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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.
Andy Grove on Manufacturing
Bloomberg Business Week published an important commentary from legendary former Intel CEO Andy Grove. They also published a response by Duke’s Vivek Wadhwa. Both are worth reading and debating. The case Grove makes is so important, my next few posts will be on the issues he raises.
Grove argues that keeping manufacturing jobs in American is a national priority and we should do whatever it takes to keep those jobs here. His focus is on tech sector factory jobs. But I think he is making a broader point about factory jobs in general. Which is countries that don’t provide work for their citizens are countries with major social and political problems as well as economic. Grove clearly believes that without factory jobs, America will not provided work for too many of its citizens.
He believes this challenge is so important that he suggests moving away from free markets. When a successful capitalist like Andy Grove suggests free markets may not be in the best interest of Americans we need to pay attention. Groves writes: Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems—the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.
Grove makes the additional case that not making high tech products puts America at risk of losing the ability to stay in the lead in the next generation of those technologies. His story goes we invent the technology here, our venture capitalists finance the start up, but then the scale up is done elsewhere and the country where the scale up is done – not us – dominates the industry going forward.
Grove advocates that America needs to make job creation its #1 priority. His policy recommendation is a form of both protectionism and picking industries (government targeting new technology industries.) Specifically he proposes: The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.
Wow! Clearly a set of ideas worth exploring.
The Real Minnesota Story
High praise for LivingstonDaily.com for a story destroying the claim by a Republican State Senate candidate that Minnesota is a low tax state. Finally someone in the media is willing to check the facts on all the claims that low tax states have the best economies.
As they report, when they asked what state had lowered unemployment with lower taxes, the candidate, John Hune, answered Minnesota. First congratulations to the Daily Press and Argus for asking the question. By and large the media does not ask for evidence that low taxes lead to stronger economies. But to their credit they didn’t stop with reporting the answer, they checked how Minnesota’s taxes compared to Michigan.
Their conclusion: So just how attractive are Minnesota’s taxes? If he thinks Minnesota has the model tax structure, then Hune — who brands himself as the conservative anti-tax avenger — is actually favoring higher taxes. While it is true that Minnesota has a lower unemployment rate than does Michigan — at about 7 percent, it’s nearly half Michigan’s current rate — it hasn’t come about because of low taxes. By almost any measurement, Minnesota taxes its residents and its businesses at a higher rate than does Michigan.
We couldn’t have said it better. For years we have cited Minnesota as the Great Lakes state that Michigan should pattern itself after. Why? Not because of a predetermined set of “good” policies, but because they have the highest per capita income (our goal) by far of any Great Lakes state. They also have the lowest poverty rate, the lowest unemployment rate and the highest employment rate. They have the economic outcomes that all residents of Michigan want. They have achieved those outcomes with the highest taxes in the region.
Strong evidence that either state and local taxes are largely irrelevant to a state’s economic performance or that the public services paid for by those taxes are an asset to economic growth. Our best guess is it is a bit of both.
What Minnesota does have – that, by far, trumps a state’s level of taxes and spending – is the highest proportion of adults with a four-year degree in the region. That allows them to more concentrated in the knowledge-based sectors of the economy. The sector where both the highest wages are and most of the country’s job growth. How to increase the education attainment of Michiganians should be what candidates are debating. It is the path back to prosperity.
The Challenges of Adult Training
Kudos to the Lansing State Journal and Detroit News for in depth articles on the performance of Michigan’s adult training system. ( You can find the Journal’s article here and the News’ lead article here.) The News focused on the No Worker Left Behind program and its, at best, mixed results. While the Journal takes a more comprehensive look at the whole system from adult ed provided by k-12 districts through post secondary training through the Michigan Works! agencies and community colleges. The bottom line is that the system leaves lots of adults without the skills they need for the labor market of today and tomorrow.
For many training is the answer to the challenges raised in my last two posts: non college educated men falling behind and the gap between the skills needed for today’s factory jobs and the skills of applicants for those jobs. Both are consequences of the new reality that more and more of the work that required primarily muscle is now either done overseas or by machines. But the country – not just Michigan – does not have a very good record of taking people who have done lower skilled jobs and preparing them at scale for jobs that require higher skills. And an even worse track record with those who have been chronically unemployed, no matter how strong the economy.
It is unrealistic to ask training institutions to solve all the challenges of the economy. Training will not lead to jobs that don’t exist. So when the macro economy is weak holding training institutions accountable for placements is not fair. What is fair is holding them accountable for whether their students have gained the skills needed to get jobs – particularly decent paying jobs – when the economy starts to grow again. Nor can training institutions overcome the resistance of many to get training. Whether its not accepting the need to learn new skills, not wanting to participate in training or needing work now so one doesn’t have the time to get new skills there are all sorts of reasons adults don’t sign up for training.
But for those who do enroll for addition training, the system needs to do better. As we have written before, far too many participants don’t get the skills they need. Far too many end up in remedial programming and never make it to classes where they can learn new occupational skills. And many who do make it to occupational training, don’t get the skills/credentials needed to get employed in the occupation.
As the Detroit News pointed out the problem is particularly acute for many private adult training institutions. The privates are far more expensive for taxpayers and students with a worse track record of student success compared to community colleges. Quite troubling!
Figuring out how to get the system to get better student outcomes should be a priority. It is about more than just adequate funding for training. We need to admit that we don’t really know how to get better outcomes at scale and encourage lots of experimentation combined with clear outcome standards.
The Future of Factory Work
Important article in the New York Times on what is happening to manufacturing employment since the economy started to recover from the Great Recession. It identifies the trends that will likely define factory work going forward.
The new reality: (1) Some job growth, but at a fraction of what was lost this decade (six million) or even the two million lost in the Great Recession. Most of the lost jobs are gone forever. (2) The new factory jobs also don’t pay as well as in the past. The article mentions $10-12 an hour as the going rate for entry-level factory work and $15-20 an hour for more skilled work. This is in line with the $14 an hour that new Detroit Three auto plant workers make. (3) Even in a time of widespread unemployment, manufacturers who are hiring plant floor workers report having a hard time finding workers with the skills they need. Plenty of applicants, but too few qualified applicants. The article cites one Cleveland area drug manufacturer that had 3,600 job applicants, but only 47 who were qualified.
As the article states, During the recession, domestic manufacturers appear to have accelerated the long-term move toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad. Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker. Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills.
Combine all three trends it adds up to an economy where no more than 10 percent of the jobs will be in factories, those jobs will be moderate, rather than high pay as in the past but most will require more skills than in the past. Big challenge for the country and the sector: transforming a sector from high pay/relatively low skills to moderate pay/mid level skills.
Men Declining?
Provocative and important cover story in the current issue of the the Atlantic. It’s entitled The End of Men? Clearly exaggerated, but the main point of the article that men are having a harder time than women making the transition to a far more knowledge-based economy is probably true. The article claims the trend is global, not just here in the US.
The basic story is well know. An economy driven by technology and globalization no longer needs much muscle from humans, but now more highly values brains. Both left and right brain skills. So men who have relied on their muscle to earn a good living are having a hard time. The result: more woman working today in the US than men for the first time ever, 3/4 of the laid off workers in the Great Recession have been men and the jobs that are least likely to come back in the next recovery – production and construction – are male dominated occupations.
What is deeply troubling in the article is the evidence that men are more resistant to gaining the skills needed to succeed in the economy of the future. For whatever reason women are disproportionately higher ed students at all levels. From community colleges through advanced degree programs. And they are finishing degrees at a higher rate than men as well. This is not good news. Societies where men don’t work or don’t earn enough to support a family are societies with all sorts of social problems far beyond economic.
Our view of the economy is that career success in the future will look a lot more like rock climbing that ladder climbing. Career ladders that use to be the path to the middle class are increasingly gone. Technology and globalization mean that predictable and linear career progress for most of us is toast. What will take its place is the need to continuously adjust (rock climbing). All of us are going to have to be willing and able to learn new skills and new occupations over a lifetime. The article claims that men – except those from upper middle class households – are having great difficulty making these transitions. If true, this is a challenge that we need to make a priority.
Michigan Ain’t the Worse
Came back from this year’s Detroit Regional Chamber’s terrific Mackinac Policy Conference with one big take away: next year’s conference should be about what is right with Michigan. Folks are so down on Michigan. The public conversation is that we are the worse in everything. It ain’t true!
Two recent articles provide evidence that it is a lot worse elsewhere. The New York Times has a terrific feature on Illinois. As the Times writes: For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession. Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps — cuts and tax increases — to close a deficit of at least $12 billion, equal to nearly half the state’s budget.Then there is the spectacularly mismanaged pension system, which is at least 50 percent underfunded and, analysts warn, could push Illinois into insolvency if the economy fails to pick up.
Then there is the Wall Street Journal on Texas. They have an $18 billion state budget deficit for their upcoming two year budget cycle. 20 percent of their state budget. Michigan looks like a paragon of fiscal responsibility compared to Illinois and Texas!
So here is the reality: Michigan does not have the highest taxes, the highest business taxes, the largest budget deficit or the largest unfunded pension liabilities. We are not the highest spending state. We do not have the most partisan or least able to make hard decision state government. Far from it. On most of these metrics we are in the middle of the pack if not better than average.
There is a widespread belief if a state’s economy is not doing well – or in our case is awful for a decade – it must be because of state government. It’s not true. Illinois and Texas have had far better decades than us economically despite even worse fiscal management. Do we need to fix the structural deficit? Of course. Is fixing it the key to improving the Michigan economy? Highly unlikely.
Ficano on Transit
Great editorial from Wayne County Executive Robert Ficano for One D on transit. Ficano makes the case that rail transit is a key ingredient metro Detroit needs to retain and attract young professionals. Based in part on a recent charrette of University of Michigan students who were asked “if you could start from scratch, what would you do to improve this region and make it more attractive?” The priority was transit.
This is consistent with my experience with young professionals and college students across the state. I have never been in a discussion about their priority list for Michigan that does not have transit at or near the top. This is a generation where many would like to live without a car. So for many their decision on where to live and work after college includes having great transit. It’s a common feature of many of the cities that are young talent magnets.
Ficano understands this. Transit – particularly rail – is about more than just moving people. It is a economic growth priority. Because where those University of Michigan charrette participants choose to live and work after college will have a lot to do in determining which region are prosperous in the future and which aren’t.
Unfortunately his priority for transit seems not to shared by the Oakland County Executive and Chairman of the Macomb County Commission both of whom wrote editorials for One D on transit as well. (You can find them here.) It’s clear that the historic concerns that haven’t prevented metro Detroit from getting a high quality rail system still exist. Do we really need rail? Can we afford it? Etc.
Ficano is right. As region after region across the country understands, transit is a key ingredient in growing the economy. We cannot afford not to have transit. It’s that important!
Detroit’s Liabilities
In a previous post I wrote how we are so obsessed with what is wrong with Detroit that we forget it has assets to build from. But then comes a terrific Wall Street Journal article on black flight from Detroit and you understand again that all the assets that Detroit has gets trumped by its liabilities.
The article is worth reading. It’s largely about a middle class African American women who lived in Detroit for years because of her loyalty to the city, despite the urging of her friends to leave as they had. But ultimately she too left, driven out by repeated crime and the absence of police to do anything about it. Police that claim to have enough staff only to deal with violent crime, not the repeated break ins and ultimately arson that drove her out. Pretty depressing!
As we wrote in our Revitalizing Michigan’s Central Cities report there are some basics that cities must do if they are to grow. Particularly retain and attract residents which in our view is the key to city revitalization. Quality basic services – starting with public safety – is one of those basics. Without it nothing else will work. Middle class residents –which are the foundation of successful cities – will not live in neighborhoods/cities that are not safe. Nor should they.
Once again, it’s not hopeless. Crime rates in cities across the country have plunged over the past decade. New ways of policing, use of code enforcement as a public safety tool (as was pioneered here by Mike Duggan when he was Wayne County prosecutor) and new ways of organizing prosecutor offices and probation are making a real difference. If others can do it, so can Detroit.
Detroit desperately needs a growth agenda. Without it, shrinking will not be a one time priority, but a permanent feature of the city. That growth agenda needs to start with the basics. Public safety – more of it, but also delivered differently – needs to be at, or near, the top of that agenda.
Ann Arbor II
Lot of reaction to my post on Ann Arbor’s anti-density development policies. One theme is Ann Arbor can’t be Madison mainly because they are the state capitol and have the two lakes. No question Madison has some assets that Ann Arbor can not replicate. One can argue it’s why they are a city nearly twice as populous. I think it’s harder to argue those unique assets are the reason why the proportion of young professional households in Madison is more than 50 percent greater than Ann Arbor. Ann Arbor needs to go from 8,000 to 13,000 young professional households (2006 data) to have the same proportion as Madison.
I believe that the University of Michigan is a better asset than UW Madison. By creating a quality of place that is more attractive place to live they have leveraged their assets better than Ann Arbor.
We use Madison as a comparison for both Ann Arbor and Lansing/East Lansing both because of the major research university and to take cold weather off the table. Lots of folks think Michigan can’t compete for talent because of the weather, don’t believe it. But in terms of development policy a better model is Portland, Oregon. They have developed the playbook for land use.
Their four decade long strategy has three anchors: a greenbelt to control sprawl, a high density/walkable central city (particularly in their downtown and near downtown neighborhoods) and transit. The result: a city that is both regularly rated one of the “greenest” in the country and a talent magnet. (See this Wall Street Journal article on Portland still attracting young talent even in a down economy. It’s not just jobs that attract mobile talent!)
In environmentally conscious Portland you see high density (yes even tall buildings) development everywhere in and around the downtown. They understand if you want both to be kind to the environment and economic growth the recipe is to limit low density suburban/exurban growth and encourage a high density central city. It’s the way to get folks out of cars and to make transit (particularly rail) financially feasible.
Ann Arbor seems to have convinced itself that it’s good for the environment to restrict growth both outside the city and in the city. But then the only way you can grow is if new workers demanded by new and growing enterprises live further and further away from the city. Which means longer commutes all by car. So much for being kind to the environment.
That assumes that new workers want (or will accept to get the job) to live further and further away from the city. The evidence is an increasing proportion of college educated adults – the workers most needed by the knowledge-based enterprises that Ann Arbor wants to attract – don’t want/won’t accept that kind of low density/long commute living. The trend nationally – that Brookings has labeled bright flight – is a preference for central city living, particularly in high density, mixed use, walkable neighborhoods with transit. That is why vibrant, dense central central city neighborhoods is central to economic growth. Without a larger pool of talent Ann Arbor won’t get the economic growth it wants.
• Copyright 2009 • Twitter: #michiganfuture