Michigan’s low-tax strategy has failed. Since 2000 Michigan has experienced––in good times and bad and no matter which party has been in control in Lansing––far worse than the nation employment and wage growth.

In 2000 Michigan accounted for 3.6 percent of the nation’s employment. In 2021 it had fallen to 2.9 percent. If Michigan’s employment were still 3.6 percent of the nation’s there would be 855,000 more Michiganders employed today.

The story is the same for average wages. Michigan falling from 3.5 percent above the nation in 2000 to 9.3 percent below in 2021. If Michigan’s average wage was still 3.5 percent above the nation’s, average wages here would be $184 higher each week than they are today. For full-time, year-round workers that is an additional $9,568 per year.

This despite Michigan ranking 12th in the Tax Foundation’s 2022 State Business Tax Climate Index.

Why has Michigan’s low-tax strategy failed? In a recent sponsored article Business Leaders for Michigan got it exactly right when they wrote:

Businesses go where the talent is based. Michigan is in a race with other states for talented people to fill jobs. The availability of highly skilled and educated workers will make the difference between states that excel and those that fall behind in the decades ahead.

We now live in an economy where talent attracts capital. Where talent––particularly those with a four-year degree or more–– is the asset that matters most to and is in the shortest supply for high-growth/high-wage employers. Quite simply, the places with the greatest concentrations of talent win.

You can see the importance of talent concentrations by looking at computer systems design and software publishing. These are very much talent-driven industries. And they are prototypical of the economy’s high-growth/high-wage, knowledge-based industries.

Since 2000 computer system design companies have added a little more than one million jobs with an average weekly wage of $2,983 more than double the national average. Since 2000 software publishing companies have added a little more than 300,000 jobs with an average weekly wage of $4,071 just shy of triple the national average.

In 2000 Michigan had 3.6 percent of the nation’s computer system design jobs. In 2021 it had fallen to 2.0 percent. Michigan added less than one thousand of the one million new jobs in the industry. In software publishing the story is the same: Michigan falling from an employment share of 3.0 percent to 1.3 percent. In an industry that added 300,000, Michigan suffered a decline of about 700 jobs .

Contrary to conventional wisdom, Michigan having far lower average weekly wages in both industries––$2,284 in computer system design and $2,612 in software publishing––did not give the state a competitive advantage.

It should not be a surprise that Michigan is noncompetitive in both of these industries. Talent concentration––not low taxes or low wages––is the asset that matters most to knowledge-based enterprises. This is the prime lesson that Michigan should have learned––but so far has not––from our failure to be competitive for Amazon HQ2. They told us quite clearly that Michigan does not have the talent concentrations required to be competitive at any scale for knowledge-based business investments.

For Michigan and its regions to be competitive with leading-edge/high-prosperity communities we need to completely redesign our economic development strategy and practice. That means moving away from the low-tax economic development playbook to one that makes preparing, retaining and attracting talent economic development priority #1. Staying the course means accepting being a low-prosperity state structurally.

The post Detailing the failure of Michigan’s low-tax strategy appeared first on Michigan Future Inc..

Recently Intel announced they are going to invest an initial $20 billion in a new chip fabrication plant in metro Columbus Ohio. Initial because Intel’s CEO Pat Gelsinger indicated that Columbus could become “the largest semiconductor manufacturing location on the planet.” With a total investment of $100 billion in eight fabrication plants. The first plant will employ 3,000 at an average annual salary of $125,000.

This clearly is an economic development home run for Ohio and more specifically for metro Columbus. Which raises the question “why did Intel choose Columbus?”

In a must-read Market Watch column Michael J. Hicks, professor of economics and the director of the Center for Business and Economic Research at Ball State University, provides an answer to the why Columbus question. The column is entitled Intel’s choice of Ohio for its $20 billion factory shows what matters at least as much as low taxes — and it costs money. The column’s subtitle is: A sobering lesson for states like Indiana that can compete – or even beat – Ohio on tax breaks, tax rates and regulatory environment.

Hicks compares Columbus to Indianapolis. What he writes about Indianapolis is equally applicable to metro Detroit and Grand Rapids. Hicks writes:

This factory is a 25-minute drive from the College of Engineering at Ohio State University and close to the fastest-growing parts of the Columbus metropolitan area. The entire metro area has absorbed some 130% of the state’s population growth since 2000 .

The salary levels also suggest that the workforce at this plant will be primarily comprised of college graduates.  Ohio workers in the semiconductor industry earned $65,490 per year in the last 12 months before the COVID downturn. To be profitable, this factory will be much more than the clean-room production facilities of a traditional semiconductor factory.  I suspect this site will involve considerable product development and testing.

This evidence points to the need for a large number of college graduates as a driving factor in Intel’s decision. Close to a dozen top engineering colleges are within a five-hour drive.  These include Purdue University, the University of Michigan, Michigan State University, Carnegie Mellon University, the University of Kentucky and of course Ohio State.

The only other Midwest location that could boast the same geographic concentration would be Indianapolis.  The fact that Indiana was not chosen in this case offers a harsh lesson for states that rely on incentives rather than an educated workforce as an economic development strategy.  It is the same lesson the Amazon HQ deal provided state policymakers around the nation.

The Indianapolis and Columbus metro areas are similarly size and have absorbed all their state’s population growth in this century. Both were finalists in the Amazon headquarters competition and were wooed by Foxconn as well. Purdue has an objectively better-ranked engineering college, and taxes in Indiana are lower than those in Ohio.  Indiana’s use of tax abatements and credits suggest it would have offered a similarly sized package. 

So why is Indiana going to Indiana and not Ohio?

The short story is the abundance of educated workers in Ohio. The Columbus metro area is already rich with college graduates, but it also has the local environment that can attract more.

Exactly! This is the core lesson Michigan Future has learned from decades of research on what defines the nation’s most prosperous places. Talent––particularly the proportion of adults with a four-year degree or more––not “tax breaks, tax rates and regulatory environment”––is what matters most to prosperity. That talent attracts capital, because talent is the asset that matters most to and is in the shortest supply for high-wage employers. As Hicks writes that is the lesson from Amazon HQ2 choosing New York City and Northern Virginia and from Intel choosing Columbus.

The places with the most prosperous economies are those that combine high quality education systems and high quality of place that retains and attracts mobile talent. Both education and placemaking require public investments. These types of public investments, paid for by our taxes, are the state policy playbook most likely to return Michigan to high prosperity, creating an economy with lots of good-paying jobs.

Imagine if we had spent the last two decades not cutting taxes, but investing in education from birth through college and creating places where young talent wants to live. It is far more likely that Michigan would have been a strong competitor for Amazon HQ2, the Intel fabrication plant and all the other high-wage job creation that comes from being an attractive place to locate a knowledge-based enterprise.

We will know that Michigan is serious about working on investing in education from birth through college and creating places where young talent wants to live when Michigan economic development officials and entities push to pay for increased public investments. Saying you want education and infrastructure is easy, paying for it is hard. Economic developers and policymakers across Michigan for decades have been part of the push for lower taxes and big incentives as the key to economic development. Amazon and Intel make clear that it is time for a fundamental change. Only time will tell if those in charge of economic policy and programming are ready to take the lead to make that change happen.

The post Why Intel’s chip plant is going to metro Columbus appeared first on Michigan Future Inc..

Northern Virginia quite literally won economically in the 21st Century when Amazon chose them as the location for one of two HQ2s. Winning what was described by pundits as the Super Bowl of economic development competitions. HQ2 brings to Northern Virginia a commitment for 25,000 jobs with an average salary of $150,000.

(Amazon also chose New York City as the second site for their H2, but withdrew the offer after the announcement generated significant local opposition.)

As we explored, metro Detroit including Windsor and metro Grand Rapids were among the initial 238 competitors, but did not make the final 20.

This, of course, raises the question why did Northern Virginia win? What were the assets they offered that mattered most to Amazon? Understanding what assets matters most is imperative for Michigan regions to understand because HQ2 is representative of the predominant type of high-paid jobs investments being made employers.

If we want––and we should––an economic development policy focused on high-wage jobs the reality is they are highly concentrated in professional and managerial occupations. Not just STEM: think workers in offices, schools and hospitals.

And as the Northern Virginia proposal states, where these jobs concentrate benefits the entire economy:

A significant beneficiary of Amazon’s new investment in NOVA will be the region’s small businesses. Retailers, restaurants, contractors, and local service providers derive most of their sales from within the community. Those small businesses will benefit from increased demand from Amazon itself as well as from increased spending associated with Amazon’s employees, both directly and indirectly.

So let’s see how Northern Virginia sold itself to Amazon. Here is the first section of their proposal:

As a partner to Amazon, Northern Virginia (NOVA) brings several distinctive, high-impact assets to the table

North America’s top producer of tech talent.
Greater Washington is the country’s most educated region (~49% of those 25 and older have at least a bachelor’s degree), and it produces more computer science graduates than any other metropolitan area.  The region also has a ready base of talent, with the country’s third-largest pool of software developers and fourth-largest pool of management and legal professionals. The combination of depth, concentration, and growth of talent available in the Washington, D.C. metro area, with additional tech talent production from Virginia’s world-class higher education system, will ensure NOVA maintains and enhances its edge with access to the best and brightest.

A global and inclusive region…
Greater Washington is a global power center, the capital of global democracy, and one of the country’s most racially, ethnically, and internationally diverse regions. Women are twice as likely, and African Americans five times as likely, to work in the technology sector in NOVA than in Silicon Valley. Approximately one in four of its residents was born outside the United States, and the children in NOVA schools speak~100 native languages. Communities in NOVA are ranked among the most LGBTQ-friendly nationwide, and diversity is one the region’s core strengths.

…on a human scale.
NOVA offers something for everyone, with access to some of the country’s most interesting cultural and historical sites, sports teams in all major leagues, and a dynamic food and wine scene. The area is home to a broad range of outdoor activities, from kayaking on the Potomac to hiking in the nearby Shenandoah National Park, all as part of a mild four-season climate.  The region offers a diversity of housing options, some of the country’s top-ranked public schools, and one of the country’s top-rated public transit systems.

The leading metro for public and private sector innovation.
Innovation is in Greater Washington’s lifeblood. The region’s legacy of transformative technologies transcends sectors, from the Defense Advanced Research Projects Agency’s (DARPA) role in inventing the internet and voice-recognition systems; to public/private collaboration to create more than 70 miles of automated corridors for connected and autonomous vehicle testing; to the region’s history as the foundation of the telecom revolution and our current depth of technology companies; and to the National Science Foundation (NSF) whose grant funding through the Digital Library Initiative supported the research and eventual foundation of Google, Inc.— Greater Washington sits uniquely at the nexus of public and private innovation.

A stable and competitive partner with a legacy of exceptional governance.
Virginia is consistently rated among the best states in which to do business by leading publications, and Northern Virginia local governments are well-managed, have a history of visionary leadership, and a commitment to innovation. Of all the Fortune 500 companies based in the greater D.C. area, two-thirds have chosen to locate in NOVA. In 2017, U.S. News & World Report ranked Virginia as the No. 2 best state for governance, considering fiscal stability, budget transparency, and state integrity.

A new model of economic development for the 21st century.
Virginia’s partnership proposal was customized to match the scale of Amazon’s ambition and designed to support shared growth over the long term. While the package includes a competitive, performance-based incentive offering, it focuses primarily on strategic new investments in public assets that would benefit companies and citizens across Virginia.

The state incentive package includes in the order they are mentioned in the proposal:

1. Doubling Virginia’s Tech-Talent Pipeline
2. Regional Transportation Infrastructure Investments
3. Post-Performance Incentives

Here are cash incentives:

Subject to General Assembly approval, the Commonwealth will provide post-performance incentives to Amazon that will be paid annually based on job creation and wage levels, with minimum average wages of at least $150,000, plus benefits, escalated at 1.5% annually.  The company will be eligible to receive up to $550 million in incentives if it creates 25,000 qualifying jobs (i.e., $22,000 per new job). Up to $200 million in additional company incentives (for cumulative total of $750 million) is available if the company were to create a total of 37,850 qualifying jobs within 20 years (i.e., $15,564 per new job in excess of 25,000 jobs, up to 37,850 jobs).

This winning proposal demonstrates the validity of Michigan Future’s core learning from three decades of research on the evolving American economy, that talent––not low taxes––is the asset that matters most to growing, retaining and attracting high-wage employers. In essence talent attracts capital, not the other way around. That the economic policy priority for a high-prosperity Michigan is to prepare, retain and attract talent.

The Northern Virginia description of the assets they offer starts with their current and future talent concentration of professionals and managers; their being welcoming to all, and their quality of place––with an emphasis on alternatives to the car––so that they are attractive to place for talent to live and work.

And the future investments they offered Amazon build more of those assets. The major investments proposed by state and local government are not cash incentives––their cash incentives were far less than offered by Michigan’s two big metros––but rather increased spending on K-16 STEM, transportation and affordable housing. All of which they describes as “A new model of economic development for the 21st century.”

If Michigan is going to compete with regions like Northern Virginia for high-wage employers we need to completely redesign our economic development strategy and practice. What Michigan needs, first and foremost, is a human capital centered economic strategy not a business creation, retention, attraction centered economic strategy. The economic development foundation now is high-quality education systems that prepares the next generation for the economy they are going to live in and communities where mobile talent, from all races, creeds, ethnicity and sexual orientation, wants to live and work. As Northern Virginia teaches us, these are the actions that are what positions you to win economically in the 21st Century.

The post Winning in the 21st Century: Northern Virginia appeared first on Michigan Future Inc..

Dug Song, co-founder and general manager of Duo Security, in an interview with Crain’s Detroit Business, makes the case for higher Michigan taxes. Higher Michigan taxes to invest in education and transit. The two assets that Song believes Michigan needs most to be competitive for companies like his.

Crain’s writes:

Top of mind for the 44-year-old entrepreneur: the state’s struggling K-12
education system, the region’s lack of integrated mass transit and a
culture that he says inhibits a more robust startup community in the
metro Detroit area and the broader state.

Song is on record about his support of higher taxes to pay for some of
these items.

He points to Minnesota as a state that he believes gets it right when it
comes to funding education and infrastructure, while still being a
friendly state for big business.

“And yes, that takes taxes. And you know what? None of those Fortune
100 [Minnesota] headquartered businesses care,” Song said. “They love
it, right, because it’s great if you’re trying to hire people with families. It’s a huge opportunity. I mean, Minneapolis is an amazing city, right? We
just need to take care of our physical environment and take care of our
people and we’ll be good.”

Like Song, we at Michigan Future have long argued that Minnesota and metro Minneapolis provide the economic playbook Michigan should be using. Why? Because they are the Great Lakes best on all economic well being measures.

As Song notes, at the core of the Minnesota and metro Minneapolis playbooks is investing in and paying for education from birth through college and in creating places where people want to live and work: providing 21st Century infrastructure; quality basic services; and amenities.

This is the basic message that Amazon delivered in their HQ2 location search. Talent and transit matter most. (As we explored in a blog entitled No talent, no transit, no Amazon.)

Like Amazon, Song is someone we need to be learning from about what it means for a state and region to be competitive. He is making decisions about where to locate high-wage jobs. In his Crain’s interview he reveals that Duo Security, although an Ann Arbor started and based enterprise, is now expanding most in Austin Texas.

Part of the reason for Austin, not Ann Arbor, is the anti-growth mentality of Ann Arbor policymakers.

The challenge with Ann Arbor, Song said, is a dearth of commercial office space and a governing mentality that the entrepreneur views as adverse to growth.

“Yes, we could have found more space in Ann Arbor, but Ann Arbor is not a city built for growth, and right now it’s dominated by the City Council that doesn’t understand how to do that right,” Song told Crain’s in an interview late last month.

“It’s a problem, and so we decided to move down to Austin just because they are building up. They’ve got room, they have a startup community to draw from. It’s been great.”

But the larger problem, as Song lays out in the Crain’s article, is a state and region that don’t understand that this is a talent-driven economy. That talent attracts capital, not the other way around. So the places that are creating, retaining and attracting high-wage jobs are those that have made preparing, retaining and attracting talent the core of their economic development strategy.

It is far past time for Ann Arbor, metro Detroit and the state of Michigan to learn the lessons of Amazon HQ2 and Duo Security.

The post The competitiveness case for higher Michigan taxes appeared first on Michigan Future Inc..

Let’s start the new year with the big picture. An overview of the structural economic challenges Michigan faces if we are to have an economy that as it grows benefits all.

1. Redefining economic success. First is understanding that even though Michigan has a historically low unemployment rate and corporate Michigan is doing well (as are those of us who have a lot invested in the stock market in a time of high corporate profits) this is not time for celebration. The simple reality is you cannot have a good economy when 43 percent of households cannot pay for basic necessities. So changing the definition of economic success from a low unemployment rate and a growing economy to one that is based on a rising household income for all is the economic change we most need in Michigan. We will not deal with the structural challenges below if we don’t make the definition of success a Michigan economy that is benefiting all.
2. Too many low-paid jobs. The core reason 43 percent of Michigan households cannot pay for basic necessities is that the economy is producing too many low-wage jobs. This is structural. Lots of businesses that employ lots of people have business models based on low-wage workers. We are not growing are way out of too many low-wage jobs. As Eduardo Porter wrote in a New York Times article the economy is characterized by “a sea of less educated workers who are stuck at businesses like hotels, restaurants and nursing homes that generate much smaller profits per employee and stay viable primarily by keeping wages low”.
3. Too few with the education attainment to get better-paying jobs. The most reliable path to the middle class is a four-year degree. Michigan is a national laggard in college attainment. About 3/4 of Michigan jobs in occupations with median wages of $62,000 or higher require a four-year degree. And for the 1/4 that don’t require a four-yer degree there are too few Michigan adults with the skills required to get those jobs. Even more worrisome is that our education system is almost certainly not preparing way too many of our kids for the good-paying jobs of the future.
4. Too low talent concentrations to attract high-wage employers. Michigan needs more high-wage jobs. But you can’t retain, attract and grow high-wage jobs without large talent concentrations. This is an economy where talent attracts capital. Not the other way around. That is the core lesson of Michigan’s failure to have any region make the final twenty considered for Amazon HQ2. The asset that matters most to high-wage employers are deep pools of workers with four-year degrees––particularly young professionals. Those young professionals are concentrating in high-density, high-amenity neighborhoods where you do not need to own a car. Michigan has way too few of those neighborhoods.
5. Too many Michiganders don’t work. The state’s unemployment rate is at historic lows, it’s employment to population ratio is not. Michigan ranks 38th in the proportion of those 16 and older who work. We were a not great 28th in 2000.

So the big picture of the Michigan economy is that these are the challenges Michigan most needs to deal with if we are to have an economy that as it grows benefits all. It is way past time that we reject the belief that you cannot have both: a growing economy and shared prosperity. It is time we get to work, on a bi-partisan basis, on creating an economy with both. We can and should debate how you do that, what we shouldn’t do is keep on celebrating an economy where 43 percent of Michigan households can’t pay for basic necessities.

The post The big picture: Michigan’s core economic challenges appeared first on Michigan Future Inc..

More than a decade ago we identified four common characteristics of high-prosperity non-energy-driven states:

• Over concentrated in knowledge-based services which are the sectors of the economy both growing and high wage
• High proportion of adults with a four-year degree or more
• Even higher college attainment in the state’s big metro(s)
• In those big metros a high proportion of adults with a four-year degree or more, particularly young professionals

The just released 2018 American Community Survey confirms the last point. High-prosperity states and regions have in common a concentration of young professionals in the big city of their largest region(s).

Nationally 36.2 percent of 25-34 year olds have a four-year degree or more. The proportion of 25-34 year olds in the big city of the big region in the top 10 per capita income, non-energy-driven states who have at least a four-year degree is quite astounding. Here are the stats:

• New York City: 52.5 percent. The big city in the big metro for New York, Connecticut and New Jersey
• Boston: 62.0 percent. The big city in the big metro for Massachusetts and New Hampshire
• Washington D.C.: 73.9%. The big city in the big metro for Maryland and Virginia. Also Baltimore is at 45.8 percent
• Seattle: 75.0 percent. The big city in the big metro for Washington state
• Denver: 59.9 percent. The big city for the big metro for Colorado

California is the other top 10 per capita income non-energy-driven state. It, of course, has multiple big metros. In Northern California San Francisco (79.2 percent), San Jose (55.8 percent) and Oakland (55.5 percent) all have high concentrations of young professionals. Los Angeles is at 40.8 percent. San Diego at 50.5 percent. Sacramento is at 41.3 percent.

The two highest per capita income Great Lakes states Minnesota and Illinois are anchored by high young professional concentrations in Minneapolis (62.7 percent) and Chicago (54.2 percent).

How are Michigan two big cities doing? Really good news in Grand Rapids. 51.0 percent, up from 35.8 percent in 2010. Not such good news for Detroit. It still is the national big city laggard. 16.1 percent, up from 10.8 percent in 2010.

As we explored in our recent Talent attracts capital post, concentrations of college educated adults, particularly young professionals is a major component of regions and states ability to retain and attract high-growth, high-wage enterprises. As we should have learned from Amazon HQ2, current and future talent concentrations are the asset that matters most to high-wage businesses. And you cannot have the needed talent concentrations without cities that have the high-density, high-amenity, transit-rich neighborhoods that young professionals are flocking to.

The post Young professionals concentrating in big cities appeared first on Michigan Future Inc..

In 2004 Michigan Future published a report on knowledge-based states having higher per capita income than manufacturing-based states. The data showed that the most prosperous states––other than states with lots of oil and natural gas––had four common characteristics:

• Over concentration in what we now call knowledge-based services
• High proportion of adults with a four-year degree or more
• At least one big metro that was even more concentrated in the two characteristics above than the rest of the state
• A central city in their big metro(s) that had a high proportion of its residents with a four-year degree or more.

That report marked a turning point in our work. Before then, if anything, we had been on the advanced manufacturing as the key to economic success path. But the data kept telling us that was wrong. The message from the data clearly was that if you wanted to recreate a mass Michigan middle class you needed to be concentrated in knowledge-based services. And to do that you needed concentrations of those with a four-year degree or more.

That analysis led us to recommend that Michigan focus its economic development efforts on preparing, retaining and attracting talent. Which we argued required more public investments in education and placemaking.

The alternative path––the one Michigan took––was to compete for business investment based on low taxes and small government. If there was one state that we were told over and over again that we should model ourselves after it was Texas. The impression being that their low tax/small government philosophy had produced a state economy that was leading the nation in economic growth.

Minnesota, and even more so Massachusetts, always had better individual household economic outcomes than Texas. As did most of the other high education attainment states. But that didn’t stop many telling us over and over that Texas was the model.

The four characteristics of successful non energy-driven states are at least as true today as 2004. Even it turns out in Texas. A recent New Times article is entitled The Texas Miracle Missed Most of Texas. The article summarizes:

Nearly all of the net growth in jobs and new businesses in Texas over the last decade, Labor Department data show, has been concentrated in four large metropolitan areas — Austin, Dallas, Houston and San Antonio. Those areas accounted for more than four out of every five jobs created in the state since the recession ended, their populations swelling with surges of young and talented workers. Collectively, the four saw double the rate of job growth as the rest of Texas.

A similar geographic inequality is playing out in other places in America, alarming officials at the Federal Reserve. While the latest jobs report showed the economy’s continued strength after 10 years of expansion, the effects have been uneven, with the wealthiest parts of the country reaping a disproportionate share of the gains.  — and leaving smaller, traditionally blue-collar towns like Longview at a disadvantage.

So it turns out if there is a lesson from Texas that we should learn it is our 2004 lessons that: “The economy has evolved toward more technology and service jobs, favoring areas with highly educated workers and high-end professional service industries” And that those two, across the country, are concentrating in big metros with vibrant central cities. 

Michigan’s core economic challenge, as it was in 2004, is that our two big metros do not have the talent concentrations needed to at scale grow, retain and attract knowledge-based service enterprises. If you don’t fix the Michigan big metro talent concentration problem––as Amazon HQ2 should have taught us––Michigan is almost certainly going to continue to be a low-prosperity state.

The post The economic growth lesson from Texas ain’t what you think appeared first on Michigan Future Inc..

First came news about Foxconn not building a 13,000 employee manufacturing plant in Wisconsin. Then the next day came stories that they were going to continue with plans to build the manufacturing facility. Who know what will finally happen.

What is clear is that if they build a plant it will not be the one that was promised when Wisconsin offered them $4.1 billion in incentives.

The Verge did a detailed article on the topic in October. The article is titled Wisconsin’s $4.1 billion Foxconn boondoggle. The Verge summarizes the change in plans this way:

But what seemed so simple on a napkin has turned out to be far more complicated and messy in real life. As the size of the subsidy has steadily increased to a jaw-dropping $4.1 billion, Foxconn has repeatedly changed what it plans to do, raising doubts about the number of jobs it will create. Instead of the promised Generation 10.5 plant, Foxconn now says it will build a much smaller Gen 6 plant, which would require one-third of the promised investment, although the company insists it will eventually hit the $10 billion investment target. And instead of a factory of workers building panels for 75-inch TVs, Foxconn executives now say the goal is to build “ecosystem” of buzzwords called “AI 8K+5G” with most of the manufacturing done by robots.

The Verge writes that Michigan put together the second most lucrative incentive package for Foxconn. “And no other Great Lakes state came close to offering the $4.1 billion Foxconn is getting. Michigan came the closest, offering $2.3 billion, but it was partly a tax subsidy rather than cash.

Foxconn wasn’t the only company Michigan offered huge incentives to. Crain’s Detroit Business did a highly-recommended article on the tax breaks Michigan is providing to General Motors entitled General Motors may keep cashing in tax credits after cuts, closures. Crain’s reports that the tax breaks General Motors is entitled to are based on employment of at least 34,750 in Michigan. GM currently has 51,000 Michigan employees. So they could continue to collect tax incentives through 2029 as long as they don’t lay off more than 18,250 Michigan employees.

Crain’s reports the value of the GM tax breaks is not public. But it almost certainly is far more than a billion dollars since Crain’s reports: “Ford agreed to cap its remaining credits at $2.3 billion through the end of 2029, while FCA accepted a $1.7 billion cap for the remaining life of the MEGA tax credit program.”

Hopefully the Foxconn and General Motors experiences will call into question continuing an economic development strategy in Michigan dominated by providing huge tax breaks to companies that make investments here. There are all sorts of lessons that policymakers should learn from Foxconn and General Motors, but the two largest may well be:Companies are going to do what the market demands them to do irrespective of tax breaks. Big tax breaks aren’t powerful enough to stop General Motors from big layoffs. The October Verge story indicated that if Foxconn builds a manufacturing plant in Wisconsin most of the work would be done by robots. There was never a realistic chance that Foxconn was going to hire 13, 000 blue collar workers.

If you have to give tax breaks it should be for new high-wage/high-benefits jobs, not new investments. The two do not go hand in hand. To General Motors credit they are a high-wage/high-benefit employer. Many manufacturers are not. But that does not justify billion dollar plus tax breaks for retaining some portion of your current workforce.

(The New York Times has a great overview editorial on the topic entitled Taxpayers always lose industry’s shell game with jobs. The editorial’s subtitle is: G.M. is the latest example of a company getting incentives based on empty promises.

The Amazon HQ2 location competition told a similar story. Yes they got big incentive packages from New York and Virginia. But neither were close to the largest incentives. The incentives were, at best, the icing on the cake, not the driver of Amazon’s decision.

This topic is so important because the funds provided in business tax breaks can be used for other items that are far more important to the Michigan economy and, most importantly, to the economic well being of Michiganders. In a fascinating column, entitled Maybe tax breaks should go toward bringing in people,rather than jobs, Crain’s Dustin Walsh suggests:

Michigan must flip economic development on its head to solve population stagnation by transitioning from tax incentives to create jobs to tax incentives to fill jobs. … The prescription: Offering tax incentives to workers, rather than to businesses, to come to Michigan.

Michigan Future’s preference would be to use the funds that would go to business incentives for public investments in education from birth through college, creating places where people want to live and work, and shared prosperity. Michigan has been under investing in all three for decades. Our recommendations are detailed in our A Path to good-paying careers for all Michiganders report.

Former Governor Snyder got it right when he wrote in his 2011 Special Message on Developing and Connecting Michigan Talent: “In the 20th century, the most valuable assets to job creators were financial and material capital. In a changing global economy, that is no longer the case. Today, talent has surpassed other resources as the driver of economic growth.”

Unfortunately he and his predecessors for the last three decades have been doing the opposite. Subsidizing financial and material capital rather than investing in preparing, retaining and attracting talent. It is far past time for a change.

The post Foxconn, General Motors and business tax breaks appeared first on Michigan Future Inc..

By renovating a symbol of the city’s decline, the company hopes to create a magnet for the talent needed to prevail in the next automotive era.

Ford has learned the lesson that far too many Michigan business leaders and policymakers have not: that creating places where young talent wants to live and work is essential to economic success. They have learned that what matters most to their economic survival is talent. That the places that are/might out-compete them are located where young professionals are concentrating.

Ford now knows that placemaking is not something you can afford only after you have a strong economy, it’s what you need to do to have a prosperous economy. They also have learned that this cannot be done in the suburbs. That to be competitive requires public and private investments to create high-density, high-amenity central-city neighborhoods where you do not need to own a car.

As the Times writes:

Ford thinks the Detroit presence in particular will attract young professionals who now gravitate toward Silicon Valley and other high-tech hubs, and typically steer clear of established companies whose corporate ways they see as sterile and rigid. It’s the same thinking that prompted McDonald’s to move to Chicago from the city’s suburbs, and General Electric to relocate to Boston from Fairfield, Conn.

“Our goal is to have the autonomous vehicle invented and proved out here, and to attract the entrepreneurs and young businesses that will enable that, so we really will be able to create the mobility corridor of the next 50 years,” Mr. Ford (William C. Ford Jr., the company’s chairman and a great-grandson of the automaker’s founder) said.

Amazon, in their HQ2 competition, also delivered the same message. That Michigan’s two big metros are not worthy of consideration because neither Detroit nor Grand Rapids has the talent concentrations needed by knowledge-based services companies.

This also is the prime lesson to be learned from our recently published metro Minneapolis case study Regional Collaboration Matters.  Metro Minneapolis is doing a far better job than metro Detroit (and metro Grand Rapids) in retaining and attracting young professionals. They have for decades made creating a place where people want to live and work an economic development priority. With an emphasis on the cities of Minneapolis and St. Paul.

Business and political leaders there have understood that amenities like transit and parks (and the arts) matter more than low taxes in creating a prosperous economy. They have done things that are off  the table in metro Detroit: strong regional governance, rail transit and higher taxes. The payoff is that on every measure of economic well being––including the proportion of adults who work and household income––they are a national leader, while metro Detroit––even with one of the world’s great industries––is now a national laggard.

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Cortright found:

The number of well-educated young adults living in the nation’s largest cities increased 19 percent between 2012 and 2016, about 50 percent faster than the increase outside these large cities.

Well-educated young adults were already highly concentrated in large cities, and are more concentrated today; in 2012, a 25 to 34 year old with a four year degree was about 68 percent more likely to live in a large city than the typical American; by 2016, they were 73 percent more likely to live in a large city.

He found that in 51 of 53 cities there has been growth. (The two with declines are Rochester, New York and Tucson, Arizona.) Detroit’s young professionals grew from 10,532 to 17,261. Grand Rapids grew from 12,517 to 18,012. Good news for both. But they both have a long way to go to be a talent magnet.

There were nine cities that saw the number of young professionals grow by more than 20,000 from 2012-2016. New York City is in a league of its own adding nearly 84,000 for a total of nearly 763,000. The other cities in the top nine were in order of their growth: Los Angeles, Chicago (no Chicago is not collapsing), Philadelphia, Austin, Houston, Seattle, Boston and San Fransisco.

This, of course, is not new. It’s a continuation of college-educated Millennials choosing to live in central cities in much larger proportions than previous generations. Why it matters to all of us, is that the regions that are anchored by a vibrant central city that is a talent magnet are high-prosperity regions.

Each of the top nine central cities listed above anchors a region with per capita income higher than both metro Detroit and metro Grand Rapids. Ranging from $51,566 in metro Austin to $84,675 in metro San Fransisco (which is a separate region from Silicon Valley) compared to $48,692 in metro Detroit and $46,519 in metro Grand Rapids. (You can find the regional per capita income data here.)

It is also worth noting that, with the exception of Houston, all are a finalist for Amazon’s HQ2. And, of course, Detroit and Grand Rapids are not.

Amazon’s HQ2 search is representative of the new reality that in the growing high-wage knowledge-based sectors of the global economy talent—those with a four-year degree or more—is the asset that matters most and is in the shortest supply. And that is directly connected to prosperity, measured by per capita income. Because knowledge-based sectors are the only part of the American economy that is both growing and high wage.

The lesson that Michigan needs to learn––and is having a hard time doing so––is that vibrant central cities––particularly Detroit and Grand Rapids––are essential to regional and the state’s return to high-prosperity. And that requires public investment in placemaking. As we wrote in our new state policy agenda report:

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