Articles written by Lou Glazer
Happy New Year!
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?”
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Michigan and the domestic auto industry – the two are still inextricably linked – are now deservedly receiving national recognition for their comeback from a decade of decline. No longer worse in the nation, now a symbol of hope in what is still a bad national economy.
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.
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It goes from bad to worse when it comes to transit in metro Detroit. First the city and state walking away from the Woodward light rail, now the city of Troy refusing to take federal funds for a transit center. What makes Troy worse is that the vote is only partially about not valuing transit, it also is about keep “them” out.
In each case the cancelled projects were strongly supported by the business community. They understand – as apparently our elected officials don’t – that transit is an economic growth asset. This is becoming a pattern that goes far beyond transit. Business leaders are far ahead of state and local officials when it comes to what matters in a knowledge-driven economy. As I have written previously businesses understand that welcoming to all is an economic imperative in a world where talent – which comes in all of human varieties – is the asset that is the most important to economic success. On gays, immigrants and affirmative action, as well as the importance of quality of place public investments like transit, they are far ahead of policy makers.
As readers of these posts know I often ask “what planet are they living on?” for folks who advocate positions that are so clearly out of line with what is going on in the real world. It may be that the more appropriate question is “what century are they living in?”
In an insightful, must-read Free Press column entitled “In Troy, an all-too-familiar fear of the other”, Brian Dickerson makes this case as well as I have read anywhere. Dickerson writes:
To be a hick in 2011, then, is to be in a state of denial — which is why “hicks” is precisely the right word to describe Troy Mayor Janice Daniels and the like-minded elected city leaders who’ve sent Troy reeling backward in time, grasping for a past that is not so much racist or unsophisticated as it is, well, past. … Daniels & Co. invoked a series of spurious arguments to defend their decision, including the claim that they were striking a blow against federal spending. … But their real motive was transparent: the fear that outsiders currently disinclined to visit Troy may do so if enticed by a modern train station and convenient parking, at an incalculable cost to Troy taxpayers and their way of life. To dismiss this sort of thinking as bigotry is almost beside the point; it’s simply bad policy, predicated on a world that no longer exists. There may have been a time when communities could compete effectively for residents and employers by making themselves less accessible to surrounding municipalities, but that time is a distant memory. The era when the absence of public transit was a boon to property values may never have existed at all.
Dickerson quotes a lobbyist for Magna International, a huge multi-national auto supplier who is a big employer in Troy, as saying that he would encourage the company to reduce its footprint in Troy and look elsewhere for expansion opportunity. So much for the claim from policy makers that we need to be more business friendly and jobs are priority 1!
Andrew Basile Jr., an owner of the Young, Basile law firm in Troy, in a letter to the Troy Chamber – a strong supporter of the transit center – forcefully makes the case that these kind of actions are anti-economic growth. Basile wrote:
… I believe her (Mayor Daniels) whole “debt” rationale is disingenuous. If it were federal money for a hospital or a highway overpass, I cannot imagine her turning it away. This may be therefore really an attempt to thwart transit for motives that, in my opinion, are closed-minded. … One might be ready to overlook one or two bad decisions by the mayor were they not coming on the heels of her disgraceful handling of the controversy surrounding her Facebook post on gay marriage. From her post itself through her response to the public outcry, she seems wholly unconcerned with the economic wellbeing of Troy, at least insofar as it may impinge on her freedom to publicly display herself as a classless, tasteless bigot. It’s bad for business for Troy to have a mayor who harbors (much less publicly voices) anti-gay perspectives. She might as well have taken out a full page ad in the Detroit News admonishing corporations not to locate in Troy. That she does not appear to understand this is both telling and troubling.
Michigan policy makers need to learn quick what Michigan employers know: being welcoming to all and making public investments that create places where talent wants to live and work are economic growth imperatives.
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The news that the city and state have walked away from the Woodward light rail (M1) is not a good way to end the year. Big mistake! M1 – and not a bus rapid transit system which is now the preferred alternative – is the most powerful potential long-term game changer for Detroit. For a city that desperately needs a game changer.
What is the difference between bus and rail transit? Buses are an effective way to move people. Rail transit is primarily a powerful catalyst of economic growth. As Megan Owen, Executive Director of Transportation Riders United, is quoted in a terrific overview Free Press article on M1: “Weʼre basically throwing away a $3- billion economic development investment.”
Several years ago at a Urban Land Institute (ULI) Michigan Real Estate forum I heard a presentation on the Portland, Oregon street car system put in place in the 70s. It was described as development oriented transit. The city made the investment first and foremost for rail transit’s ability to stimulate and steer economic development, not to move people. And it paid off! Portland’s boom has been very much rail transit driven.
And cities and regions across the country, except here, learned the Portland lesson. Including Salt Lake City which for more than a decade has and continues to invest in building an extensive light rail system as a lynchpin of their economic growth strategy. You read that right: red state, small government, low tax Utah investing taxpayers money in a light rail system.
This year at the ULI forum I was on a panel where one of the speakers said that national retailers are increasingly making new investments in central cities along light rail lines. Light rail, not bus lines – rapid or not. They too understand that light rail uniquely spurs and concentrates development. It is a particularly powerful attractor of young professionals that the city, region and state so desperately needs for its future economic growth.
Unfortunately our city and state elected leaders don’t seem to have learned that lesson. We are walking away from this powerful economic development initiative because as the Free Press report the lack of $10 million dollars a year in operating funds. $10 million a year would bring billions in economic growth and we won’t even try to raise the funds. Not smart!
The folks that get it are metro Detroit’s private sector leadership. The hopeful news is that the Kresge Foundation and Detroit’s business leaders are not taking no for an answer. As Crain’s Detroit Business reports, they sent a letter to the Mayor and Governor supporting development of M1 from downtown to the New Center area. They wrote: “Detroit is at a critical juncture,” the funders wrote in the letter. “The need for a powerful catalyst to spur investment, attract new residents and businesses and help restore the city’s tax base is urgent.”
In another Crain’s article Dan Gilbert put it best: “Detroit has a chance to make a decision. Does it want to be a second-class city or a first-class city? These kinds of decisions, like we are seeing right now, won’t allow us to compete as a first-class city,” he said.
And they have put their money where they mouth is. As Crain’s writes:
Signing the letter were Kresge President and CEO Rip Rapson, Penske Corp. founder and M1 Rail Chairman Roger Penske, Quicken Loans Inc./Rock Financial founder and M1 Vice Chairman Dan Gilbert and M1 CEO Matt Cullen. Compuware Corp. founder Peter Karmanos Jr.; the Ilitch family, which owns the Detroit Tigers, Detroit Red Wings and Little Caesar Enterprises Inc.; Henry Ford Hospital; and Wayne State University joined the other private funders in each having committed $3 million for the display advertising rights to a station along the planned rail’s route.
The lead funder is the Kresge Foundation which has committed $36.7 million to the project.
As we have written often, in a state where many candidates get elected by bashing Detroit, Governor Snyder deserves enormous credit for his courage to campaign across Michigan that for Michigan to succeed Detroit must be successful. He understands better than any Michigan governor since Bill Milliken that the most prosperous states in the nation are those with a high prosperity big metropolitan area anchored by a vibrant central city.
Now is the time to put that understanding into action. We need the Governor along with city and regional elected officials to join with business and philanthropic leaders to make M1 a reality and to put in place what we all so desperately need and want, a powerful spur for economic growth.
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Travelled to Manhattan over the Thanksgiving holiday. Wow! I’m always amazed at its vibrancy and prosperity. And then I come back to Michigan and get reengaged in the public conversation about our economy. A greater disconnect is hard to imagine.
Here the dominant narrative about the economy is that everything that makes Manhattan a powerful engine of economic growth is what has or will ruin the Michigan economy. How we can continue to believe that narrative when it so obviously fails to explain what is occurring in the real world is beyond me. If that narrative were right Manhattan would be Detroit. Characterized by widespread abandonment by both non-poor households and businesses.
Manhattan is probably the highest cost place to do business in America. Not only high state and local taxes, but also high labor costs and, maybe most important, sky high real estate prices. In many ways it is the poster child for big government: big police and fire departments; big park system; public support for the arts; transit, transit, and more transit; one of the few cities with safety net programs over and above the state and federal safety net and on and on and on. Add to that lots of regulation, powerful public employee unions, lots of renters; sky high density; lots of immigrants, gays and folks of different races, religions and ethnicity and you have a recipe for what we are constantly told leads to economic disaster. Wrong!
Instead it is a place where knowledge-based businesses from across the planet are increasingly concentrating. It is one of America’s great centers of innovation and entrepreneurship. A place where the affluent (the 1%) and talent concentrate. It all adds up to one of the most successful economies in the country. So strong that it is the main engine of a metropolitan area of more than 22 million people (more than twice Michigan) in four states. A metropolitan area that is the third most prosperous big metro in the country, with a per capita income of more than $52,000. ($18,000 higher than Michigan’s.)
Turns out in the real world all those so-called liabilities are assets that lead to prosperity. A big city that works, a government that provides quality basic services and amenities, terrific alternatives to driving, density and welcoming to all. Combine those features with an entrepreneurial culture and you have a place where talent – from across the planet – wants to live and work. And where talent concentrates you get growth and prosperity, not decline and falling income and employment. To get back on the path to prosperity Michigan needs far more – not less – of what Manhattan has.
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Governor Snyder’s special message on talent is quite remarkable. The fact that there was a special message – reserved for only the state’s top priorities – on talent is noteworthy in and of itself. Believe me talent never before has received this kind of high profile attention by a Michigan governor.
Highlights of the message include a continuation of the Governor’s insistence that Michigan be friendly to immigrants including a call for Congress to take action to make it far easier for foreign born college graduates to stay and work in the U.S. And a recognition that quality of place is an essential ingredient to concentrating talent here. That creating places where talent wants to live matters along with preparing talent.
But what makes the message extraordinary and possibly transformational is that the Governor writes: In the 20th century, the most valuable assets to job creators were financial and material capital. In a changing global economy, that is no longer the case. Today, talent has surpassed other resources as the driver of economic growth. Talk about a complete break with the past!
For decades state and local economic development has been based on a belief that providing incentives to financial and material capital is how you grew the economy. Hardly anyone debated whether there were any other options. In this message Governor Snyder asserts that not only is there another option, but that talent is now the preeminent driver of economic growth. This means that actions that concentrate human capital should be economic development priority #1. Preparing (the subject of most of the message’s proposals), retaining and attracting talent are the actions that matter most to whether Michigan has a strong, prosperous economy in the future.
Evidence that as the Governor writes today talent has surpassed other resources as the driver of economic growth comes from the strong and growing alignment of college attainment and state per capita income. Of the top 15 states in the proportion of adults with a four-year degree or more, 13 are also in the top 15 in per capita income. Michigan’s fundamental problem is that we are now 36th in college attainment. Unless we fix that we are going to be one of the country’s poorest states.
Dome Magazine published a column I wrote comparing the Indiana and Minnesota economies. Indiana is a state that is viewed as offering the most business friendly environment in the Great Lakes and because of that has been held out for decades as a state Michigan should model. In the Governor’s words it has pursued a strategy of being friendly to financial and material capital. Minnesota on the other hand is the Great Lakes state with the highest proportion of adults with a four-year degree or more.
Indiana, in the 2011 state rankings by the well-respected conservative Tax Foundation, is the highest ranked Great Lakes state on both overall state business climate (10th) and corporate tax index (21st). Minnesota is the worst-ranked Great Lakes state by the Tax Foundation — 43rd from the top on its overall state business climate index. And its ranking of 44th on the corporate tax index is only better in the Great Lakes than Michigan’s ranking of 48th. On the other hand, Minnesota is the Great Lakes state with the highest college attainment rate, Indiana the lowest. So the two states offer a real world test of the Governor’s assertion that today talent trumps financial and material capital.
My Dome article details the economic performance of the two states on both employment and income metrics as well as both current levels and growth. The bottom line: on every metric of economic well being residents of Minnesota are doing far better than residents of Indiana. For most metrics Minnesota is not only the highest ranked in the Great Lakes but a national leader and Indiana is at the bottom in the Great Lakes and not much better nationally.
Governor Snyder is right: talent is the most important driver of economic growth. In an increasingly knowledge-based economy (the Governor’s Michigan 3.0) talent is the most valuable and scarcest asset. Increasingly employers will move to the places that provide them with the largest talent pools. Understanding that talent is the economic growth priority is a major step forward. We need now to act boldly on that understanding with a new agenda that concentrates talent in Michigan. It is what matters most to Michigan’s economic future.
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Seems like there is something wrong with this picture: State policy makers moving towards requiring all Michigan school children to recite the Pledge of Allegiance each school day and at the same time voting in favor of banning domestic partner benefits and the State Senate turning Michigan into a national model of intolerance with anti-bullying legislation that sanctioned bullying against certain kids.
All of this comes on top of actions like a previous legislature voting to make it hard for foreign born Michiganders to get a drivers license and voters approving anti affirmative action and gay marriage constitutional amendments.
How do these actions square with “One nation under God, indivisible, with liberty and justice for all”?
You may ask, why am I writing about this in a blog that is focused on growing the Michigan economy. Clearly this is primarily a moral issue. But it also matters a lot to the economic well being of the state as well.
As we have argued for years, culture – our attitudes and beliefs – trump policy. The most prosperous places across America have as a core characteristic a community DNA that is welcoming to all. In an economy increasingly driven by talent, to be prosperous you need to be a place where people in all human varieties want to live and work. People don’t feel welcome, they aren’t going to live here. Add to that folks who are not in the excluded groups but don’t want to live in an intolerant/unwelcoming community. When talent leaves they take the future of Michigan’s economy with them.
Yes, lets make sure our kids learn the ideals of an America that is one nation under God, indivisible, with liberty and justice for all. At the same time, it sure seems like we adults need to relearn it as well.
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