs 610 people, or about 1.4% of the region’s workforce.  The Dairy Queen in Nashwauk is the town’s largest employer. Compared to the 11.9% of Minnesota’s workforce that is employed by this sector, the Range is not significantly different than the rest of the state in its reliance on retail trade. The IRRRB has also not directed any large specific efforts at this large sector of the region’s economy.

Basic Versus non Basic Income

Why would the IRRRB largely remove its support for the top two sectors?  The answer to this question is a simple one: the top two sectors of the economy do not provide basic income to the Range.  By definition, basic income is income that comes from outside of a study area, and non-basic income is money that is circulated within a study area.  Obviously, basic income is preferable to non-basic income for economic development, as growth is impossible through just the simple circulation of money.  While estimates vary, the common rule of thumb is that the average basic income job provides money to support three non-basic income jobs.  This 1:3 ratio is a very important factor behind the position of the various sectors in the Range economy.  The top two sectors provide largely non-basic income to the region, and thus do not spur economic development.  Grocery stores and Wal-Marts, for example, are intended for the local population to spend its money.

A Depressed Economy

While the Range’s economy may be diverse to a statistical extent, the diversity has not helped the Range rekindle its economy after the global market massacred it in the 1980s.   In this sense, the IRRRB has either failed or has much hard work still left to do.  The Range’s financial situation is best seen through the standard economic indicators.  All of these data were generated using the region as defined by the web site and data from the census 2000 web site.