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California growing

By • on March 14, 2014

I wrote a post in November 2009 entitled “California Ascendant?” Using a Time Magazine article on the future of California as a jumping off point, I wrote that California was not as conventional wisdom had it then (and now) a state in irreversible decline, rather it was a state that likely would be a national leader in the future. I wrote:

The (Time Magazine) article argues that California is and will be in the future a leader in economic growth. With lots of data to back up their assertion. Contrast that to the conventional wisdom that, because of arguably the most dysfunction state government in the country combined with what is thought to be business unfriendly polices, California’s economy is in for long term decline.

Have the folks at Time lost their mind? If you listen to the small government ideologues they have. They argue that the places that will be the economic winners in the future have low taxes, small government and weak unions. Then there are the good government moralizers who argue business won’t invest in places with hyper partisanship and where states and local governments can’t even balance their budgets.

Turns out the stuff on the priority agenda of the small government ideologues and good government moralizers doesn’t matter much to economic success.

As Time argues what matters is that California is: “the greenest and most diverse state, the most globalized in general and most Asia-oriented in particular at a time when the world is heading in all those directions. It’s also an unparalleled engine of innovation, the mecca of high tech, biotech and now clean tech.”

The central important defining characteristic of California that emerges in the article is their future orientation. No matter how screwed up their politics, its a state which, at its core, is at about creating the future, not protecting the past. What matters most is the talent and entrepreneurialism of the people of California. To the degree that policy matters what matters most is their embracing more than resisting globalization and technology. More free trade oriented, more open to immigrants, at the leading edge of green policies, stem cells and now transportation alternatives to the car.

I would add now in addition to open to immigrants, welcoming to all.

Fast forward four and half years and low and behold California is doing well again despite all the predictions of its imminent demise. California’s turnaround is the subject of a terrific New York Times column by Timothy Egan. He writes:

… Just a few years ago California was a punching bag for conservative scolds — a failed state, profligate with its spending and promiscuous with its ambition. Ungovernable. And everybody’s leaving. Mitt Romney compared California to bankrupt Greece. Texas Governor Rick Perry said it was anti-business. (Howdy, Google and Facebook, say hello to Amarillo.) And Fox News, well, take the above and add a series of bluster blasts that will not withstand fact checking. Now some recent headlines: “California Projects $4.6 Billion Surplus.” “California Among the National Leaders in Job Creation.”

… the California turnaround does prove some things, and disprove others — offering a look beyond the binary bind of our politics. First, raising taxes does not kill job creation, but it does annoy job creators. At Brown’s urging, voters in 2012 approved, by a healthy margin, a plan to raise taxes on the high end. This new money is the biggest reason why the state went from a $25 billion budget deficit to a projected surplus of almost $5 billion. Instead of building more prisons, California has restored the funding flow to its once-vaunted public university system. At the same time, job growth has been robust. Trying to poach payrolls in this state, Governor Perry said, “I hear building a business in California is next to impossible.” Maybe a traditional business. But not the new-century kind. California leads the nation in new high-tech, bio-tech and manufacturing jobs, a result in part that Brown attributes to the “yeasty and innovative” nature of the state. Perry can’t duplicate that, no matter how many corporate subsidies he passes around. (Emphasis added.)

… the great exodus never happened. Since the dawn of the recession, the state has added about 1.5 million people — almost three Wyomings. And yes, 67,702 people moved from California to Texas in 2012. But 43,005 people moved from Texas to California.

Does California–then and now–have economic problems? Of course. Certainly a too high unemployment rate and a too low employment to population rate. And maybe most seriously, like the country, it is struggling with a great divide between those doing well and those not. It is a state with both high wage/high income knowledge-based economy regions and families. And low wage/low income regions and families not participating in the knowledge-based economy.

That said, California is now, and almost certainly in the future, a leading edge state. Rather than looking to California to learn what not to do, Michigan leaders should be looking to California for lessons about what matters most in an economy driven by globalization and technology. We have a lot we could/should learn from them.

 

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Lansing and General Motors

By • on March 11, 2014

Good news! General Motors is expanding its manufacturing presence in metro Lansing. As the Lansing State Journal reports: ”General Motors Co. will bring more jobs to Lansing with plans to build a $162 million stamping plant here, the latest investment the carmaker is pumping into its mid-Michigan factories. Local economic development officials Thursday said the Detroit automaker plans to build the 225,000-square-foot stamping facility near its Lansing Grand River assembly plant, which makes the Cadillac ATS and CTS luxury cars. It would create 65 jobs.”

The new stamping plant will join another GM stamping plant and two assembly plants in the region. Lansing is among the national leaders in auto manufacturing. So the region becomes a good test case for whether being a manufacturing center is still a path to prosperity.

It clearly was the case in the 20th Century, particularly in Michigan. Michigan was one of the most prosperous places on the planet last century largely because we were where high-paid factory work was concentrated. Those workers were the core of America’s mass middle class.

But that is no longer the case. Why? Lets start with the new stamping plant announcement.  Big investment in capital ($162 million) but few jobs (65). Manufacturing is increasingly a capital, not labor, intensive activity. Manufacturing is now primarily done by machines, not humans. Add to that, as we explored in a recent post, auto manufacturing jobs are no longer high paid work.

Today, and almost certainly more so in the future, good-paying job growth is coming in the American economy in knowledge-based work. This trend holds true in the auto industry. Ford recently announced its largest capital investments in decades. Of the 5,000 new job that go with those investments, 3,300 are in salaried positions. As Crain’s Detroit Business reported:  ”More than 80 percent of the new salaried jobs will be technical professionals who work in product development, manufacturing, quality and IT, a company statement said.”

Metro Lansing has been and continues to be a successful auto manufacturing center. But the results in terms of regional prosperity is very different today than in past. In 1970 metro Lansing had a per capita income one percent above the nation’s. In 1990 it had fallen to 10 percent below the nation. In 2000 it had fallen to 12 percent below. And in 2012 it is 17 percent below the nation. Clearly the 65 new stamping plant jobs won’t change that trend.

Contrast metro Lansing with metro Madison, Wisconsin. Also a state capital and home to a major research university. It historically has been more prosperous than metro Lansing. But what is stark is how much better it has done since the turn of the century. In 2000 it had a per capita income nine percent about the nation’s (compared to metro Lansing at 12 below). Today it is 35 percent above the national average (metro Lansing have fallen further to 17 percent below.) Per capita income in Madison since 2000 has risen about $15,000 compared to about $12,000 nationally and nearly $9,000 in Lansing.

The reason for Madison’s superior performance is its economy is a leader (particularly for a smaller metropolitan area) in the growing knowledge-based economy. Its knowledge-based concentration leads to far greater prosperity than metro Lansing’s auto factory concentration.

This is the lesson metro Lansing and the state of Michigan need to learn. Of course, Michigan should continue to seek to be a global center of auto manufacturing. But the economic development priority for the region and state, if we want to be prosperous, is in the knowledge-based economy,  including the knowledge-based portions of the auto industry.

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Welcoming matters

By • on March 7, 2014

Terrific Bridge article by Chris Andrews on the importance of being welcoming. Highly recommended! Its entitled “Are Michigan’s restrictions on gay and abortion rights holding state back?”

Andrews writes:  ”A number of experts on economic and community development say Michigan policies on gay rights and women’s access to abortion are creating barriers to growth and prosperity. While states like Minnesota and Illinois reach out to gay individuals and families, proponents of stronger protections for gays and women say the same-sex marriage ban and a new law that will require women to purchase an insurance rider to cover abortions send a different message.”

That certainly is our point of view. The asset that maters most to future prosperity of states and regions is human capital. The knowledge, creativity, and entrepreneurship of its citizens. In a word talent. As Governor Snyder wrote: “Today, talent has surpassed other resources as the driver of economic growth.”

The bottom line is straight forward: The places with the greatest concentration of talent from anyplace on the planet win! A core characteristic of prosperous places in a flattening world is they are welcoming to all. Talent is both diverse and mobile. If a place is not welcoming, it cannot retain and attract talent. People will not live and work in a community that isn’t welcoming.

As the Bridge article makes clear state policy matters. Welcoming is an area where Michigan has not been a leader. Governor Snyder’s leadership on immigration is an important step forward. His opposition to domestic partner benefits is not.

Minnesota provides a model. Its polices across the board are more welcoming than here. Gays can marry, there is no ban on affirmative action at their public universities and they have a Dream Act which allows undocumented students who graduated from state high schools to obtain in-state tuition.

As we have explored previously Minnesota is, by far, the Great Lakes leader in both employment and personal income. It has the economic outcomes all of us want for the region and state. It gets those results in large part from its talent concentration. Also the best in the Great Lakes. It is almost certain that their ability to retain and attract talent is helped by its welcoming policies.

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Stuck in the past

By • on March 3, 2014

My biggest concern for the state and its regions––particularly metro Detroit–is that we have a vision of what we want the future to look like and a public policy agenda, from across the political spectrum, that are grounded in the past––which we can’t go back to–-rather than the future. So we end up not having the debates that we need.

One area where this is particularly true is transit. Particularly rail and bus rapid transit. Across the country––in red and blue states––big metros are investing in light rail and bus rapid transit. Either regions starting from scratch to get in the game or those who have it, expanding. Why? Because they understand that rapid transit is a key ingredient to retaining and attracting young talent. And that young talent is an essential ingredient to future prosperity.

In Michigan there is some recognition in metro Grand Rapids that transit matters, far less so in metro Detroit. At the state level, transit, by and large, is either viewed with hostility or disinterest. Not smart!

Atlantic Cities––which does a great job covering transportation––recently published an in–depth article on the debate in Chicago over a proposed Ashland Avenue bus rapid transit line. What struck me most reading it is that the vigorous debate they are having is completely missing here. And that until that debate is occurring here regularly we are going to be non competitive in retaining and attracting young talent.

The city of Chicago has about 250,000 residents––the second most in the country––25-34 year old with four year degrees. Detroit has 11,000. (The cities of Grand Rapids, Lansing/East Lansing, and Ann Arbor are in the same ball park as Detroit.) An extensive rail transit system is one of the core assets that has made Chicago a talent magnet. You can live there and not own a car, an increasing priority for college educated Millennials.

As Atlantic Cities notes Chicago is not resting on its laurels. They write: “In 2012, shortly after Rahm Emanuel was elected mayor, he and then-Chicago DOT Commissioner Gabe Klein got to work on a progressive transportation agenda that aimed to create 100 miles of protected bike lanes, a number of rail improvements, and a trio of BRT lines.”

Apparently the one controversial part of the expansion plan is the Ashland BRT. Which Atlantic Cities frames as a debate between those in Chicago who are car-oriented and those who are transit friendly. But Atlantic Cities portrays the Ashland BRT debate as about the appropriateness of rapid buses on one non-downtown corridor rather than a debate about the importance of rapid transit to the city’s and regions future. That seems to enjoy near universal support. So Chicago is debating whether or not to add a third bus rapid transit line to a system of more than 100 miles of rail.

That the debate is vigorous––both side well organized and engaged–-is something that doesn’t exist here at all. Where no one has to get organized to defend/support a car orientation. Its simply assumed to be the right answer. And hardly anyone has made the need in our urban centers for an alternative a priority.

In metro Detroit we finally have created a regional transit agency (which is good news), but haven’t funded it. And its Board seems not to share a vision of the central role rapid transit (rail and bus) can and should play in the region’s future.

As with so many other issues, either we get engaged in this debate about what being competitive in the 21st Century requires or we are going to continue to be an economic laggard.

 

 

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College educated Millennials winning

By • on February 20, 2014

The Pew Research Center has just released a terrific new report entitled “The Rising Cost of Not Going to College”. If you care about understanding the reality of today’s economy for young adults this is a must read report.

Using data from the Census Bureau’s Current Population Survey (CPS) it makes clear that in terms of both employment and wages 25-32 year olds with a four year degree are doing substantially better than their peers with some college or a two year degree as well as those with only a high school degree. So much for the increasing conventional wisdom that many young adults would be better off with an occupational certificate or community college degree rather than a four year degree!

The report presents a comparison of 25-32 in 2013 by education attainment. As well as comparing today’s 25-32 years olds to those in previous generations. They do that by looking at CPS data for 25-32 year olds in 1969, 1979, 1986 and 1995. Each is four years into a national recovery from the trough of a recession. And with all earnings in 2012 dollars to correct for inflation.

Lets review first the headlines for today’s 25-32 year olds by education attainment.

Unemployment rate

  • Bachelors or more: 3.8%
  • Two year degree or some college: 8.1%
  • High school degree: 12.2%

Median Annual Earnings for full time workers

  • Bachelors or more: $45,500
  • Two year degree or some college: $30,000
  • High school degree: $28,000

No matter what you hear the reality is Millennials with a four year degree are doing substantially better than their peers without a four year degree. End of story!

(The good news is that the Millennials seem to be ignoring the conventional wisdom. They have a much higher four year degree attainment rate than previous generations. 34 percent compared to around 25 percent for Generation X and the Boomers and only 13% for the generation before the Boomers which Pew calls the Silents.)

In many ways what is more interesting in the report is the comparison of generations data. Pew summarizes those findings this way:

On the one hand, it is clear that young, college-educated workers are having more difficulty landing work compared with earlier cohorts of young adults. They are more likely to be unemployed, and it takes them longer, on average, to find a job. On the other hand, once they’re employed, their earnings are higher than those received by earlier cohorts of young, college-educated adults. For less-educated young workers, there is no upside: They are more likely to be unemployed and they are spending more time searching for a job compared with less-educated young workers who came before them. And their earnings are significantly below those received by less-educated young workers in earlier generations (with the exception of high school-educated Gen Xers).

The unemployment rate for today’s 25-32 year olds is substantially higher than those of the same age in 1969, 1979, 1986 and 1995 at all education levels. The unemployment rate ranged in those years from 1.4-2.8 percent for those with four year degrees compared to 3.8 percent today; from 3.2-5.0 percent for those with two year degrees or some college compared to 8.1 percent today; and from 4.3-9.0 percent for those with high school degrees compared to 12.2 percent today.

But the median annual earnings story is different. Here those with a four year degree today are doing better than their peers of previous generations. Certainly not the story we are told over and over again. Today’s 25-32 year olds with a four year degree working full time have median annual earnings of $45,500. The range for previous generations at the same phase of the cycle and in inflation adjusted dollars is $38,833-44,770. The gap in median annual earnings for young full time workers has grown consistently for those with a four year degree compared to those with a high schools degree from $7,500 in 1965 to $17,500 today.  (The proportion of those working who worked full time is virtually the same for the generations at around 90 percent.)

This is not true for those who have a two year degree or some college and those with only a high school degree. In both cases those 25-32 year olds working full time have lower inflation adjusted median annual earnings than the previous four generations. For those with two year degrees or some college the gap is between roughly $2,000 and 6,500. For those with only a high degree the gap ranges from roughly even for Generation X (in 1995) to $4,000 in 1979 (what Pew calls Early Boomers).

What is most surprising to me is how poorly 25-32 year olds with some college or a two year degree are doing compared to their peers both with only a high school degree and those with a four year degree. The earning premium for those with some college or a two year degree compared to those with a high school degree has collapsed. From about $4,000 in 1979, 1986, and 1995 to $2,000 today. And the gap between those with a four year degree and those with a two year degree or some college has grown steadily from $5,000 in 1969 to $15,500 today. (From 1995 to 2013 its grown from $11,000 to $15,500.)

 

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Talent trumps low taxes again

By • on February 17, 2014

Richard Florida in a recent Atlantic Cities article writes about a new study on what matters most in attracting entrepreneurs. The study done by Endeavor Insight can be found here. As Florida writes what attracts entrepreneurs is “…talented workers, and the quality of life that the educated and ambitious have come to expect – not the low-tax, favorable-regulation approach that many state and local governments tout.” (Emphasis added.)

Florida continues:

The report then dug deeper into exactly what these entrepreneurs reported as the most important part of their location choices. The top rated factor by far was access to talent. … Entrepreneurs explained that they proactively sought out the places that educated and ambitious workers want to be. … Perhaps even more interesting from the perspective of urban policy are the location factors that did not make the cut – those that high-growth entrepreneurs found to be of little consequence in their location decisions. At the very bottom of the list were taxes and business-friendly policies, which are, unfortunately, exactly the sorts of things so many states and cities continue to promote as silver bullets. Just 5 percent of the respondents mentioned low taxes as being important, and a measly 2 percent named other business-friendly policies as a factor in their location decisions.

Who says? The 150 or so founders of some of the fastest growing companies in the country that Endeavor interviewed and/or surveyed. The report is entitled: What Do the Best Entrepreneurs Want in a City? Lessons from the Founders of America’s Fastest-Growing Companies. These are, of course, the kind of “job creators” that are at or near the top of every state’s and region’s economic development priority list. The report’s conclusion:  “The magic formula for attracting and retaining the best entrepreneurs is this, a great place to live plus a talented pool of potential employees, and excellent access to customers and suppliers.”

Consistent with our work, Endeavor found that these entrepreneurs were setting up shop in big metros and in places which are talent magnets for young professionals. As we have found that means big metros–of at least one million–-anchored by a vibrant central city with a high proportion of its residents with a four year degree. Its those cities which are the winners in concentrating young professionals.

This is the lesson Michigan policy makers and economic development officials, by and large, have not learned. Until they do and switch their focus away from trying to be the place with the lowest business costs and to preparing, retaining and attracting talent, Michigan is going to continue to be near the bottom on all the measures of economic well being.

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Not time for a celebration III

By • on February 13, 2014

The Census Bureau released in September a report on poverty in American from 2000-2012. Not good news for the country. The poverty rate since 2000 has risen from 12.2 percent to 15.9 percent. The number of people living in poverty has increased from 33.3 to 48.8 million.

The trends are worse in Michigan. The poverty rate since 2000 has risen from 10.1 percent to 17.4 percent. The number of people living in poverty has increased from 975,000 to 1,685,000. So Michigan has gone in twelve years from a poverty rate 2.1 percentage points below the national average to 1.5 percentage points above the national average.

In previous posts we have used 2007 as the benchmark year to assess Michigan’s recent economic performance. The year before the Great Recession. Since 2007 Michigan’s poverty rate has increased by 3.4 percentage points from 14.0 to 17.4 percent. And from 1.0 to 1.5 percentage points above the national average.

Once again, Minnesota is the Great Lakes leader with consistently the lowest poverty rate. In 2000 Minnesota’s poverty rate was 6.9 percent, 3.2 percentage points better than Michigan. In 2007 it was 9.5 percent, 5.5 percentage points better than Michigan. In 2012 it was 11.4 percent, 6.0 percentage points better than Michigan and 4.5 percentage points lower than the nation. If Michigan had the same poverty rate as Minnesota there would have been 585,000 fewer Michiganders in poverty in 2012.

In 2012 Michigan had the 14th highest poverty rate in the country. (In 2000 Michigan had the 18th lowest poverty rate.) The only states with higher poverty rates: Alabama | Arizona | Arkansas | Georgia | Kentucky | Louisiana | Mississippi | New Mexico | North Carolina | South Carolina | Tennessee | Texas | West Virginia. So much for wanting to be like the South!

In 2012 Minnesota had the 7th lowest poverty rate in American. The only states lower: Alaska | Connecticut | Massachusetts | New Hampshire | New Jersey | North Dakota. Either energy rich states or those––including Minnesota–with high college attainment rates. The same pattern we find in states with high per capita income.

Just as we explored before with employment and education, when  it come to reducing poverty Michigan has a long ways to go before its time for either victory laps or celebration.

 

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Not just STEM

By • on February 10, 2014

I do a monthly post for the Grand Rapids Business Journal. Last month I wrote about the occupations and industries their latest 40 Under Forty worked in. Turns out these future leaders in West Michigan overwhelmingly don’t work for manufacturers or are in STEM based occupations.  In fact, the nearly 150 nominees, at the undergraduate level, primarily have liberal arts degrees. Those are the kind of degrees that conventional wisdom increasingly predicts is a path to underemployment and wages too low to pay off so-called crushing student loans.

As I wrote: “The 40 Under Forty nominees work, of course, in the private sector, but also for nonprofits and government. And they overwhelmingly work in the knowledge-based sectors of the economy: health care and social assistance; education; management of companies; professional services; finance and insurance; and information. In terms of occupations, the 40 Under Forty nominees represent the broad diversity of opportunity in a 21st century economy. They also represent the continuing reality that the liberal arts remain a reliable path to success. Hardly any of these future leaders of the region work in STEM occupations.”

Both are good news for the future of the West Michigan economy. Successful regions are going to be those that are broadly diversified across all the knowledge-based services, rather than narrowly concentrated in a few industries. Certainly that is true for the two most prosperous Great Lakes regions: Chicago and Minneapolis.

This is a lesson that the state and nation need to learn. This narrow focus on STEM occupations, and even worse, the oft repeated message from too many of our political and business leaders that if you don’t get a four year degree in a STEM field you are better off going to a community college to become a machinist (or similar technical occupation) is bad for both students and the state’s and nation’s economic well being.

Do the nation and state need more people with math and science expertise? Of course. But that doesn’t mean we need fewer people with the kind of skills developed by getting degrees in fields other than engineering and the sciences. The only way to build a broad knowledge-based economy is to have a large talent pool with the widest variety of skills in plentiful supply.

Two recent articles explore why broader––rather than narrow occupation focused––college degrees, are good for our future well being. Both highly recommended:

In a terrific Wall Street Journal column entitled Why Focusing Too Narrowly in College Could Backfire, Peter Cappelli of the Wharton School makes the case why a broad liberal arts college education is good for the long term economic well being of students. The article is subtitled “Students are told learn the subjects that will best land them a job when they graduate. But that could be the worst thing they could do.”

The New York Times recently wrote about Indian business leaders starting a new liberal arts college. Why? As the Times writes: “Yet a group of successful professionals and entrepreneurs, some of them alumni of these universities, have come together to establish an alternative to what they say is an educational paradigm that overly emphasizes technical capabilities while neglecting vital skills like critical thinking, communications and teamwork.” (Emphasis added.)

West Michigan currently has too small of a talent pool — it has one of the lowest college attainment rates of metros with populations of 1 million or more in the country. So it’s good that the next generation of West Michigan leaders represented by this year’s Grand Rapids Business Journal’s 40 Under Forty class chose to follow their own passion with degrees and occupations that are not those selected as the future winners by government or the so-called experts. But it also is good for the future of metro Grand Rapids.

Lets hope all across Michigan––which also has too small a talent pool––students follow their own passion and earn degrees and enter occupations that are not those selected as the future winners by government or the so-called experts. It will be good for them and the future of Michigan.

 

 

 

 

 

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