As reported by the New Times in an article entitled Factory jobs gain, but wages retreat: “But for a new generation of blue-collar workers, even those protected by unions, the price of employment is likely to be lower wages stretching to retirement. … The shrunken pay scale for newcomers — $12 to $19 an hour versus $21 to $32 an hour for longtime workers — threatens to undo the middle-class status of even the best-paid blue-collar jobs still left in manufacturing.”

But it doesn’t stop politicians – from both parties – trying.  In fact, centering their economic strategies for the country and state on recreating that economy. Most Republicans are advocating policies for a 1.0 (farming and oil, gas and coal extraction) and 2.0 economy (factories) with low wages and a small safety net. And the Democrats the same economy but with high wages and a large safety net. The Democrats want alternative/green energy products (batteries, solar panels, wind turbines, etc.) to be a core of a renewed factory-based economy.

Even Governor Snyder – who understands better than any elected official in Michigan the importance of moving to Michigan 3.0 – centered his State of the State address on 1.0 and 2.0 industries. In an insightful post Rick Haglund writes: “Still, the speech was a disappointment to those looking for details on how Snyder intends to continue implementing what he calls “Michigan 3.0″–the era of innovation. Strangely, he spent time praising the economic growth of sectors from Michigan 1.0 and 2.0–agriculture, manufacturing, mining and tourism. No mention at all of knowledge jobs in health care, financial services, and business, professional and technical services. And no discussion of whether the governor will propose using some of the budget surplus on new investments in education and cities.”

As we have documented in our annual progress reports on MIchigan’s economy, if the state’s economy (the country’s too) is anchored in “agriculture, manufacturing, mining and tourism” we are going to be both a slow employment growth and low income state. Is that what we want?

Both job growth and high wage are increasingly concentrated in knowledge-based sectors. As New York Times columnist Tom Friedman writes:

In a world where the biggest returns go to those who imagine and design a product, there is no higher imagination-enabling society than America. In a world where talent is the most important competitive advantage, there is no country that historically welcomed talented immigrants more than America. In a world in which protection for intellectual property and secure capital markets is highly prized by innovators and investors alike, there is no country safer than America. In a world in which the returns on innovation are staggering, our government funding of bioscience, new technology and clean energy is a great advantage. In a world where logistics will be the source of a huge number of middle-class jobs, we have FedEx and U.P.S.

If only — if only — we could come together on a national strategy to enhance and expand all of our natural advantages: more immigration, most post-secondary education, better infrastructure, more government research, smart incentives for spurring millions of start-ups — and a long-term plan to really fix our long-term debt problems — nobody could touch us.

That is the economy and the agenda we need to pursuing. It is the only reliable path to a future America with a broad middle class. But to get there will take a complete reorientation of the policy agenda of both parties. As long as we are debating which party can best restore the economy that is being obliterated by globalization and technology the country and Michigan are going to get poorer.

At the core of Michigan Future’s work, from our founding twenty years ago, has been the conviction that globalization and technology are mega forces that are continuously reshaping the economy. That by orders of magnitude they are more powerful than politics or public policy. And that the places that will do the best economically are those that align with – rather than resist – what now is described as a flattening world.

In no sector of the economy is that more true than manufacturing. Globalization, of course, means that more and more people across the planet will have the skills to compete with Americans for work. And technology increasingly invents new machines that also compete with Americans for work. Not to mention creating new industries that make obsolete old industries. The two articles do a terrific job of describing how those mega forces are reshaping what factory work can be done in America competitively and for that which remains how it will be structured with fewer workers and more machines.

As the Atlantic article describes the basic facts are:

We do still make things here, even though many people don’t believe me when I tell them that. Depending on which stats you believe, the United States is either the No. 1 or No. 2 manufacturer in the world (China may have surpassed us in the past year or two). Whatever the country’s current rank, its manufacturing output continues to grow strongly; in the past decade alone, output from American factories, adjusted for inflation, has risen by a third. … Yet the success of American manufacturers has come at a cost. Factories have replaced millions of workers with machines. Even if you know the rough outline of this story, looking at the Bureau of Labor Statistics data is still shocking. A historical chart of U.S. manufacturing employment shows steady growth from the end of the Depression until the early 1980s, when the number of jobs drops a little. Then things stay largely flat until about 1999. After that, the numbers simply collapse. In the 10 years ending in 2009, factories shed workers so fast that they erased almost all the gains of the previous 70 years; roughly one out of every three manufacturing jobs—about 6 million in total—disappeared. About as many people work in manufacturing now as did at the end of the Depression, even though the American population is more than twice as large today.

Both articles are terrific at describing the realities of global manufacturing. If you care at all about the future of factory work in America they both are must reads. Both articles explore the calculus companies go through to decide whether to make a product in American or places like Mexico and China. The Atlantic concludes the products that will continue to be manufactured here are precision products and those made in small batches. Clearly many industries – like consumer electronics – are never going to make their products in American again.

The Atlantic article adds a description of the calculus that goes into deciding when to invest in machines to replace American workers. And makes clear that there are machines today that can do even more of the work that American factory workers now do, but for the moment are too expensive to replace relatively  low wage American factory workers. But as the price of the machines go down, more jobs will be automated.

What does all of this mean for factory floor employment in America? The Atlantic article sought answers in a fuel injector plant in South Carolina. As they explain there are two types of factory workers there. Quoting the plant manager: “Unskilled worker,” he narrates, “can train in a short amount of time. The machine controls the quality of the part. “High-skill worker,” on the other hand, “can set up machines and make a variety of small adjustments; they use their judgment to assure product quality.”

The unskilled workers in the plant make $13 an hour. Their job is to work with “machines that can work in only one way and require little judgment from the operator. … Computers eliminate the need for human discretion; the person is there only to place the parts and push a button.” These jobs are still in America as the article describes for two reasons: “First, when it comes to making fuel injectors, the company saves money and minimizes product damage by having both the precision and non-precision work done in the same place. Even if Mexican or Chinese workers could do Maddie’s (a low skilled factory worker) job more cheaply, shipping fragile, half-finished parts to another country for processing would make no sense. Second, Maddie is cheaper than a machine.”

The skilled worker’s job is much different. The article describes a worker that went through two years of education at a community college that included learning algebra, trigonmetry, calculus and computer programming. That prepared him for a job that pays around $19 an hour (50% more than the unskilled workers) and involves overseeing “several machines, performing on-the-spot quality checks and making appropriate adjustments as needed.”

The inescapable conclusion from these articles is that the number of low skilled factory workers in America is going to continue to decline. And what remains will pay around than the $13 an hour that Maddie earns or lower. At the same time there is a need for more high skilled factory workers. Products will still be made here in factories which are increasingly machine driven and staffed by far fewer and higher skilled workers who will make decent incomes.

America faces the twin challenges of too many workers with the skills to do low skilled factory work and too few workers with the skills to do high skilled factory work. Our ability to tackle either challenge is hindered greatly by an unwillingness to accept these realities. Rather we continue to search for how we can recreate the high paid, low skilled, mass employment factory-based economy of the past. Not possible! Factory work in America is going the way of American agriculture: highly productive, with few, mainly higher skilled, workers.

On the topic of welcoming to all (see my pledge of allegiance post) the Governor’s signing of the domestic partner benefit ban was a big step backwards. Two columns – one by Brian Dickerson in the Free Press and other by Tommy Allen for Mlive – capture how wrong and harmful that decision was. The Dickerson column says it all in its title: The good governor sides with the bigots. As does the title of the Allen column: Domestic partner benefit ban: Can Michigan experience economic recovery when we enshrine discrimination?

On places doing well economically despite supposedly high (to listen to the small government ideologues crushing) business costs check out a fascinating account in Bloomberg Business Week on Silicon Valley and an Economist article on New York City. These are two places that the right always pontificates about are in a state of permanent decline. As companies and people supposedly flee high tax/big government/high costs places. Wrong! Here is what Business Week says about Silicon Valley:

It was never clearer than in 2011 that Silicon Valley exists in an alternate reality—a bubble of prosperity. Restaurants are booked, freeways are packed, and companies are flush with cash. The prosperity bubble isn’t just a state of mind: Times are as good as they’ve been in recent memory. The region gets 40 percent of the country’s venture capital haul, up from 31 percent a decade ago, according to the National Venture Capital Assn. And the U.S. Bureau of Labor Statistics recently reported that growth of the area’s job market led the nation, jumping 3.2 percent, triple the national rate.

Some of that job growth is auto related. Ford just announced that they will be joining many auto companies in Silicon Valley. Why? Concentrated talent.

And then there is New York City (check out my recent posts here and here)  which as the Economists writes is doing well and is positioning itself to do even better in the future with their investment in the new Cornell/Technion campus. As they write:

Some $1.2 billion was invested by venture-capital firms in New York in 2010. The Big Apple even overtook Massachusetts in venture-capital funding for internet and tech start-ups, making it second only to Silicon Valley. And in the third quarter of last year, it surpassed it in venture capital in all categories. Between 2005 and 2010 employment in New York’s high-tech sector grew by nearly 30%. Google alone has about 1,200 engineers in the city.

Finally, as you know a central conclusion of ours from the years of research we have done on the characteristic of the most prosperous places around the country is that, with the exception of a few energy production states, the states that do well are anchored by a vibrant central city. As our Governor says Michigan can not succeed if the city of Detroit isn’t succeeding.

Dome Magazine published a terrific series of four columns by Craig Ruff on the importance of cities to Michgian’ success. You can find the first here. Definitely worth checking out all four. Ruff sums up how important this is to Michigan’s success this way: “Does Michigan need cities? Unequivocally, I say “yes.” Getting there is a whole ’nother kettle of fish. Why we, virtually alone and voluntarily, turned vibrant cities into detritus defines us and, very sadly, forecasts our future.”

State policy makers have moved from a bad idea, jawboning Michigan public universities to hold down tuition, to an even worse setting tuition caps and the media is constantly writing that Michigan parents and students are being screwed by too-high tuition at Michigan’s public universities. (Neither policy makers nor the media seem to care about even higher tuition and tuition increases at our private universities.)

For those interested in why college costs for in-state students at Michigan’s public universities is so high read the recent Bridge feature story. The primary reason – as they document – is state budget cuts to higher education over the past decade. Leaving Michigan in the bottom five in terms of state support per student.

What I want to focus on in this post is the issue of whether higher education – even with seemingly high tuition – is worth the costs or not and who should determine that value proposition: customers or government. The Bridge article features two cousins, one at the University of Michigan Ann Arbor paying $16,888 per year and the other at the University of North Carolina Chapel Hill paying $8,423. They describe the difference as a college user tax paid by Michigan families.

The assumption is that UM and UNC provide basically the same education. Back to Economics 101: the marketplace is telling us something very different. Non-resident tuition and fees (Bridge uses more than tuition and fees in their cost calculations) at UM Ann Arbor for incoming freshmen is $18,794 per semester, at UNC Chapel Hill it is $13,416. These prices are set by supply and demand based on paying customers – from anywhere on the planet – determination of what they get for their money from the two universities. Customers are telling us that UM Ann Arbor is worth a more than $5,000 (30%) per semester premium in price over UNC Chapel Hill.

Incoming in-state freshmen at UM Ann Arbor pay $6,220. A more than $12,500 (more than 65%) discount from the market price that students and parents from across the globe are standing in line to pay. Remember that UM Ann Arbor is turning away thousands each year who are willing to pay full price. For any other consumer purchase this would be considered a deal of the century price, not a tax! (Think buying a $50,000 luxury car at $17,500. Good deal or tax?)

And not only do in-state students get a huge discount from market prices they also are getting a terrific investment that pays high returns for a career (something like 40 years). As a recent Brookings study documents higher education is a far better investment than stocks, bonds or owning a home. Its not even close. As I wrote in a  previous post, this is even true if one has to take out substantial college loans:

… taking out loans for college is a good investment. And for those who are dedicated to getting a college degree is a far better option than not going to college because they cannot afford the tuition. Somehow as a society we have decided that college loans are a burden but taking out a loan to buy a home is a good investment. We urge new college graduates to buy a home at the same time that we bemoan the so called crushing burden of college loans. … Now there is evidence (the Brookings study) that not only is that not true, but that college is a better investment than stocks and bonds as well.

Should Michigan policymakers increase state aid to higher education and therefore increase the in-state discount?  Of course. We strongly believe the state should reverse the more than a decade of disinvestment in our terrific public higher education system. We have argued for years these cuts are stupid. How we could have fallen to the bottom five is mind boggling. College attainment is not only the single best predictor of individuals economic well being but also of state prosperity. It certainly is one of the keys to returning Michigan to prosperity.

But a lower in-state discount (its around 75% at UNC Chapel Hill) is not a tax.  And certainly not a justification for price controls. Back to Economics 101. Price controls – tuition caps – long term will lead to one of two results, both harmful. For those institutions with more demand than supply, they will take more students from outside of Michigan. For those who do not have waiting lists of students willing to pay market rates, they will reduce quality.

The basic lesson we need to learn is that in a highly competitive market place like higher education – there are thousands of choices at all price points and quality varieties – prices are set most efficiently by customers, not government. Customers are far better at figuring out what price is a good value and what isn’t than government.

Kudos to the Senate Democrats – led by Gretchen Whitmer – who have just released their Michigan 2020 plan. It makes college attainment the state’s economic development priority. It would provide substantial tuition payments dierctly to students to pay for a college education at Michigan’s universities  and community colleges. The annual investment would be $1.8 billion. And it is more than paid for. The Senate Democrats should be praised for advocating for more revenues. Through closing tax loopholes that don’t produce jobs, collecting sales tax on internet purchases (a la Indiana) and reforming the state contracting process. A major step in the right direction!

John Austin, chair of the State Board of Education, in a Dome article lays out a more expansive public investment agenda in an article that provides ideas on how to use the state budget surplus to grow the Michigan economy long term. Worth reading! He proposes increased spending in the areas of education, innovation, infrastuture, cities and the outdoors. All of which are essential to preparing Michiganders for the economy of the future and creating Michigan as a place where mobile talent wnats to live and work after college. Austin writes:

But for long-term job creation, Michigan needs more than a “business-friendly” tax and regulatory environment. We need strategic investment in Michigan’s assets that are the foundations of economic growth, and that the private sector doesn’t pay for: well educated people; strong, affordable universities driving innovation; clean lakes and rivers; modern transportation and communications infrastructure; cities with vibrant arts, culture, parks and libraries.

Also, in a reversal of course, good news on M1. Governor Snyder and Mayor Bing are back on board to make the Woodward light rail line a reality. Detroit’s business leadership and the Kresge Foundation have been great in insisting that this is an essential element to Detroit’s and the regions’ economic revival.

His policy agenda includes lots of interesting ideas, some put forward by others from both parties, some new. Worth exploring when you read the book. But the reality is we can’t get to those and other good ideas for how the federal government might help the economy as long as many Americans believe government is the problem. That is why I want to focus this post on the case he makes for active government and against what he calls our thirty year antigovernment obsession.

Clinton is willing to go where almost no Democrats have been willing to go since the 2010 elections. Taking the Tea Party on directly by making the case that active government is an essential ingredient in growing middle class American jobs. The book provides detailed evidence from America’s past as well as what is going on in the rest of the world to make a compelling case that the countries who are doing best are those using government to grow the economy.

One of the book’s most telling tables is about job creation during the administrations of every president from Eisenhower. Clinton’s two terms saw the largest job gains over those 14 presidential terms (56 years). More than 11 million new jobs for both of his two terms. The lowest job creation over that period are the two administrations of George W. Bush. Clinton’s approach to governing: higher taxes, particularly for high income Americans; fiscal discipline and active government engagement in growing the economy occurred while the country added 22 milllion jobs. The second President Bush’s approach to governing: lower taxes, particularly for high income Americans; a huge increase in the budget deficit and dramatically reducing the federal government’s involvement in the economy  occurred while the country added one million jobs.

Clinton concludes: “The antigovernment movement’s most cherished conviction is that we can’t raise taxes on the “job creators”.  And not just when the economy is weak – not ever. … The biggest problem with their argument is that we tried it their way for twenty of the last thirty years, and the strategy of using blanket tax cuts for high-income individuals didn’t work. In these twenty years, average job growth was under one million per year, income inequality increased dramatically, more people fell from the middle class back into poverty, and more middle-class people with non existent pay raises kept up with inflation by maxing out their credit cards and taking second mortgages on homes, until household debt exceeded 125 percent of income.”

And the same pattern holds true when you look internationally. Clinton provides detailed international rankings on a set of metrics related to economic well being as well as taxes. Not surprising the U.S. lags on most. Most interesting to me is the comparison between the United States and Germany. Germany, of course, has become exhibit #1 for the right on why America didn’t need a stimulus. Turns out they didn’t need a stimulus because they are a high tax country with an expansive permanent safety net and active government involvement in industries like manufacturing and alternative energy. All of which the right rails against. Between 1965 and 2009 taxes grew in Germany from 31.6 percent of GDP to 37 percent. Here they fell from 24.7 percent to 24 percent.

Clinton writes:”If the antigovernment activists are right, the countries catching up or surpassing the United States … must have done it by cutting taxes, spending and regulations – there is no other way. … Of the thirty-three nations in the OECD, we rank thirty-first in the percentage of GDP directed to taxes … and we are twenty-fifth in the percentage of GDP devoted to government spending. … The most important lessons you can take from this… is that in the twenty-first century, the American Dream requires progress we won’t achieve without effective government policies including direct investment, incentives to speed business and job growth, and public-private partnerships to create an environment where these things can happen.

What if the 2012 campaign were actually about the world in which we’re living and how we adapt to it? What would the candidates be talking about? Surely at or near the top of that list would be the tightening merger between globalization and the latest information technology revolution. … Therefore, the critical questions for America today have to be how we deploy more ultra-high-speed networks and applications in university towns to invent more high-value-added services and manufactured goods and how we educate more workers to do these jobs — the only way we can maintain a middle class. I just don’t remember any candidate being asked in those really entertaining G.O.P. debates: “How do you think smart cities can become the job engines of the future, and what is your plan to ensure that America has a strategic bandwidth advantage.”

Friedman’s prescription: The best of these ecosystems will be cities and towns that combine a university, an educated populace, a dynamic business community and the fastest broadband connections on earth. These will be the job factories of the future. The countries that thrive will be those that build more of these towns that make possible “high-performance knowledge exchange and generation,” explains Blair Levin, who runs the Aspen Institute’s Gig.U project

Whether you agree with his policy proposals or not, the key take away from the column is that globalization and technology are mega forces that are reshaping continually the global economy and that the places that do best economically will be those that adjust to and align with those new realities. Not those who try to recreate what worked in the past. But our politics – when it is about jobs and the economy – are driven by the desire of most Americans to get back the economy that worked for them in past. No politician can do that, but they will campaign on their ability to do that as long as that is what most voters want. The Friedman article is about the Republicans, but this holds true for both parties.

As I noted after the 2010 Michigan election, Governor Snyder got elected on a platform of transitioning the state to Michigan 3.0, but nearly all the legislature ran on restarting Michigan 2.0. This dynamic is being repeated so far in the 2012 elections. As long as this is the case, the public wanting and politicians running on making the old economy work again, public policy – from either party – is not going to address the core question Friedman laid out: How do we adopt and succeed in a world driven by the tightening merger between globalization and the latest information technology revolution?

The recommendations were developed by the Think Long Committee for California, a component of the Nicoloas Berrgruen Institute. In addition to Berrgruen, a billionaire investor, the Think Long Committee includes bi partisan heavyweights like Eric E. Schmidt, the chairman of Google; Gray Davis, a former Democratic governor; Eli Broad, a prominent philanthropist; and two former United States secretaries of state, Condoleezza Rice and George P. Shultz, both Republicans.

The report’s (found here) framework for growing the California economy:

• Create a positive business environment for job creation
• Reduce the personal income tax across the board while retaining California’s progressive tax structure
• Fund education by an additional $5 billion while fostering reform
• Provide $2.5 billion to the University of California and California State University systems to keep higher education within reach of California’s families
• Empower county governments and help reduce public safety costs by providing $1.5 billion in additional funding
• Provide $1 billion to California cities in block grants to meet their local needs
• Start paying down the state’s “wall of debt” and stabilizing the boom-and-bust budget cycle
• Give Californians real power to make government accountable
• Improve the process for making long-term economic policy

So an approach to growing the economy that includes lower business taxes and regulation, lowering the costs of and improving the quality of government services and a net tax increase to enable public investments in education, quality basic services and infrastructure.  The plan would largely be funded by a sales tax on all services except health care and education. The report says:

While we tax the sale of a donut eaten in a coffee shop, we don’t, for example, tax the sale of legal, consulting, accounting or architectural services. In essence, those who produce goods such as donuts or machinery are subsidizing those who produce services and information. To address these issues, the committee proposes to broaden the tax base while reducing personal income taxes across the board and bringing the corporate rate down to a competitive level in line with other states. However, the new tax code will have to produce a sufficient increase in revenues to reduce the state’s budgetary debt and in the longer term provide stable and growing funding for the services that are essential to long-term economic growth such as education, public safety and investment in infrastructure. (Bold added.)

The plan is clear on the goal of economic development – a broad middle class – and why public investments in higher education, k-12 and local government are essential to that goal.

They identify the goal as: “A guiding objective of the state’s long-term strategy should be to build a vibrant, job-creating business climate that can sustain a solid middle class while continuing to make California a welcoming place where families and individuals will want to reside.”

On why higher education matters: “For decades, California’s higher education system has been the envy not only of this country, but of the world. More importantly, it has been the incubator for innovative, entrepreneurial thinking and has fueled the growth of cutting-edge technologies. In recent years, however, it has fallen victim to decreased funding from the state, which threatens its ability to attract and maintain quality faculty, provide accessibility and affordability for all students, and preserve its infrastructure.”

On the importance of k-12 education: “Quality K-12 education is the foundation of any solid middle class society, providing opportunities for upward mobility. This is especially so in a knowledge economy that faces stiff competition globally and where students in other countries from Singapore to South Korea to China outperform California’s students. To ensure the state’s long-term competitiveness, California schools must be brought up to global standards.”

And on state support for local government: “Returning decision- making power and resources when appropriate from Sacramento to localities and regions where the real economy functions and government is closer to the people – and thus more responsive, flexible and accountable.”

In Michigan we have been pursuing for a decade or more the cut part of the strategy. Both taxes and public investments. And we have experienced arguably the worst decade in post World War II Michigan. What this bi-partisan group of Californians – with heavy private sector leadership – understands – but we still don’t – is that you can cut business taxes and the cost of government at the same time that you are raising taxes to fund the public investments which give you a far better chance of growing your economy. It is both/and, not either/or. The sooner we learn this lesson the more likely we get back on a path to prosperity.

I want to start the year by writing about those who provide lessons and/or ideas on the agenda that can allow us to move towards Governor Snyder’s goal of a Michigan 3.0. Seems like I spend a lot of time in these posts criticizing what Michigan is doing. Rather than complaining, I want to focus on what a positive agenda would look like. The bottom line: if others are doing it, so can we. We will have to choose a new course of action, but the choice is ours alone.

The elected official in America today who is most aggressively pursuing positioning his community for a 3.0/knowledge-driven economy is New York City Mayor Michael Bloomberg. He inherited a city already with many assets for a 3.0 economy: an entrepreneurial culture, a city that is welcoming to all as well as great public services and amenities that make NYC a place where mobile talent wants to live and work. To his credit Mayor Bloomberg is pushing to enhance those assets.

Unlike many, when the economy collapse at the onset of the Great Recession he raised taxes (yes raised, not cut taxes) to make sure that the city could maintain quality basic services and amenities. He has been an innovator in improving schools, a national voice for pro-immigration policies and an investor in infrastructure, parks and the arts all of which enhance NYC as place that can compete globally for talent.

But maybe his biggest and most impactful action has been to sponsor a competition to lure a brand new engineering and technology higher education campus to the city. Talk about outside the box and making a big bet! A mayor getting involved in funding higher education. But Bloomberg understands that higher education – particularly research universities – are a critical economic driver in a knowledge-driven economy. Quite simply you want to be the place where new knowledge is being created and new talent is being prepared. The city offered as an incentive land as well as $100 million in infrastructure improvements.

The New York Times reports that Cornell University in partnership with Technion-Israel Institute of Technology won the competition over such prestigious competitors as Stanford, Columbia and Carnegie Mellon. According to the Times the plan calls for about 280 faculty members and 2,500 students in master’s and doctoral programs. The schools have also committed to training at least 200 teachers each year in science education, and to help teach at least 10,000 students, from kindergarten through 12th grade, each year. The initiative includes a $150 million venture capital fund for start-up companies that agree to remain in New York for three years, as well as math and science education support for 10,000 city children. They estimated that building the campus would create 20,000 construction jobs, and that it would spin off 600 new businesses over the next generation, creating 30,000 more jobs and as much as $1.4 billion in tax revenue.

Contrast that to Michigan’s approach to higher education the last decade. Cutting spending by nearly a third, imposing price controls and increasingly micro-managing from Lansing how universities operate. I’m sure there wasn’t anything in the NYC competition that asked universities about whether they offer domestic partner benefits, or placed conditions/restrictions on stem cell research, or affirmative action restrictions or whether or not they have tenured professors who are not teaching full time or placed limits on the tuition they charge. All misguided obsessions here. Ask yourself: “who is positioning themselves better for Governor Snyder’s 3.0 New York City or Michigan?”

This competition is not just about how a state or city value higher education – as a powerful asset for economic growth or wasteful spending institutions that need to be reined in. It is also about whether there are essential assets that matter to economic growth that communities need to invest in whether times are tough or not to be globally competitive. Mayor Bloomberg’s higher education play is entirely consistent with Denver in the 80s, when its economy collapsed, deciding that to be globally competitive they needed a world class airport and Portland in the 70s and Salt Lake City in the 90s deciding that to be competitive they needed rail transit or California in the 50s committing themselves to building a comprehensive, world class higher education system. The list goes on and on. The lesson is clear: public investments in strategic assets are essential to globally competitive states and regions.

Once again contrast that list of impactful public investments to what is happening here. Where we are letting our roads crumble, walking away from the Woodward light rail even with private investors putting $100 million on the table, weakening what was once one of the great higher education systems on the planet, etc. Once again, ask yourself “who is positioning themselves best to win in a flattening world, those who make big strategic public investments or those – like us – who don’t?”

What is not included in most of those stories – or the self-congratulatory public conversation here – is that the preeminent reason for the success of the domestic auto industry and for Michigan’s recovery is an $86 billion federal government bailout of the auto industry. No bailout, no turnaround. End of story.

Funded by the Bush Administration and implemented by the Obama Administration, the federal government rescued the domestic auto industry – and the industrial Great Lakes – from collapse. Rather than Michigan job growth in the tens of thousands, without the bailout there would today be hundreds of thousands more Michiganders out of work. General Motors and Chrysler would be gone (think Borders). And lots of the supply base would be gone as well. Not only did they receive part of the $86 billion, but many could not have survived the loss of two of their major customers. And that supply base is not just manufacturers, it includes lots of knowledge-based businesses in pre and post production work for the auto industry.

So lets celebrate. The last decade was awful and it looks like we are on track for growth again. But also lets learn the right lessons for why we are recovering. First and foremost is that government – big government, the federal government – if done right, is a positive force for economic growth. Make no mistake this is the ultimate big government intervention. Not just a huge amount of taxpayers money to allow the companies to pay their bills, continue to operate. But also intervention in decisions on how to run the companies and structure the industry. There is a reason his many critics have labelled this exhibit #1 of Obama the socialist.

From firing the high-paid, top management that led the companies into bankruptcy, to walking away from stock and bond holders, to closing dealerships, to eliminating brands, to lowering labor costs and ending uncompetitive work rules, the federal government forced changes that the companies and unions would and/or could not do on their own. This was active government at its most assertive.

The Economist magazine is one of the few critics of the bailout which has publicly admitted they were wrong. That federal government intervention worked. See their article “Government Motors no more. An apology is due to Barack Obama: his takeover of GM could have gone horribly wrong, but it has not.”

Froma Harrop, in a terrific column responding to the Economist article, wrote:

Two years ago, General Motors and Chrysler were headed for oblivion. Letting these companies reorganize under normal Chapter 11 bankruptcies, as many free-marketeers advocated, would have ended in failure. … The industrial Midwest could have utterly collapsed. The psychological blow of seeing GM — the symbol of American manufacturing might — go down amid a terrifying Wall Street meltdown would have spread economic disaster coast to coast. Thanks to the government intervention, General Motors is out of bankruptcy and again turning profits. Chrysler is stabilized. … The $86-billion bailout was a gamble, all right, but it was a bet that America won. And it was won not through dumb luck but the administration’s skilled management of the bankruptcy. And the good news keeps coming.

Thanks to the federal government, Michigan has a big head start on repositioning itself for economic growth. There is a long way to go to return to our former status as one of the country’s most prosperous states. To get there we need to relearn the lesson that the bailout should have taught us: that active government has functions that it can uniquely do that are essential to long-term economic growth.