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It’s the Neighborhood
Lots of comments on the Andy Basile email I wrote about in my last post. Most quite positive. A few pushed back. Let me lay out my thoughts on why I thought the email was so important and then give my take on some of the push back.
At the core Basile – a private sector knowledge-based employer – affirms two central beliefs of ours: 1. That it is talent – not taxes or big government – that matters most to enterprise success. 2. That talent is so important and in such short supply that knowledge-based employers will move to where the talent is rather than the other way around. Conventional wisdom is people move to where the jobs are. In a knowledge-based economy there is growing evidence that enterprises move to where talent is concentrated.
Unless we get thought leaders and policy makers to understand both we have little chance of getting our agenda debated, let alone enacted. And the best way to get them accepted is from employers. What is so unique about the Basile email is that he put what many employers have said to me over the years off the record in writing and then allowed me to distribute widely what he wrote.
That brings me to the push back. Two main items
1. The firm should be in Detroit. Obviously I would prefer that it be in the city. But I do not believe if it were that it would change their recruitment challenge. Are there a small number of young professionals that won’t take a job unless they can walk or bike to it, probably yes. But not at any scale. So I don’t think where a firm is located has much to do with the ability to attract talent. Before the Great Recession I heard the same story for years from knowledge-based enterprises in the city. Available jobs, not enough qualified applicants, applicants not wanting to live/work in the region. Microsoft, along with many Seattle knowledge-based employers are in the suburbs. The outbound commute in Seattle is as crowed as the inbound commute. The notion that the company has to be in the city (or walkable suburb) to be attractive to young professionals does not appear to be the pattern across the country. Central cities are increasingly the new bedroom suburbs where a segment of talent wants to live, not necessarily work. That is what is missing here – vibrant neighborhoods where talent wants to live, not work – plus the ability to commute by rail.
2. If they would market our assets better talent will come. This is the one critique I didn’t expect. That some of us believe that we have a competitive quality of place today. Should our firms do a better job selling the city/region to their recruits? Absolutely. I’m convinced most employers don’t know the assets to showcase. But if they did would it change at any scale talent’s willingness to move here? Highly unlikely. I agree with Basile when he writes “We don’t have a perception problem, we have a reality problem.” We have a region, in Chris Leinberger’s terminology, which is dominated by driveable suburbanism, not walkable urbanism, in a market where an increasing proportion of mobile talent wants/demands walkable urbanism.
No Talent, Jobs Go Elsewhere
About a month ago I received an e mail with the title “Why our growing firm may have to leave Michigan” (you can and should read it here). I assumed that it would be about taxes and/or business costs are too high. Boy was I wrong! It is from a law firm that cannot fill available high paid jobs because no one wants to live in metro Detroit. It is simply the best statement of our case that talent is driving the economy and that place matters that I have seen.
Before the Great Recession I heard this same story over and over again from knowledge-based employers across the state. This is the first time one of them has put it in writing. Of course, the conventional wisdom still is this cannot happen. People go to where the jobs are. Fix the cost of doing business in Michigan and jobs will blossom, talent will rush here and we will be prosperous again. As Mr. Basile writes that ain’t the way the world works today.
He writes: We’d like to stay in Michigan, but we have a problem. It’s not taxes or regulations. There’s lots of talk about these issues but they have no impact on our business. We spend more on copiers and toner than we do on state taxes. Our problem is access to talent. We have high-paying positions open for patent attorneys in the software and semiconductor space. Even though it is one of the best hiring environments for IP firms in 40 years, we cannot fill these positions. Most qualified candidates live out of state and simply will not move here, even though they are willing to relocate to other cities. … There’s a simple reason why many people don’t want to live here: it’s an unpleasant place because most of it is visually unattractive and because it is lacking in quality living options other than tract suburbia. Some might call this poor “quality of life.” A better term might be poor “quality of place.” In Metro Detroit, we have built a very bad physical place. We don’t have charming, vibrant cities and we don’t have open space.
Quality of place matters. We need to keep pushing to get this at the top of the state’s economic growth agenda.
Cost of Living?
One of the questions I get most often during my presentations is “what about the cost of living?”. Aren’t most of the high prosperity big metros in the country – where the knowledge economy is increasingly centered – places with very high cost of living? It is true we don’t correct income for cost of living differentials. Here is why.
It is only one half of the equation. The other half is what you get for your money. If costs were all the mattered we would all drive a Hyundai and none of us a Lexus. We start with a belief that consumers are rational, not dupes. They don’t over pay for housing or other basics when they choose a place to live and work. When they pay more they calculate what they are getting for their money.
So that fact that housing costs in Michigan are far less than in Chicago and Manhattan doesn’t stop many of our recent college graduates from going to those vibrant cities. Why? Because they are buying the neighborhood, not just the housing. Central Park is worth something as is the access to world class arts, culture and night life. It is no different than middle class families with children paying more for the same house in a community with better schools.
So the places with the highest per capita income are the most prosperous places in the country. And what most distinguishes them is that they have a high proportion of their residents with a four year degree or more. They are places where increasingly mobile talent chooses to live and work. You want to be one of those places! Michigan’s challenge is none of our big metros are any where near the top of list. Metro Detroit is 37th and metro Grand Rapids 45th in the proportion of adults with a four year degree out of 55 regions with populations of one million or more.
Constantly Changing Economy
At the core of Michigan Future’s work is the belief that globalization and technology are mega forces that are fundamentally changing the economy. That change is now a permanent feature of life. It’s not an adjustment to a new economy that is required but constant adjustments to new realities. The places that understand that and align with new realities the quickest will do the best.
Along comes a New York Times story on the book business that demonstrates the power of those forces quite clearly. The fact that it is the book business – an industry that has been around for centuries – makes the story even more important. It’s not just high tech, but all industries that are being transformed constantly by globalization and technology. The basic facts: the adoption by readers of e book technology (things like the Kindle and I Pad) has been much quicker than anyone thought. Eight percent of the books sold this year, projected to be 40% over the next few years. That puts book retailers in jeopardy of going the way of music retailers. Basically gone. Thousands and thousands of jobs likely to be gone not just in book stores but in making and distributing physical books.
It is not just the auto industry, nor is it disproportionately Michigan based enterprises, that are endangered by globalization and technology. It is all industries, everywhere. The reality is everyone is wrestling with how to prepare people for a world where the job you have today, your occupation, and even the industry you are in is less stable today than yesterday and even less stable tomorrow than today. This new reality is going to require each of us to be more agile but also for communities to create systems to help us constantly learn new skills and transition from one job/occupation to the next. No one yet knows how to do any of that well. Building systems that help people succeed in this new context is the preeminent challenge for policy makers going forward.
Young Talent Leaving Michigan
A couple of interesting articles about young talent leaving Michigan. Both worth reading. The first from the Spinal Column covering west Oakland County. I’m interviewed, but what is most interesting is the insights of recent college grads on why they stayed or didn’t. Both jobs/careers and place sure seem to matter. The endless debate we have on which matters more probably is a waste of time. Both matter.
The second is really interesting. It is from Concentrate Media which covers Ann Arbor online. The article is written by Kate Rose who has been a regular contributor singing the praises of Ann Arbor and Michigan as a great place to live and work. But now she has moved to California and she writes about why. It is quite insightful on what Ann Arbor has to offer and what it is lacking. Her agenda for Ann Arbor:
1. Job diversification. I didn’t want to “dump” Michigan. It had so many qualities that I was looking for in a homebase — save one. Selfishly, that turned out to be my career growth. As Gen Y’ers figure out their next career moves, we need to encourage a range of businesses with an enticing array of jobs. Easier said than done, but if this is a wish list, economic livelihood tops it.
2. A dynamic downtown. We lack discovery of new places, and I don’t think the fact that Ann Arbor’s a small town is an excuse. Give us something to explore and keep the chains out. Create more opportunities for innovative and surprising businesses, organizations, events, and entertainment to take root. If Ypsi can hold a puppet-hosted mayoral debate, surely A2 can too.
3. Knock off the “Us vs. Them” development wars. Before I left, I participated in a few meetings where young people discussed development issues coming before council. The tone was hopeful, but felt combative. The general sentiment was that older residents liked how things were, just as they are, and had the time and resources to fight like hell to keep it that way. We need to open the discussion — that’s right, “discussion’, not “argument’. A stronger acknowledgment from city government that young professionals’ interests are being considered would be a welcome start.
Good advice. Jobs and place. Both matter.
The Basics: Education and Infrastructure
When I started working in economic development more than thirty years ago –time does fly when you are having fun – conventional wisdom was that the state’s chief role was education and infrastructure. They were considered the foundation on which the private sector could build a strong economy. Somehow that lesson has been lost over the years as we designed and implemented all sorts of new ways to subsidize business investment or bought into the low tax/small government ideology.
So it was with great pleasure that I read a recent Paul Krugman column that made the case that education and infrastructure are still the foundation on which you build a strong economy. Unfortunately as Krugman points out we are headed in the wrong direction. Increasingly as a nation we are disinvesting in both. Big mistake!
As Krugman writes: … a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel. And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead. … And what about the economy’s future? Everything we know about economic growth says that a well-educated population and high-quality infrastructure are crucial. Emerging nations are making huge efforts to upgrade their roads, their ports and their schools. Yet in America we’re going backward.
Certainly that is true here in Michigan. For the first time ever we can’t pass a much needed gas tax to fix our roads and develop a 21st Century transit system despite nearly unanimous support from the business community. We are apparently willing to give up millions in federal aid rather than raise the gas tax. And, of course, for a decade we have been disinvesting in our higher education system. In the 20th Century, when it didn’t matter so much, we built one of the best systems of community colleges and universities on the planet, now that it is essential for economic growth we are cutting higher ed spending with bipartisan support. Real stupid!
If we want to recreate a prosperous Michigan we need to get back to the basics. That means reestablishing public investments in education and infrastructure as a priority. Without a quality lifelong system of teaching and learning as well as a quality of place that increasingly mobile talent demands when they decide where to live and work we are going to continue to get poorer compared to the nation. Public investments in the basics are that important.
Place Comes First
Place trumps everything. Among my college educated friends who have yet to start families, they’d sooner move (and many have) to an exciting or beautiful place without a job prospect, than to stay in or move to Southeast Michigan with an excellent job offer. While there are exceptions, my husband and I included, the overarching trend has been to join the mass exodus to Chicago, New York, Seattle, the Bay Area and the outdoor lovers to Colorado and Salt Lake City. What do we 20 and 30 somethings want in a place? We’re shedding the oppressively dull and uncreative suburban lifestyle of our parents for the vibrant cities where creativity and culture in all its forms flourish. We undeniably value walkable cities, where cars are convenient, but not necessary; where the cultural and social options are so plentiful, you’re forced to be selective in your spare-time pursuits; where the community of energetic forward thinking entrepreneurs and intellectuals is so vast, that new exciting relationships continuously materialize. Despite the spread of technology, personal laptops and email notifications going off in our pockets and purses, we do not want to be physically isolated, living miles from our like-minded peers. We want to be tangibly connected to the world around us. Perhaps as our work days are increasingly isolated in a world of technology, we find ourselves developing an insatiable craving for the jostling excitement of a concentrated population of young movers and shakers.
Factory Work: Summing Up
Most of my posts the past several weeks have been about manufacturing. More specifically what has traditionally been blue collar work done in factories. The Atlantic End of Men? cover story, the Andy Grove Business Week commentary and the New Times article on the skill gap between current factory jobs and those of applicants all at their core are about a group of predominantly male non college educated adults who have enjoyed high wages and now have almost no prospects of either getting their old job back or getting another middle class job without learning new skills. Something they are having a hard time doing as portrayed by both the Detroit News and Lansing State Journal. (See my previous posts on each of these articles.)
Now comes an interesting article in USA Today on some manufacturers bringing factory jobs back to the US from developing countries – mainly China. Good news! Higher transportation costs, low quality, longer lead times, intellectual property theft and rising labor costs are some of the reasons for this encouraging counter trend. Also lower labor cost here are helping. But, of course, that is a mixed blessing. Factory work is now around $15 an hour, not the mid $20s that many factory workers have gotten used to. The article is quick to point out that this onshoring still “is a trickle, it is not a flood”.
So where does all of this leave us? As we have written previously factory work as a proportion of the American workforce is almost certainly not going above its current 10%. Most of the six million factory jobs lost over the last decade are not coming back ever. But factory work also is not going to zero. America will maintain a competitive edge in some areas of factory work. It will still be an important part of the labor market. And with the coming retirement of many Boomer factory workers there will be job openings in the years ahead. But those openings will be for mid skill jobs at moderate pay. Not the low skill/high pay factory work of the past.
The bottom line: fewer jobs, higher skill requirements, lower pay. That is the future of factory work in America. More than likely it means a large group of former factory workers who won’t ever again work in a factory and won’t ever again earn as much. And a shortage of workers with the skills needed for the new factory jobs. So as a country – and particularly in industrial states like Michigan – we will need to wrestle with (1) whether or not to offer an expanded safety net for those faced with a permanent decline in their standard of living and (2) how to attract and train workers for the mid skill/moderate pay factory jobs of the future.
Andy Grove III
Business Week chose Duke’s Vivek Wadhwa to respond to Andy Grove’s commentary on the need to retain manufacturing jobs. Wadhwa’s response is quite consistent with the basic Michigan Future view of the economy.
That the kind of factory jobs that are going overseas are not the kind of jobs Americans need– far too low wage – and even if they were there is little policy makers can do to keep them here. Enacting tariffs – which Grove recommends – to raise the cost of work done overseas would most likely lead to retaliation from the very countries we want our companies to sell to.
Wadhwa advocates instead policies that will help America create what’s next and prepare workers for those enterprises. His agenda includes expanded training, encouraging entrepreneurship, recruiting high skill immigrants, commercializing university research and matching incentives offered by other countries to keep company R&D here. Except for the last item, pretty consistent with what we and many others, who believe American prosperity is tied to making the transition to a knowledge-based economy, advocate.
We aren’t arguing that the loss of factory jobs – particularly those that are high paid – is a good thing. But rather that it is a new reality. America no longer has a competitive advantage in routine factory work and more advanced manufacturing is mainly done by machines so it needs far fewer workers. Grove doesn’t deal with how, even with tariffs, America can recreate a broad high paid manufacturing base.
What Wadhwa doesn’t deal with is Grove’s argument that without lots of factory jobs – particularly in high tech industries – America will not have enough jobs. Grove writes: You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed?
This is the great unknown. Will a knowledge-based economy (particularly one that is less dependent on borrowing) create enough jobs so that we are not faced with chronic high unemployment? And will that economy create enough high paid jobs to support a broad middle class? America’s history is that it has come through each economic transition more prosperous. Michigan became a high income state for most of the last century because it led the way in the transition from a farm based to a factory based economy.
Our core belief is that the same will be true in the current transition. We lose factory jobs, but gain both knowledge and service jobs and are prosperous again.That is not to say that some people won’t get hurt. They will. Major economic shifts not only make some companies obsolete but they also make the skills some bring to the labor market worth less. So they either have to get new skills (which is hard for many) or their standard of living declines. The task then for policymakers is a combination of aligning with new realities to grow the economy as Wadhwa recommends as well as help those hurt by the transition.
Andy Grove II
Andy Grove in his Business Week commentary lays out a case that America is on track to have high unemployment long term. With all sorts of dangerous implications for the country, social and political as well as economic.
He identifies two prime reasons for the country’s likely inability to create jobs at the needed scale. The first is a belief that start ups are the key to economic growth which he argues is just wrong. He writes: The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. … Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. … The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.
The second reason he identifies is that because the factories that make new technology products are increasingly overseas America is far less likely to invent and commercialize successive generations of products from those new technologies. The result: America gets little job creation from technology based enterprises. And given that technology is a key sector of employment growth we end up with not having enough jobs.
As Grove writes: I believe the answer has to do with a general undervaluing of manufacturing—the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. … I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.
We agree that start ups are not the key to economic growth. What drives economies are small companies that grow big, not that stay small. Where we don’t agree is that where the factory jobs go, so go the pre and post production jobs. As we wrote in our posts about Bissell and Apple, they have their products made elsewhere but keep adding to their workforce in the knowledge parts of the business. And both companies continue to be leaders in new product development. To us that is the future of American manufacturing and one that will contribute to American job growth.
• Copyright 2009 • Twitter: #michiganfuture