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Quick updates
Some interesting press coverage of topics I have written about recently. Worth reading.
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.”
Progress on public investments?
Finally some good news on the public investment front. As you know, our research has led us to believe that public investments in preparing, retaining and attracting talent are the key to positioning Michigan and its citizens for prosperity in a flattening world. What has been so frustrating for years is that business and political leadership in the state talk about the importance of college attainment as a – if not the – key to Michigan’s future success and then advocate/adopt policies that take us in the wrong direction. Even worse has been the absence of anyone willing to put on the table an alternative to the tax cuts/small government agenda that has dominated our public policy for more than a decade. That may be changing.
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.
Lessons to learn: California billonaires
A recent LA Times story is headlined “California billionaires plan to put big tax hike on the ballot.” You read that right: private sector leaders pushing for a tax increase! What do they want to do with the increased funds? Invest in education and local government. Why more funding for education – both k-12 and higher education – and local government? Because they are essential to growing the California economy.
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.
Lessons to learn: Mayor Bloomberg
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?”
Dumb on transit again
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.
For economic growth: M1
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.
Manhattan
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.
Worth reading
While I have been using this post to explore the findings in our new report, I have stockpiled lots of articles that I wanted to write about. Rather than wait until I get to them here is a list of recent articles that I think are worth checking out.
• Probably the most important education article I have read in a long time comes from the New York Times Magazine by Paul Tough. It deals with the essential question of what skill set students need to succeed in college. And suggests that character – actually performance, rather than moral, character – may trump academics. Built around the common learnings of an elite private school and a KIPP middle school.
• The Atlantic’s Can the Middle Class be Saved is highly recommended. It provides a good overview of how a changing economy is eliminating or lowering wages of formerly middle class jobs. Core to all of our work at Michigan Future is the belief that globalization and technology are mega forces – far more powerful than public policy – which are fundamentally changing our economy. This article raises all the right questions about winners and losers in that transition.
• A disturbing Yahoo News article deals with the widening wealth gap between the old and young. Now the widest it has ever been. The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday. While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.
• Another disturbing and thought provoking article comes from Bloomberg Businessweek. Its title and subtitle say it all: Why Americans Won’t Do Dirty Jobs: In the wake of an immigrant exodus, Alabama has jobs. Trouble is, Americans don’t want them.
• A terrific Ron Dzwonkowski column for the Free Press entitled: Forget taxes and regulations, Michigan must build it so they’ll come. Based on the Michigan Municipal League’s new book The Economics of Place. (I am one of the chapter authors.) Read the article, better yet if you have time, buy the book.
• Last, but certainly not least, another Yahoo News story. This one an interview with Erik Brynjolfsson and Andrew McAfee, the authors of the new book Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. More on the constant change being driven by technology. Specifically the ability of machines to do more and more of the work humans used to.
• Copyright 2009 • Twitter: #michiganfuture