Articles written by Lou Glazer
Two terrific articles on the declining role of manufacturing in the American economy. One from Bloomberg Businssweek entitled Factory Jobs Are Gone. Get Over It. The other a Steve Rattner column for the New York Times entitled The Myth of Industrial Rebound.
Both clearly present the overwhelming data that manufacturing employment has been and will continue to be a smaller and smaller part of the American economy. And the unwillingness of elected officials of both parties to recognize this reality.
The fact that President Obama, Governor Snyder or any other national or state policy maker declare manufacturing a vital component of job creation and/or rebuilding the middle class won’t make it so. Globalization and technology–the drivers of the manufacturing decline–trump politics and policy. End of story!
The facts: As Businessweek writes:
Any attempt to draw lessons from the 1950s, when many a high school-educated (white, male) person got a job in a factory and joined the middle class, doesn’t account for the changes in the U.S. and global economy since the middle of the last century. While it’s smart to focus on creating more stable, remunerative jobs, few of them are likely to come from manufacturing. In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).
Rattner in addition to reviewing the data on job loss also deals with the new reality that blue collar factory jobs no longer pay high wages. And the combination of the two–fewer jobs and lower wages–make manufacturing not the path to rebuilding a mass middle class. He writes:
But we need to get real about the so-called renaissance, which has in reality been a trickle of jobs, often dependent on huge public subsidies. Most important, in order to compete with China and other low-wage countries, these new jobs offer less in health care, pension and benefits than industrial workers historically received. …
For all the hoopla, the United States has gained just 568,000 manufacturing positions since January 2010 — a small fraction of the nearly six million lost between 2000 and 2009. That’s a slower rate of recovery than for nonmanufacturing employment. “We find very little real evidence of a renaissance in U.S. manufacturing activity,” a recent Morgan Stanley report stated, echoing similar findings from Goldman Sachs. …
This disturbing trend (declining wages) is particularly pronounced in the automobile industry. When Volkswagen opened a plant in Chattanooga, Tenn., in 2011, the company was hailed for bringing around 2,000 fresh auto jobs to America. Little attention was paid to the fact that the beginning wage for assembly line workers was $14.50 per hour, about half of what traditional, unionized workers employed by General Motors or Ford received.
With benefits added in, those workers cost Volkswagen $27 per hour. Consider, though, that in Germany, the average autoworker earns $67 per hour. In effect, even factoring in future pay increases for the Chattanooga employees, Volkswagen has moved production from a high-wage country (Germany) to a low-wage country (the United States). (Emphasis added.)
As we explored in our latest report, rather than manufacturing, the key sector of both job and personal income growth (the two together create a mass middle class) in America going forward are knowledge-based services. That is where the combination of job growth and high wages have been, and almost certainly will continue to be, the strongest.
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MSU economics professor Charles Ballard just gave a terrific presentation on the Michigan economy. Highly recommended!
Ballard’s main themes are:
- Michigan’s population decline has followed its economic decline
- Michigan has moved from being a high to low prosperity state
- The main causes of the decline are both the decline in manufacturing employment and Michigan’s standing as a low college attainment state in an economy where the premium for a college degree is rising
- Michigan policies have contributed to that decline by favoring tax cuts at the expense of higher education funding. Ballard writes: “At a time when education is so crucial to our future, Michigan has pursued a policy of systematic disinvestment in education.”
- The long run decline in Michigan has been accompanied by growing income inequality particularly for men without college degrees and African Americans.
The slide above, from Ballard’s presentation, clearly depicts the Michigan decline. In the Industrial Age (through the 1970s) when manufacturing matter most, Michigan was at least as prosperous as Massachusetts. But in an economy that is over the past three decades or more increasingly knowledge based, Massachusetts has soared while Michigan declined sharply. The main reason: Massachusetts is first in college attainment, Michigan is 35th.
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Had an opportunity to talk with the Ann Arbor City Council about the economic future of the city. (For an excellent summary of the session see this MLive article.)
My remarks and the conversation was mainly about retaining and attracting college educated Millennials. But we also had a chance to discuss Ann Arbor being part of the Detroit metropolitan area. To me these are the two keys to whether Ann Arbor really is an economic engine for the region and state that many believe it can and will be.
You need Ann Arbor to be a talent magnet plus the ability to draw talent from the much larger Detroit metro to have the human capital base that is needed to be an economic engine. The centerpiece of my talk to the City Council is that human capital now is the asset that matters most to economic growth. Companies–particularly private sector knowledge-based enterprises–are moving to where the talent is, rather than people moving to where the jobs are. And at the moment Ann Arbor does not have a large enough pool of talent to draw from to grow at scale a robust private sector.
As I have written previously Ann Arbor has for years pursued policies that are anti both population growth and particularly residential density. Of course, that is exactly the wrong approach if you want to attract young professionals. Who are increasingly choosing, after college and before kids, to live in high density, mixed used, walkable urban neighborhoods.
The result is that Ann Arbor is not doing particularly well at retaining and attracting young talent. From 2005-2012 the number of 25-34 year olds with a four year degree or more living in Ann Arbor stayed constant at about 16,000. This compares to a 17 percent increase in the cohort nationally. By contrast Madison, the most successful university-driven economy in the Great Lakes–has seen its young talent population grow since 2005 from 22,400 to 29,700. An increase of nearly 33 percent. To be an economic engine Ann Arbor needs to be as competitive as Madison in retaining and attracting young professionals.
An advantage that Ann Arbor has that Madison doesn’t is that it is part of a metropolitan area of about five million. Economies are regional, not state or local. This is an economy where big metros are winning largely because they are where talent is concentrating. You want and need access to the largest possible pool of human capital to recruit workers from to grow at scale private sector knowledge-based employers.
Unfortunately too many people–and leaders–in Ann Arbor want the city (and county) to not be considered part of metro Detroit. Big mistake! And to make matters worse the State of Michigan has just announced their take on regions and it separates Ann Arbor from metro Detroit. Even bigger mistake!
The State has put Ann Arbor in a region of Washtenaw, Livingston, Monroe, Lenawee, Jackson and Hillsdale counties. If this really were the region Ann Arbor/Washtenaw County employers were drawing workers from, its economy would be much smaller today and would experience slow growth going forward. Regions this small cannot take advantage of a major research university. Which, of course, is Ann Arbor’s main asset. (Think Champaign-Urbana.)
As I said to the City Council the most important ingredients to the future prosperity of Ann Arbor is if both Detroit and Ann Arbor become talent magnets. The two cities because of the preference college educated Millennials have for central city living. If they aren’t attracting young talent Ann Arbor and metro Detroit (including Ann Arbor) are going to have a hard time developing the talent pool necessary to participate at scale in the growing, high wage knowledge economy.
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Conventional wisdom seems to be that a generous safety net reduces the number of people that work. The thinking goes if you pay people enough not to work, they won’t seek and find work. Acting on those beliefs, Michigan, particularly in the last three years, has slashed the state’s main safety net programs: cash benefits, food stamps and unemployment insurance.
Those cuts have made life more difficult for low income Michiganders. What it hasn’t done is increased the proportion of Michiganders with a job. As we explored previously from the month before the Great Recession began (November 2007) through November 2013 the employment-to-population ratio in Michigan has fallen from 59.8 percent to 54.8 percent. If Michigan had the same proportion of adults working today as six years ago there would be 392,000 more working Michiganders today. Only seven states have lower employment-to population ratios. So much for slashing the safety net leading to more Michiganders working.
Minnesota, the Great Lakes state with the best economic outcomes, has a much more generous safety net than Michigan. For example they provide up to 26 weeks in unemployment benefits at a maximum of $610 per week compared to 20 weeks and $362 in Michigan. TANF benefits for a single parent family of three in Minnesota is $532 per month with a 60 month lifetime limit compared to $492 and 48 months in Michigan.
Minnesota’s employment-to-populatio ratio has fallen far less than Michigan’s over the past six years. Declining from 68.7 percent to 66.8. If the same proportion of Michiganders were working today as Minnesotans there would be 941,000 more Michiganders working today. Only three state have a higher employment-to population ratio. So much for Minnesota’s more generous safety net keeping people from working.
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Grand Rapids Mayor George Heartwell’s latest State of the City Address is terrific. Worth reading. It lays out an agenda for making Grand Rapids a place where people from across the planet want to live and work. Its an agenda that other Michigan cities should want to adopt as their own. And the state too.
Heartwell begins his agenda with Champion of Diversity. With an emphasis on friendly to immigrants. He says: “Immigration is crucial to our economy and immigration is a bedrock principle of our American life. We have always been a people who throw our arms wide in welcome.”
Then talent. He says: “Talent comes in all shapes and forms and colors and ethnicities. It is home grown and it finds its way here from someplace else. It is the young entrepreneur and the seasoned research scientist; the designer, the architect, the programmer, the doctor, the professor. In a knowledge economy such as ours talent is wealth. The cities that retain and attract talent are winning; the others are losing. … Talent today is measured in post-secondary degree attainment. We must do better.” (Emphasis added.)
Exactly! His formula: better schools from early childhood on and, because talent is increasingly mobile, retaining talent after they graduate from college. He recognizes that the provision of quality basic services and amenities are crucial to retaining and attracting residents. Specifically he speaks of the importance of parks; roads; transit (including considering street cars!); biking and walking friendly and street lighting.
On all these issues the city is hindered by state policy. The Mayor emphasized the Legislature’s unwillingness to increase transportation funding. Which matters a lot, but so does a decade or more of revenue sharing and education (particularly higher education) cuts. And an ambivalence, at best, about being welcoming to all (including, but not limited to, immigrants).
We need state, regional and city policy across the state that starts with as the Mayor puts it: “In a knowledge economy such as ours talent is wealth.” That is the starting point of constructing an agenda that will put Michigan back on the path to prosperity. Because unless we increase the education level of those who choose to live and work here we are going to be one of America’s poorest states.
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At the core of Michigan Future’s work has been the belief that globalization and technology are mega forces that are and will continue to transform the economy. And that both are more powerful by orders of magnitude than policy or politics. That means, as we explored previously, that more and more work that humans have done in the past––at all skill levels––are going to become obsolete.
In a terrific article for Wired Kevin Kelly details the extent that machines are likely to destroy current jobs/occupations. The article is entitled Better Than Human: Why Robots Will — And Must — Take Our Jobs. Kelly writes:
It may be hard to believe, but before the end of this century, 70 percent of today’s occupations will likewise be replaced by automation. Yes, dear reader, even you will have your job taken away by machines. In other words, robot replacement is just a matter of time. This upheaval is being led by a second wave of automation, one that is centered on artificial cognition, cheap sensors, machine learning, and distributed smarts. This deep automation will touch all jobs, from manual labor to knowledge work.
Kelly is an optimist in terms of what this means for humans. That we will dream up new, more rewarding and higher paid work for humans to do. He writes:
This is not a race against the machines. If we race against them, we lose. This is a race with the machines. You’ll be paid in the future based on how well you work with robots. Ninety percent of your coworkers will be unseen machines. Most of what you do will not be possible without them. And there will be a blurry line between what you do and what they do. You might no longer think of it as a job, at least at first, because anything that seems like drudgery will be done by robots.
We need to let robots take over. They will do jobs we have been doing, and do them much better than we can. They will do jobs we can’t do at all. They will do jobs we never imagined even needed to be done. And they will help us discover new jobs for ourselves, new tasks that expand who we are. They will let us focus on becoming more human than we were.
Others are not so sure. Predicting a future with fewer and lower paying jobs. No one really knows whether the economy will produce enough new jobs to replace those that have been automated away.
What is clear is that how we construct a successful career will look, for nearly all of us, a lot more like rock climbing than ladder climbing. There will be fewer and fewer career ladders where there are linear, known steps up that allow one to be prosperous over a long career. Rather those that succeed will be able to identify both the challenges and opportunities brought on by constantly smarter machines and have the agility and skills to take advantage of new opportunities.
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In an interview with the New York Times, new Detroit mayor Mike Duggan said: “Everything that we are doing, from the time we get up in the morning, we’re thinking about: How are we going to build the city where the population is growing again?” Mr. Duggan said. “And that’s ultimately what’s going to define this: Do more people want to move in, or do more people want to move out?”
Great news! Its exactly the approach the city and state needs. Mayor Duggan is defying the conventional wisdom that the city needs to shrink to survive. Growing the city’s population is the only strategy that can lead to the vibrant Detroit that everyone says is critical to the city’s, region’s and state’s success. For Detroit to be that vibrant city, it must move from a managing the decline agenda –– which is what most everyone has wanted from the city’s leadership –– to a growth agenda.
I laid out the reasons why a growth agenda matters and what needs to be done in an April 2011 post:
… the city of Detroit should focus on growing, not shrinking. … Detroit’s problem is not that there is no demand for central city living. The last two decades have seen a rebirth of urban neighborhoods that were written off as dead across the country. They have largely been revitalized by a combination of immigrants and college educated households – mainly young and without children. Detroit’s problem is that it has not participated at any scale with these trends. Detroit needs an agenda to take advantage of the renewed demand for city living.
… Governor Snyder was both courageous and right when he campaigned across the state with the message that Michigan cannot succeed unless Detroit succeeds. The reality is there is a clear pattern across the country: the most prosperous states are either rich in energy resources or are anchored by an even more prosperous big metro with a vibrant central city.
The revitalization of Detroit that is enabling growth has been led by foundations, anchor institutions, business leaders and community development organizations. The Hudson-Webber Foundation and Dan Gilbert have been particularly visionary in their leadership. As well as the energy and dedication of the young professionals who now call Detroit home.
It is time for city, regional and state policy makers to get more active. The region and state have a big stake in Detroit becoming a talent magnet. As we have written before the priority for city leadership is to be far more welcoming to all, development friendly and to provide quality basic services – starting with safety – and amenities. For the region and state the priority is to help with the investments that matter: starting with making Woodward light rail a reality but also finding ways to reverse the cuts in revenue sharing and the ending of historic preservation and brownfield tax credits. At the moment city policies and practices as well as regional and state policies are a headwind hindering Detroit’s growth. That needs to change!
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Ron French writes in his terrific Bridge article on projected Michigan job growth from 2013-2023: “Bridge Magazine economic projections paint a Scrooge-like portrait of the state economy over the coming decade. But that’s just one possible future. In the Charles Dickens story, Scrooge is scared enough to change his ways. Is Michigan prepared to change?”
Exactly the right conclusion–– Michigan doesn’t have to be one of the worse states for job growth the next decade––and the right question. Because we won’t do better unless we dramatically change the course we are on.
French continues with what the needed change looks like to him: “It won’t be easy. For Snyder and other state leaders, it means facing some uncomfortable truths about Michigan’s future, and taking steps that might not always be popular in the short run. More money for education, starting with toddlers’ first steps and continuing until they walk across a stage with a college diploma. More money to repair and replace our crumbling roads and bridges over which new business and new residents must travel. More of a willingness to invest in the present, to stave off a Dickensian future.”
French interviewed Michigan State University economics professor Charles Ballard on the changes we need. The answer:
To Ballard, it includes investment in roads and schools. And by investment, he means taxes. “Tax cuts have overwhelmed all other policies for the past 20 years,” Ballard said. “You certainly don’t want to raise taxes and throw the money away. Nobody loves to pay taxes. But I’d be willing to pay more taxes for better roads. The expansion of early childhood (education), that’s one success. Education and fixing roads and bridges are very important in positioning ourselves for economic growth. But we have continued to have massive disinvestment in higher education.”
More public investments, which require higher taxes, is at the core of Michigan Future’s policy framework. (With being welcoming to all.) Three years ago in a post on what was likely to happen in 2011 I wrote:
… If 2011 is to be a start of a long term Michigan economic recovery it will be because Governor-elect Snyder gets us on the path to the Michigan 3.0 he promised in his campaign. The challenge is that most of the legislature that got elected with him campaigned on restoring Michigan 2.0. The decision we make on which direction to go is what matters most in 2011. It will go a long ways towards defining our economic future.
Move towards Michigan 3.0 and we can once again be one of the most prosperous places on the planet. Stay as Michigan 2.0 and we will continue to lag the nation. What appears to be the preeminent vision of a successful future Michigan is an economy still anchored by factories, farms and tourism. And a policy agenda to get us back to our past success largely through smaller government and weaker unions. If I had to predict where we will go in 2011 it is towards that vision and agenda.
But if we go in that direction I also predict it won’t work.
There are some hard truths that Michiganders needs to confront: Michigan’s prosperity in the last century was built primarily on good-paying, lower-education attainment jobs. Those jobs are gone forever. … If the Michigan economy of the future is built on a base of factories, farms and tourism we will be a low-prosperity state. The world has changed fundamentally. We either adjust to the changes or we will continue to get poorer compared to the nation.
The alternative – Michigan 3.0 – is a Michigan concentrated in the knowledge-based sectors of the economy: health care, education, finance and insurance, professional and technical service and information. These are the fast growing and high wage sectors of the American economy today and tomorrow.
To get there requires first and foremost that Michiganders get better educated. Nearly all the states and regions with the highest incomes will be those with the highest proportion of adults with a four-year degree or more. The policy agenda to create Michigan 3.0 is focused on public investments in education and quality of place. With a particular emphasis on higher education and central cities. The first to prepare Michiganders for the economy of the future, the second to retain and attract mobile talent which increasing is choosing big metros anchored by vibrant central cities.
The Michigan turnaround, compared to the nation, will start only when we focus on improving our ranking of thirty fourth in college attainment. That is our fundamental challenge. Low education attainment regions and states will be low prosperity regions and states. We can do better! But it will require us letting go of what made us prosperous in the past and getting on a new path: one that is aligned with new realities.
Unfortunately the prediction that policy makers (Administration and legislature) would choose 2.0 and a policy agenda “to get us back to our past success largely through smaller government and weaker unions” turned out to be true. And by choosing that vision and agenda they have chosen to take us in the direction of slow job and personal income growth. Staying on that path is what leads to being 49th for another decade. Its time to get on a new path.
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