This, of course, is the exact opposite of Michigan in the 20th Century when the state was structurally a high-prosperity state. In 1999 we ranked 16th in per capita income, just a smidge below the nation. In this post I want to focus on the reasons for Michigans decades-long economic well-being decline by comparing the components of Michigan per capita income in 1999 and 2022.

As readers of this blog know the core MFI description of the reason Michigan has been getting poorer compared to the nation is that we are over concentrated in manufacturing which is declining in both employment and wages and we are under concentrated in knowledge economy industries––information; finance and insurance; professional and business services; and corporate HQs––which are both growing and high wage.

And that is exactly what has happened between 1999 and 2022. U.S. per capita income in $2022 grew by $19,389. Michigan grew by $11,095. Knowledge economy industries share of per capita income in the U.S. has grown from 16.0 percent to 17.4 percent. In Michigan it has declined from 14.7 percent to 14.1 percent. Manufacturing share of per capita income in the U.S. has fallen from 10.9 percent to 6.1 percent. In Michigan it has declined from 18.9 percent to 10.3 percent.

Massachusetts, which is the economic well-being gold standard state, by comparison gets about 26 percent of its per capita income from knowledge economy industries and about 5 per cent from manufacturing.

Knowledge economy earnings (both wages and employer paid benefits) per capita in the U.S. went from $7,379 to $11,364. Manufacturing earnings went from $5,029 to $4,008. In Michigan, knowledge economy earnings went from $6,742 to $8,024; manufacturing earnings went from $8,689 to $5,888. A very big proportion of Michigan’s manufacturing earnings decline is in motor vehicles and motor vehicle body parts manufacturing where earnings declined by $2,026 out of a total decline in Michigan manufacturing earnings per capita of $2,801.

32.6 percent of Michigan’s decline compared to the nation is attributable to slower growth in knowledge economy earnings. Another 26.4 percent is attributable to our much steeper decline in motor vehicles, fabricated metals, and machinery manufacturing earnings. The two other big contributors to Michigan’s growing gap with the nation are slower growth in government earnings which explains 12.5 percent of the gap (so much for the Michigan is big government myth) and capital income which explains 18.6 percent of our decline.

Capital income, which is investment earnings not including capital gains, are almost certainly highly aligned with knowledge-economy employment and four-year degree attainment rates.

One item that does not explain our growing gap is transfer payments which grew in Michigan by $6,143 compared to $6,081 nationally.

For us the basic lesson of this data is what matters most to Michigan reversing its decades-long economic well-being decline is growing the knowledge economy. The knowledge economy is the high- wage and high-growth sector of the 21st Century American economy.

You can find our recommendations for how the state can best grow the knowledge economy here.

The post Explaining Michigan’s economic well-being decline appeared first on Michigan Future Inc..

The New York Times in an article entitled Jim Farley tries to reinvent Ford and catch up to Elon Musk and Tesla writes:

Yet Wall Street still thinks that Tesla, which is worth more than $1 trillion, will dominate the industry and that companies like Ford, worth $62 billion, and G.M., $58 billion, will become relative minnows.

The possibility of Ford and G.M. becoming mobility industry minnows should terrify state policymakers and economic development leaders. Because if they are minnows––minor players in the new electric, autonomous, connected mobility industry––Michigan will be well on its way to being Michissippi. One of the nation’s least prosperous states.

What made Michigan one of the most prosperous places on the planet for most of the 20th century was not making motor vehicles, but inventing, designing and developing both the vehicle and the process for making vehicles. We were the early 20th Century’s Silicon Valley: the place where the next economy was invented and commercialized.

Michigan’s position as the North American center of the auto industry is still a function of our being the place where internal-combustion, non-autonomous, non-connected vehicles are designed and developed. And being the center of the North American auto industry is a central component of Michigan’s current diminished prosperity.

Michigan can only retain its position as the North American center of the auto industry if we are the place where mobility industry vehicles, propulsion system(s) and software in the vehicle are invented, designed and developed. And that increasingly is software-development driven. As Ford CEO Jim Farley explains in a terrific New Yorker article:

The electrification of Ford’s fleet isn’t the most challenging task that the company faces. As Jim Farley explained after my Rouge tour, “This industry is overly focused on the propulsion change. But the real change is that we are moving to a software-defined experience for our customers.” That experience will gradually replace what drivers do now, until Ford’s fleet becomes fully autonomous, at some point years from now. “Can we sleep in our cars?” Farley asked, in a way that suggested the answer will be yes. “Can we use them as business places, so we leave for work an hour later?” Again, yes. “Then the drive totally changes.

… Farley pointed to the recent history of the mobile phone as “the most powerful proxy for what we are going through.” In 2007, he went on, “three of the biggest mobile-phone-makers were BlackBerry, Nokia, and Motorola.” A few years later, Apple- and Google-made mobile devices took over, and they were much more than telephones. “And the most important thing was that the software decided what kind of hardware got put on those machines,” Farley added. When it came to the device business, hardware-centric companies had given way to software-first ones, and the customer experience was defined by the embedded operating system.

The transition to a software-driven industry means that losing the Rivian headquarters to California is far more important to Michigan’s future prosperity than where electric vehicles are assembled or batteries are made. And even more important to Michigan’s future prosperity is the success of Ford’s new Corktown facility. The place where Ford is centering their invention, design, development and commercialization of electric, autonomous and connected vehicles.

Detroit Three assembly and battery plants in states like Tennessee and Kentucky, and Michigan too, will be of little value if the Detroit Three are the equivalent of BlackBerry, Nokia, and Motorola.

What should terrify the rest of us is the lack of evidence that any state policymaker of either party or any economic development leader is terrified at the possibility of the Detroit Three being mobility industry minnows.

To make matters worse, the auto/mobility industry’s Lansing representatives are, by and large, missing in action. Focused almost exclusively on Michigan winning assembly and battery plants. Pushing for more and more taxpayer subsidies for factories and for an education system that pushes others’ kids into the skilled trades to work in those factories.

Being competitive for factories and training for factory-floor skilled trade workers is not what will determine whether the Detroit Three are mobility industry minnows or not. That will be determined by whether Michigan has the talent necessary to be the place where the new software-driven mobility industry is invented, designed and developed.

That requires a fundamental transformation in Michigan’s economic strategy. From factory focused to knowledge-enterprise focused. From competing for business investments based on low costs to competing for business investments on high talent––particularly young adults with four-year degrees or more––concentrations focused. To do that requires substantially higher public investments in education for all Michigan children from birth through college and in creating places where talent wants to live, work and play.

In a terrific Crain’s article entitled Why Ford’s Corktown project may mean more to Michigan’s future than the next battery plant, Chad Livengood lays out the required transformation in Michigan economic policy:

Despite the enormous potential Ford’s train station project has for both Detroit and Michigan, policymakers here are still chasing jobs assembling batteries instead of jobs inventing new technologies to make batteries capable of propelling an F-150 from Monroe to Mackinaw City and back on a single charge.

In response to Ford dissing its home state over shovel-ready land and industrial electricity rates, Michigan’s policymakers from both political parties went straight back to an all-too-familiar economic development playbook: Buying hourly production jobs with taxpayer-funded incentives.

… But where is the new $1 billion investment in Michigan’s knowledge economy? Where is the workforce investment in the college degree-dependent automotive technology fields that can be traced to decades of prosperity in places like West Bloomfield Township, Novi and Ann Arbor?

There’s been no similar effort of that scale to, for example, invest in the education and retention of software developers to meet the needs of Ford, GM and Stellantis (the automaker formerly known as Fiat Chrysler Automobiles) — or Michigan’s nonautomotive corporate titans such as Dow, Whirlpool, Stryker, Steelcase and Amway.

Rather, there’s been a 20-year disinvestment in higher education in this state, which ranks dead last in state taxpayer-funded need-based financial aid for students.

This is the state of Michigan’s economic policy as it relates to creating more knowledge-based jobs, which, unlike manufacturing jobs, are actually growing.

The post Could the Detroit Three be mobility industry minnows? appeared first on Michigan Future Inc..

“I love the environment, and there are a ton of outdoor activities all year round,” he said about a metro area that celebrates its cold winters. “The city is really good about taking care of the streets and it’s easy to get around on public transit.”

Carrigan, 31, is far from alone in his assessment of the Twin Cities’ livability. Minneapolis and St. Paul regularly appear at or near the top of ‘best cities to live’ lists. Much of that is due to a demand by residents here for high quality parks and trails, a clean environment, cultural amenities—collectively known as placemaking– and a commitment to pay for them.

Talent and placemaking go hand in hand in metro Minneapolis. Local business and community leaders strongly believe that you can’t have a talented workforce if smart people don’t want to live in your community.

In 2008, voters passed an amendment to Minnesota’s constitution, known as the Legacy Funds, that raised the sales tax by three-eighths of 1 percent to protect the environment, support arts and culture, and fund parks and trail projects. The tax expires in 2034.

Legacy Funds money has helped the Metropolitan Council, the local regional government agency, award more than $625 million for parkland acquisition and development, and projects such as environmental education to local parks systems in metro Minneapolis.

Minneapolis and St. Paul for years have been recognized as having the best park systems among the 100 largest cities in the country by the Trust for Public Land, which helps cities create and finance parks. Minneapolis and St. Paul were ranked first and second, respectively, in by the organization in 2016 and 2017. Detroit ranked 75th in the 2017 study.

“You can’t have a great city without a great park system,” said Adrian Benepe, senior vice president of The Trust for Public Land.

Minneapolis and St. Paul also have aggressively been building miles of protected bike lanes on city streets and using their zoning powers to increase residential density, which many young people desire.

Metro Minneapolis also has one of the best transit systems, including light rail, in the country. Many see that as a crucial economic and placemaking investment.

“You don’t have to have a car to live here. In Michigan, it’s hard to get around anywhere if you don’t have a car,” said Marissa Luna, a 28-year-old Saginaw native who moved to Minneapolis last year. “Minnesota invests in public goods, which is really important to young people who have a lot of student loan debt. Buying things like cars is not feasible.”

In the Twin Cities, talent development has long been the key ingredient in growing a metro economy that is one of the most vibrant in the country.

“For us, it’s about a highly educated workforce that is well aligned with our industry sectors,” said Peter Frosch, vice president of strategic partnerships at Greater MSP, a regional economic development group formed in 2011 by the Itasca Project, a group of local business leaders.

Metro Minneapolis’s young adults are a brainy bunch, with 58.2 percent of those age 25 to 34 holding an associate degree or above in 2016. That was the ninth-highest percentage among the 53 largest metros in the country. The comparable percentages were 45.8 percent in metro Grand Rapids and 42.8 percent in metro Detroit.

The Twin Cities didn’t get smart overnight. Frosch described the effort as a mix of private and public sector efforts to create knowledge jobs and boost the educational level of its workforce.

“The demand from the economy was part of it,” Frosch said. “Industry here developed a lot of intensive knowledge work post-World War II, and that grew and grew and grew.”

Minnesota also started boosting education spending in the 1950s because of worries that that state was lagging in a variety of economic measures, including per capita income and gross domestic product.

“By 2000, we had one of the most educated workforces in the country,” said Art Rolnick, a former Minneapolis Federal Reserve economist who studied the state’s economy going back to 1920. “We argued that was causal to our strong economy.”

Local metro Minneapolis leaders aren’t taking the region’s strong economic performance for granted. Worried that the economy might outstrip its available workforce, they’re undertaking a variety of efforts to retain and recruit talent.

There’s a strong focus reducing economic and racial disparities. That’s in part because the region is becoming more diverse.

The portion of minorities age 25 to 64 in the Twin Cities region is expected to nearly double, from 22 percent of the total working-age population in 2010 to 43 percent by 2040, according to census data analyzed by the Itasca Project. The white working-age population is expected to decline.

In 2015, Greater MSP created “Make It. MSP.” bringing together 150 businesses and community and organizations to help welcome and acclimate newcomers, especially minorities, to the region.

“This has to be place where they can stay and thrive,” Frosch said.

The post Talent and placemaking go hand in hand in the Twin Cities appeared first on Michigan Future Inc..

The conventional wisdom seems to be that due to more fuel efficient vehicles, Michigan drivers are spending less on gasoline, therefore less on the gasoline taxes, and the state’s transportation budget is suffering because of it. We need to find more money to make sure our roads are well maintained and commerce can move forward.

While the need for additional investment in critical infrastructure – and in mass transit – is obvious, the reality is that Michigan today is spending more tax dollars on roads today than it did in 2000 – a lot more, largely due to federal support. Meanwhile, in other equally vital areas of the state’s budget – higher education and cities – the state is spending a lot less. And there’s little groundswell of support for greater investment in those areas, even though they are vital to preparing, attracting and retaining college graduates, the key source of prosperity in the knowledge economy.

Here are the numbers (courtesy of the Senate Fiscal Agency):

In 2000-01, the state spent $3.036 billion on roads, including federal funds. In the 2012-13 fiscal year we are now in, that will be $3.466 billion, a $410 million or 13 percent increase.

Turn to higher education. In 2000-01, the state spent $1.910 billion, including federal funds. This year, it will spend $1.399 billion. That’s a 26 percent cut in overall spending, down $511 million.

Revenue sharing? In 2000-01, the state sent $1.555 billion to cities. This year: $1.096 billion – a $459 million cut, 29.5 percent less than a decade ago.

Meanwhile, the miles of roads and number of bridges the state is responsible for likely has changed very, very little over that decade. But the number of college students has increased by more than 8 percent.

It’s good for people to argue that we need to invest more in the state’s transportation system. That’s particularly true when it comes to mass transit.

But the argument for investment in higher education and cities is equally – if not more – important if Michigan is going to win the war for prosperity by moving our state firmly into the 3.0 economy where good paying jobs are being created.

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