Economy of Indiana

History

Indiana's earliest economy revolved around trade with the Native American tribes in the northern and central parts of the state, which were connected by rivers to the Great Lakes, and ultimately the Atlantic Ocean. The state government established a trading monopoly with the tribes who became the primary purchasers of Indiana settler's goods. Although the basis was established in the Northwest Ordinance and well known, economic growth was slow to begin in the state, primarily due to the inability to ship goods to market affordably. After the Mississippi River was opened to American traffic following the Louisiana Purchase, agricultural grew rapidly in the state, but was still hampered by the lack of internal transportation in the state.

The Indiana General Assembly attempted to remedy the transportation system in the late 1810s, but was thwarted by the Panic of 1819 which caused the state's only two banks to collapse. A second attempt was launched in the early 1830s leading to the passage of the Mammoth Internal Improvement Act. This state-funded development of canals, railroads and roads statewide resulted in a large rise in land and produce values, but it too was thwarted by the Panic of 1837; although this spending bankrupted the state, the foundation it provided allowed Indiana to grow into one of the leading farming states by the 1850s.

The 1860s Indiana in the American Civil War rapidly completed the state's railroad system and accelerated the growth of industry. Building railroad cars and glass manufacturing became the state early leading industries, established primarily in the central parts of the state. Southern Indiana, however was adversely affected by the war and never regained its economic dominance in the state. Prior to the war, the largest cities were along the Ohio River and had a thriving trade with the south and large ship building centers that languished in the war. In most of the state, the war led to a rise in the value of farm produce and significantly raised the state's standards of living.

The Indiana Gas Boom began in the 1880s and lasted through 1910, when large-scale drilling and production of natural gas took place in the Trenton Gas Field of east-central Indiana. The Ball Corporation moved its headquarters from New York to Muncie, Indiana and built a glass factory to take advantage of the cheap natural gas, and became an icon of Muncie.

Indiana rapidly became a manufacturing powerhouse in the first 20 years of the 20th Century, as steel, oil refining, automobiles, railroad rolling stock, and consumer and industrial appliance companies established themselves, taking advantage of Indiana's central location, cheap and plentiful land, and the lower costs associated with smaller industrial cities. Enormous integrated steel mills were built in cities like East Chicago and Gary along the shore of Lake Michigan, with smaller mills built in cities like Muncie and Indianapolis. Railroads crisscrossed the state, the most iconinc being the Monon Line.

Indiana, being a manufacturing and agricultural state, was utterly devastated by the Great Depression in the 1930s. Unemployment exceeded 25% at the depths of the Depression in early 1933, with many coal-mining southern counties seeing unemployment rates exceed 50%. The Indiana Republican Party, which previously dominated the state and gave precedent to business interests, was destroyed in the elections of 1932, and the Indiana Democrats, led by newly elected governor Paul V. McNutt, swept to power and radically transformed the state, implementing public works projects and completely overhauling the state government. Trade unions gained new strength during the 1935 - 1945 period, and peaked at 41% in 1964. Unions would be a potent political force in Indiana through the 1990s, with a unionization rate of 20% as recently as 1990.

However, Indiana's factories went into overdrive during World War II (1939–1945) to support the Allied and American war efforts. Full employment and prosperity returned. Indiana manufactured 4.5 percent of total United States military armaments produced during World War II, ranking eighth among the 48 states.

During the post-World War II boom from 1945 to 1973, Indiana's economy prospered and Indiana was ranked 20th out of 50 states plus Washington, D.C., in the late-1960s for personal income. However, Indiana's economy began to struggle after the recession of 1969-1970 as the manufacturing sector began to decline. Foreign competition, corporate mergers, automation, and new management strategies lead to downsizing, mass layoffs, diversification, and chronic unemployment. Cities such as Muncie, Anderson, Indianapolis, Kokomo, Gary, East Chicago, Hammond, Michigan City, Fort Wayne, South Bend, Elkhart, and Evansville all witnessed population declines and rising unemployment and poverty during the 1970s and 1980s. Northwest Indiana was hit especially by the steel crisis of 1974 - 1983.

Since the early-1990s, Indiana has diversified its economy away from heavy industry and towards service (such as banking, insurance, healthcare, education, financial services, information technology) and high-tech manufacturing. In 2016, 516,000 workers were employed in manufacturing, down from 696,000 in 2000 and nearly 750,000 in 1969, but up from 424,000 in 2009 at the depths of the Great Recession. Heavy industries such as oil, autos, and steel still comprise a significant portion of the states' GDP, but other industries such as electrical goods, medical equipment, and pharmaceuticals have grown recently as well. However, Indiana's wage growth has lagged behind other states, and Indiana has fallen from 20th in personal income during the 1960s to 39th in 2017.