Two recent events highlighted the philosophical gap on higher education. One was a hearing by the Senate Finance Committee on the Senate Democrats Michigan 2020 plan (worth checking out) that would substantially increase state investment in higher education. The other was the Business Leaders for Michigan higher education summit. (As I have written previously BLM getting actively engaged in pushing for a substantial increase in state appropriations for higher eduction is the most positive development in a decade.) Kudos to them!

Two quotes from the press coverage of the two events lay out clearly the differences on the role higher eduction plays in economic development. Senate Finance Committee chair Jack Brandenburg said as reported by MLive: “I don’t think the state can afford the $9,600 along with the personal property tax cut to manufacturers and small manufacturers,” he said after the session. “I think we really have to concentrate on getting the economy back on track.”

Contrast that to Patrick Doyle, Domino’s Pizza CEO in Crain’s Detroit Business: Doyle said that although unemployment is high in Michigan, talent is lacking, and that ultimately hurts jobs coming into the state. The conference will discuss how access to talent is a key factor in where companies base their operations. “The days of people simply chasing lower wages are really behind us, and companies need to know they can access the talent they need,” he said. “Growing that pool is critical to the long-term economic success of the state.”

Both understand higher education is important. But one sees it as a driver of economic growth, something you invest in to stimulate economic growth; the other as a luxury, something you invest in after the economy is growing. To us the evidence is clear: Mr. Doyle is right. Higher education is a driver of economic growth and must be a state economic development funding priority.

I had a chance to testify on this at the Senate Finance Committee hearing. Below are the two charts I presented. They tell the story rather powerfully. The first listing is the top 15 states in the proportion of adults with a four year degree or more. The second is the bottom 15. The bottom line:  the higher a state’s college attainment rate the more prosperous all its citizens are, the lower a state’s college attainment rate the less prosperous all its citizens are. (Except for Wyoming, who’s prosperity  is high energy prices driven.)

Maybe most encouraging is that the message that college attainment is an imperative if Michigan is once again going to be a prosperous state finally seems to be gaining traction. Two columns on the Senate Finance Committee hearing are worth reading. One by Jack Lessenberry in Metro Times entitled Senate dumbs down. The faulty belief that tax cuts are more important than producing more qualified graduates, the other by Chad Selweski in the Macomb Daily entitled Talent trumps tax cuts when creating new jobs.

Turns out that increasingly the business and political leadership in the big metropolitan areas of the South and Southwest understand that there is a different recipe for success in the 21st Century. Here business and political leadership, by and large, continue to pursue a “get poorer” strategy, Alan Ehrenhalt reports in his highly recommended new book, The Great Inversion and the Future of the American City:

In the first decade of the new century, in cities all over the American South and Southwest, something puzzlingly happened. … leaders of these sprawl-based conurbations that have grown enormously in the past generation began to express deep longing for a downtown. … So it was in a remarkably few years, Phoenix and Dallas and Charlotte did things they would have been considered unthinkable a decade or two before. They spent billions of public dollars on light-rail transit systems; they drafted long-term ‘vision” documents that projected a future in which downtowns were friendly to pedestrians rather than automobiles; they won voter support for striking new public buildings and placed them as close to the center of the city as they could.

Why did they want those things? … the desire to recruit and retain big corporations, and the sense these companies were uneasy locating in a metropolis without a center. … This was a common refrain across the big Sun Belt cities. In the words of Michael Smith, Charlotte’s director of downtown development, the bankers who dominated the town’s economic strategy felt they had to have downtown amenities “to attract hip young professionals.” Virtually all of these Sun Belt cities agrees with the geographer Richard Florida that future prosperity depended on the ability to lure the “creative class,” and that this could be done only with a thriving urban culture.

Yes you read that right. Business and political leadership in the South making central cities/downtowns/quality of place an economic development priority; supporting spending billions of taxpayers money on light rail and other central city development projects; and supporting voter approved tax increases. Ehrenhalt writes these Southern leaders have learned from New York, Boston, Chicago, San Francisco, Seattle and Portland that having a big city downtown “with a sophisticated urban scene that would appeal to the bright young college graduates” is now an economic imperative.

This is the lesson from the South that our business and political leadership – particularly in metropolitan Detroit, Grand Rapids and Lansing – need to learn. That the models for future economic success in a flattening world are New York, Boston, Chicago, San Francisco, Seattle and Portland plus non costal cities like Minneapolis, Denver and Madison, rather than low cost states. That the path to future prosperity is increasingly talent driven and that to concentrate talent you need a big metropolitan area anchored by a vibrant central city.

That said there are all sorts of warning signs that in general charter schools are not living up to expectations. Not close! Most disturbing are the findings here in Michigan and across the country that charters on average have about the same student achievement as traditional public schools. And as we have written previously in Detroit – the kind of place where charters were supposed to be the key to substantial gains in student achievement –most charters are getting unacceptably low results.

Now comes a study from the National Center for the Study of Privatization in Education done by David Arsen, a Michigan State University education professor and Yongmei Ni, an assistant professor of education at the University of Utah. As reported by Mlive.com the study’s bottom line conclusion: Michigan charter schools spend twice as much per pupil on administration and about 20 percent less on instruction than traditional public schools.

Among the findings highlighted in the Mlive article are: “Michigan charter schools spent on average $1,141 less on instruction than traditional public schools. Charters spent about 47 percent of their operating budgets on instruction, compared to 60 percent for traditional public schools. On average, charter schools spent $774 more per pupil per year on administration. Charter schools on average spent 23 percent of their budgets on administration, compared to less than 10 percent for Michigan districts overall.” Egads!

An important component of the case for charters was the notion that because they were not beholden to so-called greedy adults – teacher and other unions, politically connected contractors, corrupt school boards, etc. – charters could and would operate more efficiently freeing up more funds for teaching and learning. That the exact opposite is occurring is deeply disturbing.

Turns out we may have substituted one group of adults who put their interests ahead of kids for another group of adults who do the same. Instead of teachers and other district employees and contractors, now it is top administrators and owners of private sector management companies. The study found that “about 80 percent of Michigan charter schools are operated by for-profit firms, the highest percentage in the country.” If all we have done is move from one system that pays teachers, bus drivers, food services workers, etc. too much for too little student achievement to a different system that pays those who run and own charter operations too much for too little student achievement would be a real tragedy.

And just as the employees (largely through their unions) used their political clout for decades to stop needed reforms, it is virtually certain that the charter operators will do the same. Once again it is not progress if we substitute one group – largely supporting Democrats – for another group – largely supporting Republicans – who have way too much political influence to work against the interest of kids.

Are there exceptions to the pattern? Of course. (Just as there was and are exceptions to the pattern of inefficient and/or ineffective traditional public schools.) There are a group of nationally recognized non profit charter operators who are realizing the potential of charters and substantially improving student achievement and life outcomes. What is worrisome is that most of them have been heavily subsidized by philanthropy. Which probably is not sustainable and is certainly not scalable long term.

Rather than passing legislation to remove the cap on charter schools in Michigan and, even more worrisome, most limits on online school providers, policy makers should be focusing their attention on how we get better student achievement. After all this is what charters were supposed to accomplish. When an important study concludes “If one were searching for a contemporary reform to shift resources from classroom instruction to administration, it is hard to imagine one that could accomplish this as decisively as charter schools have done in Michigan.” it clearly is time for a complete reconsideration of how we structure a process so that charter schools first and foremost serves the interest of kids.

Their recipe for meeting that goal are what they call the five pillars of prosperity. Which they argue the country has pursued on a bi-partisan basis for most of its history. And now are the pillars that countries across the globe are pursuing to compete with us.  But we now – inexplicably – have abandoned to our detriment   Their pillars are:

• Providing public education for more and more Americans.
• Building and continual modernization of our infrastructure
• Keeping America’s door open to immigrants
• Government support for basic research and development
• Implementation of necessary regulations on private economic activity

They write: “Taken together, the five make up a uniquely American formula for prosperity, one in which government creates the foundations for risk-taking and innovation delivered by the private sector. This formula has made possible America’s two centuries of increases in living standards. It is what has made America the world’s greatest magnet for dreamers everywhere.” They continue: “if we do not invest in upgrading our formula, we will forfeit the indispensable condition for sustaining the American dream and maintaining American power in the world: economic growth. Anyone who says we can forgo spending of this kind does not understand either American history or the world in which we are now living.”

The goal, formula and actions that Friedman and Mandelbaum propose for national economic policy should also be the goal, formula and actions of state and local economic policy here in Michigan. We too need to focused on prosperity as the goal, not just balancing budgets. We need to understand that the five pillars are the formula for rising standards of living here now more than ever in a flattening world.  And then need the courage, as I laid out in a post called A budget to grow the Michigan economy, to adopt a combination of spending cuts in low priority areas, reductions in current and future public employees and retirees compensation and tax increases. Those are the actions that will free up the resources to make the necessary investments in the five pillars of prosperity.

Talk about contrary to conventional wisdom! The best economic development strategy may be to attract smart people and get out of their way sure isn’t how state and local policy makers and economic development officials approach the task of growing the Michigan economy. Their focus, almost exclusively, is on attracting business investment. And yet the evidence is on Glaeser’s side.

The fact is that the single best predictor of regional and state prosperity is the proportion of adults with a four year degree or more. Cities – the theme of Glaeser’s book –  are the driving force of economic growth in large part because increasingly college educated adults are concentrating in big metropolitan areas anchored by vibrant central cities.

One city – and region – that gets that attracting talent is central to prosperity and is reaping its benefits is Denver. Tami Door, CEO of the Downtown Denver Partnership, in a must read Denver Post guest column, writes:

Door writes that the Denver has made its priorities “amenities, transportation infrastructure, educated population, (downtown) residential growth, innovation and entrepreneurship, and emerging green economy — that make the urban core of the Mile High City an attractive place for these younger workers.”

And metro Denver has repeated big benefits from making attracting mobile young talent a priority. In 2009 (still the latest available data), metro Denver among the 55 metros in the country with a population of one million or more is 9th in per capita income and, maybe most importantly, 7th in private sector employment earnings per capita.

The lessons Denver, and as I have written about previously  New York City, Chicago and Pittsburgh, have learned that creating vibrant central cities that attract mobile young talent is essential to economic growth is a lesson that we have not, but need to, learn here. The simple fact is without concentrated talent you cannot recreate a high prosperity Michigan.

Now, you can certainly make the argument that the personal property tax discourages investment, and that it places Michigan at a disadvantage to nearby states that levy no comparable tax. But the main beneficiaries of its repeal would be capital-intensive industries, whose private investment in new equipment would be incentivized at the expense of public investment in urban infrastructure and higher education — exactly the sort of investment Snyder contends is critical to attracting and retaining skilled young talent. And if talent has indeed displaced “capital resources” (such as factories and machinery) as the “key driver of economic growth” — I quote from Snyder’s own special message on talent — then why would Michigan want to help the latter at the expense of the former?

Exactly the right question. The answer to which will define the direction Michigan policy makers are taking Michigan in: trying to restart a 1.0/2.0 Michigan or towards the Michigan 3.0 the Governor campaigned on. As Dickerson continues:

So the critical question isn’t what Snyder wants, but what he wants most — and which lesser priorities he’s willing to jettison to get it. Snyder’s urgent press to roll back the personal property tax makes a certain amount of sense if his ambition is to compete with Mississippi and other low-wage states for $14-an-hour factory work — and plenty of idled laborers would probably applaud that objective. But if he’s serious about attracting educated talent and participating in the knowledge industry, Snyder has to address the widening disconnect between what he wants now and where he wants to go.

The actions the Administration and Legislature have taken since they came to office in 2011 are far more consistent with competing with Mississippi and other low cost, but also low wage, states for 20th Century jobs and industries, rather than the high wage jobs of the 21st Century economy. Choosing to make the personal property tax cut the next big priority while choosing to continue a decade of cuts in spending on higher education and local governments’ ability to provide quality basic services and amenities further aligns state policy with Michigan 2.0 rather than Michigan 3.0.

Paul Hillegonds (a member of the Michigan Future, Inc. Board) in his must read GVSU The next 50 years in Michigan speech posed the right question: “We all would like Mississippi’s taxes and Minnesota’s social and economic infrastructure, but there is no state in the nation that has  both. Which fiscal strategy will we choose?”

If we want a prosperous Michigan again – one with a broad middle class – then we need to choose  heading towards Minnesota, not Mississippi. As Paul continued:

What I know is that Michigan’s quality of life and prosperity will depend on a willingness to take risks, to change and think longer term than a short-term election or economic cycle. That change begins with the aspirations we hold for ourselves and our children— and the aspirations we hold for our state and regional communities. I also believe that the successful reinvention of Michigan regions will depend not only on our personal values and innovative private and non-profit sectors, but on public policy and the community investments we make—investments in the assets necessary to keep and attract talent and grow a knowledge-based economy.

Cities – with the support of their regions and states – across the country get it. And have made retaining and attracting young talent an economic development priority. Unfortunately, not here in Michigan.

One of the cities that gets it and has reaped the benefits is Pittsburgh. Pittsburghlive.com reports that the region has reversed a generation of out migration of young talent. They report the number of 18-24 year olds living in the region was 67,445, by 2000 it had shrunk to 49,461. They write: ”Specifically, the people who were leaving were the young, 20-something, professional and educated workers who we really needed to transform and move our economy forward,” said Chris Briem, chair of Pitt’s Center for Social and Urban Research. But by 2010, after decades of efforts to revitalize the central city, they can write that the brain drain has been reversed as the number of 18-24 soared by 16% the last decade to 57,745 in 2010.

The city’s Mayor Luke Ravenstahl has made retaining and attracting young talent a top priority. He writes: “A main component of our City’s Third Renaissance is our ability to retain the educated and talented students that attend our world-class institutions,” Ravenstahl said. “Pittsburgh has so much to offer young people, from available jobs to high quality of life and affordability and I’m happy to remind them that Pittsburgh has what they need and want after college.”

And the region has reaped the advantage of this focus on young talent. As we wrote in our 2010 annual report on the Michigan economy, metro Pittsburgh is the prime example of a region that has successfully made the transition from a prosperous factory-based economy to a prosperous knowledge-based economy. The Pittsburghlive.com article lists high-tech jobs, medical institutions, higher education and finance as the drivers of the region’s economy, not steel. Metro Pittsburgh today is every bit as prosperous  – compared to the nation – as it was when it was steel dominated. In 2009 (still the latest available data) metro Pittsburgh ranked 15th of the 55 regions with a population of one million or more in both per capita income and, maybe most importantly, per capita income from private sector employment earnings.

Dr. Briem is exactly right when he says: “the young, 20-something, professional and educated workers who we really needed to transform and move our economy forward…”  As we say in closing our presentations: “Either we get younger and better educated, we get poorer.”If we do everything else as well as can be done that we call economic development and don’t retain and attract young talent, Michigan will be one of the poorest states in the country. Retaining and attracting mobile talent is that important.

In the interview, Emanuel said:

I cannot think of anything more fitting at a critical juncture for our urban centers because, as we all know, I think over the next 30 years the real economic competition and competitiveness and growth will come from the top 50-plus cities or major metropolitan areas around the globe. … For the last 20-plus years, companies looked at kind of the campus style model. What’s now happening is density, which cities have is a huge strategic economic advantage. A, it saves on energy costs. B, the type of workers companies are looking for are educated. They love good nightlife, the cultural life, the entertainment that comes with living in an urban center.

Emanuel then put his words into action with a $7 billion dollar infrastructure investment initiative to build the new Chicago. You read that right: 7 billion with a b. In a time when small government is suppose to be the key to economic growth, Emanuel knows that is not true. So he is investing in key public assets that are essential to future prosperity. You can read the Mayor’s speech here. Worth reading.

Emanuel makes the case this way:

The decisions we make in the next two to three years will determine what Chicago will look like in the next 20 to 30 years — the type of City our children will inherit. By neglecting to invest in our infrastructure for nearly four decades, we have allowed Chicago’s foundations to decay and our strengths to decline. We know that as long as our city rests on a 20th century foundation, we won’t be able to compete in a 21st century economy. If we don’t take action, Chicago will face another lost decade. That is something Chicagoans cannot afford, and I, as your Mayor, will not accept.

Emanuel is doing what we should be here in Michigan: investing in key public assets in our big cities – particularly Detroit – that are essential to our future prosperity. Emanuel is exactly right when he says: “What’s now happening is density, which cities have is a huge strategic economic advantage. A, it saves on energy costs. B, the type of workers companies are looking for are educated. They love good nightlife, the cultural life, the entertainment that comes with living in an urban center. To do that, we have to do a couple things. We’ve got to keep our cultural life of a city vibrant. We have to invest in our transportation infrastructure, our broadband infrastructure, so we are most economically competitive, so you have a 21st century economy sitting on a 21st century foundation. And then third, we have a trained, educated workforce of ample supply.” This understanding of what matters most to future economic success – which is missing here in Michigan – is the foundation on which state and local public policy needs to built on if Michigan is to be prosperous – a place with a broad middle class – again.

In our research we have found that the states that have high per capita income – the best measure of overall economic well being –  have in common:

Nearly everyone agrees that the key to realizing the goal of recreating Michigan as a high prosperity state is increasing private sector employment earnings (both wages and employer paid benefits). It is what most economic development policy and programming is designed to grow. Before we look at data, lets take cost of living off the table. Private sector employers don’t care about cost of living when they pay employees. They pay for productivity. If they can get the same work done cheaper in Bangladesh than Manhattan, the work is going to Bangladesh. End of story.

We looked at state private sector employment earnings except those from natural resources (farms, fishing, forestry and mining including oil and gas extraction). Turns out the list of states at the top of private sector employment earnings except natural resources is almost identical to the states at the top of the list for all private sector employment earnings. The only  change in the table below would be Nebraska in and Washington State out.

Here are the top 15 states and Michigan in 2010 private sector employment earnings except natural resources:

Michigan is 36th, 16% below the national average. Metro Detroit (nine counties that include Ann Arbor and Flint) is an astonishing 22% below the average for the 17 regions in the country with population of 3 million or more. As we explored previously it is these biggest metros where private sector employment earnings are the highest. It turns out that they are the highest in those very big metros that are also high in college educated adults. (Nationally 27.9%of adults have a four year degree or more.)

It is the combination of the two (very big metro and high college attainment rates) that creates high prosperity regions and in turn high prosperity states. Unlike most states, Michigan can play in this space. We have one of the 17 biggest metros.  But metro Detroit lags considerably in college educated adults. And therefore is unable to take advantage of the biggest metros most important competitive advantage: concentrated talent. If metro Detroit, including the city of Detroit, doesn’t get better educated, Michigan will almost certainly not be a high prosperity state.

Turns out that Detroit parents, in unprecedented numbers, actively shop for schools rather than blindly accept the DPS assigned school. We just released the first of its kind in the nation report on Detroit parents as school shoppers. Based on door to door interviews with more than 1,000 Detroit parents we found that 71 percent of Detroit parents have chosen a school other than the assigned DPS school for at least one of their children over the past five years. So much for Detroiters as resistors of change!

There are real challenges in the education marketplace in Detroit. Most importantly too many schools but too few good schools – traditional public, charter and private alike. But parents not willing to shop for schools is not one of them. The report’s lead researchers – Dr. Patrick J. Wolf, Professor of Education Reform and 21st Century Endowed Chair in School Choice at the University of Arkansas in Fayetteville, and Dr. Thomas Stewart, President/CEO of Qwaku & Associates – found four types of school shoppers: veteran, emerging, potential and unlikely. The unlikely group, those who today and in the future, are almost certain to send their children to their assigned school makes up only 21% of Detroit households with school age children.

The high proportion of  Detroit school shoppers is the headline from the research. Beyond that, other key findings include:

• 55% of students attend their assigned DPS school, 5% a DPS magnet school, 23% a public charter school, 15% a traditional non DPS public school and 3% a private school or are home schooled.

• When asked to list the top three characteristics they look for in choosing a school, academic performance ranked first followed by safety and discipline, then academic program, extra-curricular activities and convenient location. They were the only features mentioned by at least 30 percent of parents.

• The preponderance of Detroit parents are satisfied with the schools they have enrolled their children in. Only 13.6% of parents say that they are dissatisfied with the schools their child attend. This, of course, is in stark contrast to most thought leaders and reformers who view most schools that Detroit students attend – no matter the form of governance – to be substandard at best. The disconnect may be because parents use different metrics in determining school quality. In focus groups parents expressed something between skepticism and distrust of standardized test scores and even grades. Rather they seem to look for good teachers, student interest/engagement and homework as indicators of quality.

• Parents are quite willing to look beyond the neighborhood school. When asked how far they were willing to travel to take their children to school, 80% said up to three miles or more.