“With Michigan’s new focus on becoming a more prosperous state, one that attracts and retains young talent, we looked to the report we issued in 2004 to see how our analysis held up over time, which we found it did – and with severe implications,” said Lou Glazer, president of Michigan Future, Inc. “Michigan needs to change how it approaches economic development if it wants to be a  prosperous state again.”

The 2004 report outlined a paradigm-altering analysis of what mattered most for state and regional prosperity. The report found that manufacturing –– although still an important and valuable component of the Michigan labor market –– was no longer a driver of growth or prosperity. The path to prosperity had become the knowledge economy. Michigan needed to concentrate more on knowledge-based industries and to do that it needed to attract and retain more young, college-educated adults.

Unfortunately, 20 years later, that shift has not occurred. Instead, if each state’s personal income per capita grew over the next 23 years at the same rate that it did between 1999 and 2022, Michigan would end up as the 48th poorest state in the country by 2045, just above Alabama and Mississippi.

“When we first compiled the data in 2004, we feared that without a recognition of the new drivers of prosperity, we risked falling behind,” said Donald Grimes, an economist at the Research Seminar in Quantitative Economics, part of the Department of Economics in the College of Literature, Science, and the Arts at the University of Michigan. “Nothing really changed and Michigan is now one of the nation’s poorest states.”

Michigan’s per capita income in 2022 was 13 percent below the national average, the lowest Michigan has been compared to the nation since the data was first compiled in 1929. This is the opposite of where Michigan was in the 20th Century when the state was structurally a relatively high prosperity state. In 1999, Michigan ranked 16th in per capita income, slightly below the national average.

The report, both the first and second editions, compares low-education attainment manufacturing as an engine of economic growth with high-paying, knowledge-based industries, such as information, financial activities, professional and technical services, and management of companies.

The researchers say that knowledge-based industries and young professionals will be the most important drivers of future economic growth and communities with high concentrations of both are quite likely to be most prosperous.

“I said this when the report was issued in 2004 and I’ll say it again: the best use of policymakers’ time and attention with respect to the economy would come from developing a new agenda on how best to grow a knowledge-based economy in Michigan,” Glazer added. “If Michigan doesn’t become competitive in the knowledge economy, it will be one of the poorest states. Michigan policymakers must change their approach to the knowledge economy if they want to turn our economic decline around.”

To view the updated second edition of ‘A New Path to Prosperity? Manufacturing and Knowledge-Based Industries As Drivers of Economic Growth’, click here. For more information about Michigan Future, Inc., visit www.michiganfuture.org.

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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..

Transformative placemaking should be the driving force for successful economic development.The key to growing high-wage jobs in Michigan is attracting college-educated and skilled members of Generation Z after they finish their education. Michigan cannot get prosperous again until and unless we become a talent magnet for these young people. Focusing on traditional economic development priorities while failing to concentrate young talent in the state will ensure Michigan remains a permanently low-prosperity state.

Because young talent is the most mobile, economic development policies should be squarely focused on creating the kinds of places where highly-educated young people want to live and work. Attracting and retaining highly-educated young people is the state’s primary economic imperative – both keeping the young talent that grows up here and attracting young talent from any place on the planet.

The data show that highly-educated young people are increasingly concentrating in regions with vibrant communities, central cities, dynamic neighborhoods, and ex-urban small towns that:

• Offer an attractive, attainable, safe, and welcoming landscape.
• Incorporate a mix of walkability, good transit, and density.
• Are amenity-rich with artistic, cultural, and outdoor activities.
• Concentrate professional and social networks in diverse, open communities.

Michigan’s current economic development playbook focused largely on business attraction is endangering the long-term health of our economy and the economic well-being of households because it does not incorporate the value of place. To recreate a Michigan with lots of good-paying career opportunities – we need to strengthen and create more vibrant neighborhoods in our central cities and small towns that can attract and retain young talent. These neighborhoods – our country’s best talent magnets – vary in many ways, but all share common characteristics: they are dense, walkable, high-amenity neighborhoods, with parks, outdoor recreation, retail, and public arts woven into residents’ daily lives. And they offer plentiful alternatives to driving.

There are 14 percent fewer recent college graduates living in Michigan than graduated from Michigan institutions. Other states, including Illinois and Minnesota in the Great Lakes, are able to retain and attract more recent college graduates than recently graduated from a college within its borders. What do they all have in common? All have talent-magnet central cities filled with vibrant, dense neighborhoods.

Tami Door, CEO of the Downtown Denver Partnership, writing in 2012 got it exactly right. Today, of course, the future workforce is Generation Z. She wrote:

“Employers will follow the workforce. For a city to remain economically competitive in the future, it must attract the millennial generation, the future workforce. Nationally, employers recognize that the millennial generation is more likely to choose to live and work in or near an urban center. Mountains and oceans have become secondary to downtown amenities.”

Tami Door, CEO of the Downtown Denver Partnership

For Michigan’s population to get younger and more talented will require significant public investment. Those public investments must be designed explicitly to provide the infrastructure and amenities that Generation Z demands. This is not a set of recommendations that can be done on the cheap or by tinkering at the edges. The states that have won in the transition to the high-wage knowledge economy are those that have invested deeply and sustainably in the infrastructure and amenities of their central cities.

If we make the tough decisions and the big investments, we can see a Michigan with a growing population, prosperous citizens from all backgrounds, and neighborhoods that rival the best in our nation.

But that future only happens with decisive action to successfully transition to the high-wage knowledge economy by investing in our young people and creating vibrant cities that attract talent from across the globe.

– Warren Call, president and CEO, Traverse Connect

– Lou Glazer, president, Michigan Future Inc.

The post Talent attracts capital and quality of place attracts talent appeared first on Michigan Future Inc..

Minnesota is a high tax state. Has been for decades. Minnesota is the Great Lakes States best in economic well being and demographic outcomes. Has been for decades.

Michigan is not a high tax state. Its taxes per capita far lower than Minnesota’s. Minnesota is far ahead of Michigan in all well being and demographic outcomes.

Minnesota has been a successful high tax state for decades. The Census Bureau reports in 1980 Minnesota had the 6th highest state taxes per capita in the country. Michigan ranked 13th. Minnesota’s state taxes per capita were 122 percent of Michigan’s. In 2021 Minnesota had the 5th highest state taxes per capita in the country. Michigan ranked 28th. Minnesota’s state taxes per capita were 163 percent of Michigan’s.

There is no question Minnesota is a high tax state––its residents paid $2,145 more in 2021 than Michigan residents in state taxes alone. So for decades Michigan chose lower taxes as its prime lever to compete for economic growth and population. While Minnesota for decades chose to use its higher taxes for public investments in good schools and high quality communities as its prime lever to compete for economic growth and population.

When you combine state and local taxes per capita in 2020 Minnesota was the 7th highest in nation, Michigan was the 10th lowest. State and local taxes per capita in Minnesota are $6,507, 116 percent of the national average. State and local taxes per capita in Michigan were $4,263, 76 percent of the national average.

As reported by the Tax Foundation, on all the major state taxes Minnesota has substantially higher rates than Michigan:

Minnesota has a graduated individual income tax, with rates ranging from 5.35 percent to 9.85 percent. Minnesota also has a 9.80 percent corporate income tax rate. Minnesota has a 6.875 percent state sales tax rate, a max local sales tax rate of 2.00 percent, and an average combined state and local sales tax rate of 7.49 percent.

Michigan has a flat 4.25 percent individual income tax rate. There are also jurisdictions that collect local income taxes. Michigan has a 6.00 percent corporate income tax rate. Michigan has a 6.00 percent state sales tax rate and does not levy any local sales taxes.

We have been told over and over again for decades that high taxes leads to economic decline and depopulation. Think again!

• Minnesota has not lost a congressional seat in six decades while Michigan’s congressional delegation since 1960 has declined from 19 to 13.
• A recent study found that Minnesota is one of only nine “brain-gain” states with 8 percent more recent college graduates residents compared to those who graduated from its college and universities. Michigan is a “brain-drain” state with 14 percent fewer college graduates compared to those who graduated from its college and universities.
• In November 2022 Minnesota was tied for the second lowest unemployment rate in the country, Michigan was tied for 43rd.
• In November 2022 Minnesota was fifth in labor force participation, Michigan was 40th.
• In 2021 per capita income in Minnesota was three percent above the national average, ranking 13th. Michigan was 12 percent below the national average, ranking 35th.
• In 1979 Minnesota per capita income was one percent above the national average, Michigan was three percent above. So as Michigan’s state taxes per capita declined from 13th highest in the nation to 28th the state’s per capita income declined by fifteen percentage points compared to the nation. While Minnesota gained two percentage points while staying a high tax state.

Why is the conventional wisdom that high taxes leads to economic and population decline so wrong? Former New York City Mayor got it right when he wrote in a Financial Times op ed:

Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent. I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent. … Economists may not say it this way but the truth of the matter is: being cool counts. When people can find inspiration in a community that also offers great parks, safe streets and extensive mass transit, they vote with their feet.

At its core the Minnesota playbook for economic and demographic success has been higher taxes used for public investments to “compete for the grand prize: intellectual capital and talent” by offering good schools from birth through colleges and creating places where people want to live by offering high quality basic services, infrastructure and amenities.

Minnesota has used those higher taxes for services and investments that matter in a knowledge-based economy. An educated work force, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net.

The Minnesota good schools and quality communities strategy has paid off in the best in the Great Lakes economic and demographic outcomes. Michigan’s low tax/low public investment strategy has been accompanied by a decades long decline compared to the nation in both economic and demographic outcomes.

The post Minnesota is a successful high tax state appeared first on Michigan Future Inc..

The first post I wrote for this blog was 13 years ago. It was entitled the Need For a New Michigan and made the case that what made us prosperous in the past, won’t in the future. That if we wanted to recreate a high-prosperity Michigan, the state needed a new economic agenda––one that focused on competing in the rising knowledge-based economy, rather than the factory-oriented strategy that had been in place for decades.

Unfortunately everything I wrote in August 2009 I could write today. Only the data needs updating.

The 2009 post ended with a warning: “As long as most Michiganders want political and civic leaders to get their old job back for them –something they can’t do–we are going to continue to decline!”

And decline we have. We detailed that decline in our last three posts. One on the failure of Michigan’s factory-based strategy, one on the failure of the state’s low-tax strategy and one on the out-performance of Minnesota compared to Michigan in both employment and wages.

Minnesota has pursued for decades a public investment in preparing, retaining and attracting talent based economic strategy that we have been recommending Michigan pursue as the most effective way to recreate a high-prosperity Michigan. 630,000 more Michiganders would be working today if the state was doing as well as Minnesota. And the average full-time, year-round worker in Michigan would be earning about $9,000 more if Michigan had average wages equal to Minnesota.

Here is what I wrote in 2009:

Our vision and strategy for growing the Michigan economy is laid out in our New Agenda for A New Michigan report. As I talk to audiences across the state I am constantly reminded that if you don’t understand the need for a new Michigan, the new agenda is irrelevant.

Its clear to me that many – probably most – Michiganders have not accepted that a new Michigan is required. That what made us prosperous in the past, won’t in the future.

Michigan enjoyed high per capita income for most of the last century. As recent as 2000 we were sixteenth in per capita income. Now we are consistently below the national average in both upturns and downturns. In 2007 we were thirty third – 11 percent below the national average. This is the lowest Michigan has been since the federal government started collecting data in 1929.

Why? What made us prosperous for nearly a century––an extraordinarily long run––was good-paying, lower-skills jobs primarily in manufacturing. The hard truth is those jobs are gone forever.

The new reality is that manufacturing (work done in factories) is no longer a sustainable source of high- paid jobs. Nor is it a source of future job growth. Manufacturing makes up about 10 percent of the American workforce today and is declining. Its average wage nationally is about $35,000. Michigan factory work in the future will pay around the national average. So whether it’s traditional Michigan industries like autos and furniture or new industries like alternative energy, factory jobs will not be a source of new high-paid jobs for Michiganders.

Until we understand and embrace that new reality we are not going to work on what really matters to rebuilding a high-prosperity Michigan. As long as most Michiganders want political and civic leaders to get their old job back for them – something they can’t do – we are going to continue to decline!

A recent insightful Politico article demonstrates that this post is as relevant today as it was 13 years ago. The article makes clear that many Michiganders still want their old jobs back (high- wage/extensive-benefits factory jobs).

The assets we need to build to recreate a high-prosperity Michigan with lots of good-paying jobs and careers was clear 16 years ago when we published A New Agenda for a New Michigan. And Minnesota has been working on building those assets for 50 years: education from birth through college and creating places where talent wants to live.

What the Politico article makes clear is that you cannot get to building those assets as long as Michiganders are demanding their elected officials recreate the economy of 1969 when Michigan had the 2nd highest average wages in the country. As long as that is what many, if not most voters, are demanding, we are going to continue pursuing factory jobs first and foremost––even though they are no longer high-wage except for Detroit 3 UAW jobs. And the way we are going to pursue those jobs is with a combination of low taxes and big project-based incentives. Which, of course, makes it impossible to make the public investments in education and placemaking which is what is needed to recreate a high-prosperity Michigan.

Unfortunately our 2009 warning is as relevant today as it was then: As long as most Michiganders want political and civic leaders to get their old job back for them––something they can’t do––we are going to continue to decline!

The post Why Michigan doesn’t pivot to a high-prosperity economic strategy appeared first on Michigan Future Inc..

As Rick Haglund chronicled for Crain’s Detroit Business, since General Motors in 1992 chose Arlington Texas over Willow Run for a motor vehicle assembly plant, Michigan’s economic development priority has been to compete for auto assembly and auto parts plants. That motor vehicle factory strategy has failed.

Data from the Quarterly Census of Employment and Wages, Bureau of Labor Statistics makes the magnitude of that failure abundantly clear. (The data below is from the fourth quarter of each year.)

In 1990 motor vehicle manufacturing employed 93,000 Michiganders. In 2021 it was 47,000. The state’s share fell from 37.4 percent of the nation’s to 17.9 percent. Motor vehicle parts manufacturing employment fell from 189,000 in 1990 to 123,000 in 2021. The state’s share fell from 26.0 percent to 22.9 percent.

To make matters worse, these are declining sectors of the American economy. In 1990 the two industries combined employed 1.1 percent of American workers. In 2021 it was 0.6 percent. (In Michigan the two industries combined employed 8.5 percent of workers in 1990 and 4.6 percent in 2021.)

So Michigan both chose as its economic development priority a declining industry and suffered employment declines in those industries far worse than the nation. Losing in the two industries a combined 112,000 jobs. A decline of an astonishing 40 percent.

The cost of the state’s failed motor vehicle factory strategy unfortunately goes far beyond just the loss of motor vehicle industry jobs. Since the predominant lever the state deploys to attract motor vehicle factories is subsidizing motor vehicle manufactures, it reduces the revenue needed to invest in education and placemaking. Which are the keys to attracting and growing knowledge-based enterprises which are the high-growth/high-wage sectors of the economy.

The combination of Michigan’s motor vehicle manufacturing failure and being a national laggard in knowledge-based industries growth led to a decline in total state employment from 3.6 percent of the nation’s employment in 1990 to 2.9 percent in 2021. And a decline in average weekly wages from 108.9 percent of the nation’s in 1990 to 90.7 percent in 2021.

If Michigan still had 3.6 percent of the nation’s employment there would be 855,000 more Michiganders working today. If Michigan still had average weekly wages 8.9 percent above the nation’s Michigan workers would be earning $262 more each week which adds up to $13,624 more annually for full-time, year-round workers.

It is far past time that Michigan abandon its low-tax/high business subsidy dominant economic strategy. And it is far past time that Michigan abandon its motor vehicle factory dominant economic strategy. Both have failed and will continue to do so in the future.

The goal of Michigan’s economic strategy should be good-paying jobs growth. 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.

The post Detailing the failure of Michigan’s motor vehicle factory strategy appeared first on Michigan Future Inc..

A decade ago in a column for Dome we made the case that Indiana’s low tax economic strategy was a failure and would continue to fail going forward. We wrote:

The Mackinac Center for Public Policy on Monday is hosting an event with Indiana Governor Mitch Daniels as the featured speaker. This is a continuation of a decades-long tradition of inviting Indiana governors — mainly Republican — to tell us the policies they have pursued to grow the Indiana economy, so we can learn from them what to do.

One problem: Indiana is today, and has been for decades, the poorest and least educated Great Lakes state. That’s right. Even after Michigan’s awful so-called lost decade, Indiana is poorer than we are.

What Indiana is best at among the Great Lakes states is adherence to the low tax/small government policies advocated by conservatives as the magic elixir to grow the economy. In the 2011 state rankings by the well-respected conservative Tax Foundation, Indiana is the highest ranked Great Lakes state on both overall state business climate (10th) and corporate tax index (21st). The latter is the lever the Snyder Administration has argued is the most important to growing the Michigan economy.

But for the vast majority of Michiganders who care about whether they have a job and a good income to raise a family, Indiana doesn’t look so good. Indiana’s per capita income, proportion of households with incomes of $75,000 or more, poverty rate and proportion of adults with a four-year college degree are all the worst among Great Lakes states.

Fast forward a decade an important new report from Michael Hicks, director of The Center for Business and Economic Research at Ball State University and professor of economics in the Miller College of Business, chronicles the failure of Indiana’s low tax economic development strategy over the past decade. Hicks writes:

The ten-year span of 2009-2019 saw the longest economic expansion in U.S. history. Indiana began this recovery period behind the nation in almost every important economic metric and then fell farther behind throughout the decade.

Indiana’s weak recovery saw the state perform much worse than the nation in measures of job creation, GDP growth, population growth, productivity growth, and personal income growth. The causal factor in this decline is the state’s relatively declining levels of educational attainment.

Hicks attributes this much worse than the nation economic performance to the state’s low tax economic strategy in an economy where college attainment––specifically four-year degree attainment–-is the defining characteristic of prosperous states. Hicks writes:

… Since 2010, in real terms, state and local governments have spent an additional $5 billion on business tax incentives, but added only $17 million to the budgets of colleges and universities. The intent of this funding shift was to ensure Indiana remained a low-tax state. Proponents believed the supply-side effects of this environment would attract new businesses and boost employment opportunities, wages, labor productivity, and overall economic growth. This approach enjoys widespread political support, but there is little to no empirical support.

By employing data on GDP growth and the Tax Foundation’s data on total state tax burdens, we see the elusive nature of this relationship. From these most basic data there is no statistically or economically meaningful relationship between tax rates and growth.

In the wake of these policies, the Indiana economy grew slowly and the job growth that occurred was clustered at the low end of the skill and income distribution. The productivity of Hoosier workers (average product of labor) lagged significantly, and the incomes declined relative to the nation as a whole. Business growth plummeted and measures of economic wellbeing across many domains languished. In short, the low-tax, policies pursued from 2010 through 2019 failed to produce broad economic growth.

Hicks analysis is important to those of us in Michigan because Michigan has for decades been following the same low tax economic playbook as Indiana with the same poor economic results. One can make a strong case for the past two decades Michigan’s decline compared to the nation is worse than Indiana’s. The chart below shows per capita income from 2000-2021 for the U.S., Michigan and Indiana.

In 2000 Michigan’s per capita income was one percent below the nation’s. Indiana was eight percent below. By 2009––the depths of the Great Recession––both Michigan and Indiana had per capita income 13 percent below the nation’s. In 2021 Michigan per capita income is 12 percent below the nation’s. Indiana’s is 11 percent below.

Both states are now structurally low prosperity. Michigan ranks 34th, Indiana 33rd in per capita income. This despite Michigan ranking 12th in the Tax Foundation’s 2022 State Business Tax Climate Index. Indiana ranked 9th. As Hicks says “From these most basic data there is no statistically or economically meaningful relationship between tax rates and growth.”

In the 2011 column we identified talent as the asset that mattered most to state and regional prosperity. We wrote:

Our basic conclusion is that what most distinguishes successful areas — such as Minnesota, which has all of those attributes — from Michigan is their concentrations of talent, where talent is defined as a combination of knowledge, creativity and entrepreneurship. Quite simply, in a flattening world where work can increasingly be done anyplace by anybody, the places with the greatest concentrations of talent win.

States and regions without concentrations of talent will have great difficulty retaining or attracting knowledge-based enterprises, and they are less likely to be the place where new knowledge-based enterprises are created. The knowledge-based economy is now the path to prosperity Michigan must pursue.

Pursuing that path means preparing, retaining and attracting talent is economic development priority #1. If we do everything else well that we call economic development and we don’t get younger and better educated, Michigan will continue to get poorer compared to the nation.

Michigan has lagged in its support of the assets necessary to develop the knowledge-based economy at the needed scale. Building that economy is going to take a long time and require fundamental change. But the data show it is the only reliable path to regaining high prosperity.
There are no quick fixes. The Michigan economy is going to continue to lag the nation for the foreseeable future. But there is a path back to high prosperity. The framework for action is:

• Build a culture aligned with (rather than resisting) the realities of a flattening world. We need to place far higher value on learning, an entrepreneurial spirit and being welcoming to all.
• Creating places where talent — particularly mobile young talent — wants to live. This means expanded public investments in quality of place with an emphasis on vibrant central city neighborhoods.
• Ensuring the long-term success of a vibrant and agile higher-education system. This requires a renewed commitment to public investments in higher education — particularly the major research universities.
• Transforming teaching and learning so that they are aligned with the realities of a flattening world.
• Developing new private and public sector leadership that has moved beyond both a desire to recreate the old economy as well as the old fights. Michigan needs leadership that is clearly focused, at both the state and regional level, on preparing, retaining and attracting talent.

The world has changed fundamentally. The choice we face is this: do we do what is required to build the assets needed to compete in a knowledge-based economy or do we accept being a low-prosperity state?

Michigan decided to stay the low tax course. And got the anticipated results: becoming structurally a low-prosperity state. A decade later the choice the state faces is the same: do we make preparing, retaining and attracting talent economic development priority #1 or do we accept continuing to be a low-prosperity state?

The post Indiana’s failed low tax economic strategy 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.

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Before the pandemic, almost 38% of us were unable to pay for basic needs like housing, food, childcare and transportation according to the Michigan Association of United Ways ALICE data.  That number includes almost one million children who are growing up in households with limited opportunities and often going to bed hungry. It’s not an issue of working hard for a solid day’s wages.  Michigan has too many low-paying jobs with almost 59% paying less than it takes to reach the middle class for a three person household.  It’s limiting our kids’ potential and part of the reason we are losing population as families leave our state for better paying work.

At Michigan Future, we believe that there are structural issues in our economy that will take bold and transformative action to mitigate the impact of growing up in poverty and address the labor shortage that is strangling our recovery, particularly for the small businesses that fuel our communities.  The labor shortage poses a very real risk to small businesses in particular, many closing or limiting hours because they simply don’t have the workers to operate normally. It is time for Michigan to step up with a large expansion of the Earned Income Tax Credit (EITC).  Now.

We are not alone in calling for an expanded EITC.  Republicans and Democrats alike are advocating the use of the EITC to help decrease poverty. An op-ed published last month in The Hill written by Kevin Seifert, a former staff member to Former Republican Speaker of the House, Paul Ryan advocates for a substantial increase in the EITC  to cut poverty in America. We agree.  

According to the CDC, the EITC has kept more children living above the poverty line than any other program in our history.  And it’s more than that.  The EITC rewards work and has a proven track record of incentivizing people back into the workforce.  

Recent jobs data suggests that nationally we have almost two million more jobs than we do workers actively seeking them. There are a lot of reasons for that in Michigan including a lack of jobs paying livable wages but disproportionately the people not returning to workforce are women.  Often they are caring for children with no available childcare or a loved one at particular high-risk in the pandemic.  An increase in the EITC will provide a powerful motivator and adequate resources to help with these hurdles.

Who usually gets the EITC? The typical recipient is a single mother in her early thirties with a high school diploma and fewer than two children. That’s who we are talking about. Evidence consistently suggests that an expanded EITC leads to higher employment rates.  According to the National Bureau of Economic Research, (NBER.org) almost 60% of the increased employment of single moms between 1984-1996 can be attributed to the EITC.  We have a road map for this.

The Michigan legislature and governor are currently evaluating how to appropriate the billions of dollars of funding from the American Rescue Plan Act (ARPA) and a general fund surplus. Michigan has the opportunity to turn the curve in our steadily rising poverty rates with a major investment of our ARPA dollars.  Rather than funding hundreds of programs with discreet impact, let’s invest $1 billion a year and increase the EITC to 60%.  This will take the existing benefit from $150 a year to almost $1500.  An amount that will make a real difference to working families. 

We learned from the rounds of stimulus payments, low-income workers use the money for important stuff like food, education and child care. It enables work and goes right back into our economy, fueling future growth.  It’s time to be bold and plan for the long road to an economy that benefits everyone. 

The post Everything is Not Fine. appeared first on Michigan Future Inc..

Median household income in the Twin Cities of $73,231 was the seventh highest among the 53 metro areas with a population of 1 million or more in 2016, according to American Community Survey figures. (Detroit ranked 38th and Grand Rapids 29th.)

Unemployment hasn’t reached double-digit levels in at least the past three decades. The highest annual jobless rate since 1990 in metro Minneapolis was 7.7 percent in 2009 at the depth of the national Great Recession. Just 2.7 percent of the Twin Cities’ workforce was unemployed in April 2018, the fifth-lowest jobless rate among the 50 largest metro areas in the country. (Metro Detroit, with a jobless rate of 3.6 percent, ranked 31st.)

Economists attribute much of the metro area’s economic vitality to its diverse mix of industries, including food processing, health care, medical device manufacturing and financial services, and to its highly educated workforce.

“It’s very clear that the quality of our workforce is a key element in our success,” said Art Rolnick, a senior fellow at the University of Minnesota’s Humphrey School of Public Affairs and a former economist at the Minneapolis Federal Reserve. “It’s been a big payoff in this economy.”

A roster of highly educated, mostly home-grown workers and managers is a major reason why Minnesota hosts the largest number of Fortune 500 companies per capita in the country, said Myles Shaver, a management professor in the University of Minnesota’s Carlson School of Management. And most don’t leave.

“Metro Minneapolis doesn’t attract people well,” he said, citing a climate he says many equate with the Arctic. “But it’s been able to build a strong workforce because it retains so many talented people. Retention rates here are extreme.”

Minnesota was home to 18 Fortune 500 companies in 2017, the most per capita of any state. All but one are located in metro Minneapolis. Paced by metro Minneapolis, the state’s largest metro area, Minnesota also has long ranked as one of the top knowledge economies in the country.

The Washington, D.C.-based Information Technology and Innovation Foundation ranked Minnesota 12th in its 2017 State New Economy Index, which uses 25 indicators to measure how well state economies are “knowledge-based, globalized, entrepreneurial, IT-driven, and innovation-oriented.” Michigan ranked 15th, up from 34th in 1999.

Its broadly educated workforce also has helped metro Minneapolis grow new industries as old ones fell away.

The Twin Cities became a center of supercomputing in the late 1950s. (The CDC 6600, introduced in 1964 by Control Data Corp. in suburban Minneapolis, is considered the world’s first supercomputer.) But as the computer industry gradually moved to west to Silicon Valley, local computing engineers, scientists and others shifted to the expanding medical device industry.

While the conventional wisdom is that low taxes are key to economic growth, metro Minneapolis—and the rest of the state—has taken the opposite approach.

Twin Cities’ residents and businesses pay some of the highest taxes in the country. Minnesota regularly ranks as among the worst states in the Tax Foundation’s Business Tax Climate Index, which includes corporate, personal income, sales, unemployment insurance and property taxes.

Minnesota ranks 46th in the Tax Foundation’s 2018 study in which a lower number indicates a better rank.

Gov. Mark Dayton and the then-Democratic controlled Legislature raised taxes on the wealthy in 2013, boosting the top individual rate in its progressive income tax system from 7.85 percent to 9.85 percent.

On top of high state taxes, Twin Cities’ residents pay additional special levies to support regional government (the Metropolitan Council), public transit and other amenities, such as parks.

Rolnick said he doesn’t think economic growth is necessarily predicated on low or high taxes. It’s how the money is spent.

“If you’re investing well, you get great infrastructure and great education,” he said. “That’s what you need for a thriving economy.”

The Twin Cities’ diverse economy is somewhat serendipitous. Companies in different industry sectors, such as General Mills, Target and United Healthcare, were born there. But none dominated the economy in the way the auto industry, which is subject to wild cyclical swings, did in Detroit.

Local experts say the key to maintaining that healthy diversity and the wealth it engenders is a continued focus on education and infrastructure.

Metro Detroit and the rest of Michigan could copy that formula for success if policymakers can muster the political will to do it.

Check our new report, Regional Collaboration Matters, How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States, for more stories and lessons from the most successful state in the Great Lakes.

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