Section » Michigan Economy
We Have To Change
The question I get most often these days is for my take on the 2010 elections. To be honest I don’t have a clue what is going to happen. But I do have a sense of the nature of the debate. Likely it will be a repeat of the 2006 elections.
As you remember that was a race where Mr. DeVos told us that lower taxes/small government would restore Michigan to prosperity and Gov. Granholm told us that keeping jobs from going to China would restore Michigan to prosperity. Both are nonsense. But both parties seem stuck on the same failed answers of the past.
To a considerable degree I believe we keep having the same meaningless debate because its what the base of each party wants. What unites Republicans is a belief that lower taxes is the answer to everything economic, despite the fact that most low tax states are characterized by low incomes and low education attainment. For the Democrats – particularly their unionized blue collar base – getting rid of NAFTA and free trade is the magic bullet that they believe will restore a high wage factory based economy. This too ignores reality. There is no policy that will take us back to a successful factory-based economy. Those days are gone forever.
But more broadly we keep having the old debate because a majority of Michiganians have not yet accepted the new reality that what made us prosperous in the past, won’t in the future. When most of us demand change what we are asking for is politicians to get others to change, so we don’t have to. This is one of those times when – as hard as it is – we have to change. What policy makers can do for us is help us make the necessary changes. What they can’t do is turn the clock back.
The debate we should be having in 2010 – if we care about restoring Michigan to prosperity – is how can we make the transition to a knowledge-based economy. One where a combination of knowledge, creativity and entrepreneurship enables people to realize the American Dream. Its the new reality. Talent is the only reliable path to prosperity in the future. But we can’t have that debate as long as most of us will only vote for politicians – of both parties – who tell us they have some plan for getting our old jobs back for us. Until we realize they can’t, we are likely to have an ineffective politics about the past, not the future.
Charters for Adults?
I attended a terrific conference this week – co hosted by CEOs for Cities and United Way for Southeastern Michigan – on reducing poverty. The mission was to identify local actions that can significantly reduce poverty over the next two to four years. In my presentation, unfortunately, I said we don’t know how to do that.
Nationally there are two areas that can make a big difference in reducing poverty in the short term: full employment and an expanded safety net. Both are powerful tools for large scale poverty reduction. Local efforts that can achieve at scale poverty reductions are hard to identify. Yes we should do whatever we can to boost job creation. But as I have written in previous blogs state, regional and local levers to do that are not strong. And yes we should build a regional transit system so that city residents – where poverty is concentrated – can access jobs in the suburbs.
But ultimately the chief state and local responsibility for reducing poverty is education and training. Preparing people for jobs that pay above poverty wages and benefits. Unfortunately, no matter what the time horizon, we are not very good at doing that with most of the chronically unemployed, the working poor or those who are newly unemployed. With each group there are barriers to gaining the needed skills for those better paying jobs. For the chronically unemployed there are a whole set of ready to work barriers that we are not very good at overcoming. And then for all three groups there is the low foundation skill challenge. Lots of adults who sign up for training end up in remedial programs and never make it out.
For adults who get beyond those barriers, our community colleges, by and large, are very good at teaching occupational skills. But for far too many we are unable to help them overcome those barriers. And there is little evidence that we are improving our success rate. Or even have developed models that provide a framework for how we can get substantially better participants outcomes. The adult training system is characterized by too many of the same operators, providing the same services, with the same bad results decade after decade.
Contrast that to urban k-12 education. Where we have made substantial progress in learning how to prepare children growing up in low income households for the better paying jobs of the future. We obviously have a long way to go to get to the scale we need. But there seems to be a known path to get there.
That has led me to consider replicating the drivers that have allowed us to develop new models in urban education. A combination of the money following the student and accountability standards. Choice allows new entrants, which gets you innovation. Some of which will get good results, some of which won’t. That is where meaningful accountability standards come again. They should be used to close down the worse programs/agencies as well as help students shop for high quality programs.
Apple Again
After reading my previous post on Apple, John Austin, of the State Board of Education and the Brookings Institution, sent me a terrific study. Its from the Personal Computing Industry Center at the UC Irvine. Its topic is job creation generated by the iPod. It is one of the best articles I have seen on how products are made in a flat world.
What the researchers found is that the introduction of the iPod created 41,000 jobs worldwide. (These are direct jobs – no trying to calculate multipliers.) Of those about 27,000 were outside the US, 14,000 here. But when it came to wages the proportions were reversed: $753 million earned by US workers, $318 by workers from outside the US. You know the basic story: production done in Asia by low wage workers, knowledge work predominantly done in the US, retail done across the globe. Of the 14,000 US iPod jobs 6,000 were high paid engineers and other professionals, while about 8,000 were lower paid jobs in retail and other non professional occupations.
As I wrote in my previous posts about Apple and Bissell this is the new face of manufacturing in America (and other advance economies). Some products will continue to made in America. But increasingly by machines. About ten percent of American workers now work in a factory and it almost for sure will not go higher, most probably lower. But what America can be is the pre and post production center of manufactured goods. Everything from research, development, engineering, design, supply chain management, logistics to marketing, sales and service. These are the new high paid jobs. Where the 21st Century middle class will be centered. It will be the predominant way America exports to the rest of the world.
Quality of Place Matters
Good post on quality of place by Rick Haglund at his web site. Its micheconomy.com Worth checking out regularly. Rick always has an interesting take on what’s happening to our state’s economy.
In this blog Rick writes about the wife of Johnny Damon wanting him to play in a more cosmopolitan city – like Chicago – rather than Detroit. Its a story I hear over and over again from those trying to recruit talent to metro Detroit. Its not just young professionals who are looking for quality place along with a good job when they make location decisions.
Ultimately, if we are going to regrow a high prosperity Michigan, we are going to have to improve Michigan as a place that has what mobile talent are looking for. One of the assets that matters that we really need to work on is vibrant central cities. Its a core characteristic of almost all prosperous regions across the country. Forget the idea that Michigan can comeback without Detroit (and to a lesser degree Grand Rapids and Lansing/East Lansing) working. They need to be on priority list!
Questions for 2010
In my last post I recommended that we ask 2010 candidates “what state would Michigan look like if your economic development strategies worked?”
The other key question I would ask is “what does Michigan need to look like for your kids (or grand kids) to want to live here?” Nearly all will be or are college graduates. Where they decide to live and work will, in large part, determine the future prosperity of the state.
Its not what most candidates are thinking about or what they are talking about. They are under enormous pressure by voters and interest groups to articulate their ideas about today – not tomorrow. But communities that don’t keep their college educated kids won’t be prosperous now or in the future. Its that important.
My guess is if candidates talked with their kids about where they want to live after college they will find that what they are talking about on the campaign trial is of little relevance to their kids decision on where to live after school . Items like what to do with taxes and how to save or restore factory jobs don’t matter very much to future knowledge workers.
If Michigan is going to be prosperous again we need elected officials who are focused on building a state where their kids want to live and work. We need to use the upcoming election to identify who those candidates are.
What State Do We Want to Be Like?
One of the key questions I think we should ask every 2010 candidate is “if your economic development strategy works, what state would Michigan look like?” We need to know what kind of future economy they envision for the state.
Turns out to be a hard question to answer for candidates of both parties. The Democrats largely want to recreate a high wage, factory-based economy. What made us prosperous in the past. Unfortunately there are no states today with that kind of economy. Factory-based states, by and large, are now low income states.
The Republicans largely campaign on some combination of lower taxes, smaller government and weaker unions. But once again the states characterized by those policies are predominantly low income and low education attainment states.
As you know our answer is a state like Minnesota which is both high income (our goal) and high education attainment. Education attainment is a (if not the) key asset that allows a state to be over concentrated in the knowledge-based economy which now is both the high wage and growing part of the American economy.
One answer to beware of is we should adopt state X’s policies because they have done better than Michigan this decade. All states have done better than Michigan this decade. So the question is “of the forty nine other states that have done better than us which one is the model for where you want to take Michigan?”
Recently the Mackinac Center using this kind of flawed logic took Governor Granholm to task for saying that Michigan didn’t want to become Mississippi. Mississippi is the poorest state in the country, with high poverty rates and low education attainment. The Governor is right. Who wants to be like them? What an awful vision for Michigan: one of the poorest states in the country.
Our goal should be to be one of the most prosperous states in the country. Those are the kind of states we should be learning from. Lets find out which candidates from both parties want to take us there.
the Myth of Michigan Big Government III
In preparing for a presentation to the Michigan Society of Association Executives I took a look at what has happened to state taxes and spending this decade. Boy is convention wisdom wrong!
To listen to the chatter from Lansing, despite an economic collapse, state government continues unrestrained taxing and spending. Many make the case if we had been restrained our economy would have done better. Turns out to be total malarkey!
Lets start with taxes. The Headlee Amendment restricts state revenue to a fixed percentage of personal income. In 2000 state revenue was a little above the allowed maximum at 9.55% of personal income. In 2010 its estimated to be 6.93%. Something like nine billion dollars below the allowed maximum. So taxes are taking a far smaller proportion of our income today than a decade ago.
What is most important to the current debate in Lansing is that the state’s economy was booming in 2000. An unemployment rate of 3.7 percent. And we were the eighteenth most prosperous state. So when our taxes were higher we had a far better economy.
So how about spending? Same story. Convention wisdom: politicians of both parties unwilling to restrain spending. Think again! At Michigan Future we believe investments in education and quality of place are the key levers state policy makers have in regrowing a prosperous Michigan. So I looked at spending in the kind of public investments that matter: universities, revenue sharing and transportation. The figures are not corrected for inflation. The facts for each for 2000 and 2010:
• State appropriations for universities down from $1.78 to $1.54 billion.
• Revenue sharing down from $1.47 to $0.99 billion
• State Transportation Fund revenue about constant from $1.87 to $1.84 billion.
So we have followed for the last decade the recipe the lower taxes/small government crowd currently is pushing as the way to grow the Michigan economy. It didn’t work this decade. It won’t in the future!
Bissell
Good Nancy Crawley column in the Grand Rapids Press on the fortunes on Bissell – the vacuum cleaner company in West Michigan. Crawley argues that they are a model for manufacturers succeeding in Michigan, rather than abandoning the state.
I couldn’t agree more. Its a Michigan example of the Apple model I wrote about in a recent blog. High value pre and post production work done here, while making products in a developing country. Bissell laid off 200 factory workers five years ago. Those jobs went to Mexico. Sound like the familiar Michigan in decline story? Think again! Because there are now 350 Bissell knowledge workers here. With plans to add more.
Whether its high tech products like Apple makes or old line products like Bissell makes, the work that can and should be centered in America is in inventing, engineering, designing and marketing products, not making them. And just like Apple, Bissell understands that their future success is dependent on constant innovation. Inventing what’s next, rather than simply producing today’s products over and over again.
The jobs Bissell is filing in Grand Rapids? According to the column: engineers, industrial designers, market researchers and data analysts.And because these are now the high paid jobs (not factory work which never again will be high paid) its the kind of jobs that will put Michigan back on the path to prosperity. There really is no alternative!
• Copyright 2009 • Twitter: #michiganfuture