Seven steps to reviving Michigan
Reliance on the beleaguered auto industry is out. But what to do? Economic sages weigh in.
Every cloud may have a silver lining, but when it comes to Michigan's economy, you'd be forgiven for thinking you'd need an electron microscope to find it. Two of the Big 3 automakers are in Chapter 11 bankruptcy, and many auto-parts manufacturers look likely to join them, with giant Visteon heading the list. Plant closings are announced weekly, and thousands of people are losing their jobs.Skip to next paragraph
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"The challenge of the state is clear to everyone: We're a one-horse town with a sick horse," says George Erickcek, senior regional analyst with the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.
General Motors' bankruptcy filing June 1 put an exclamation point on the fact that the state can't keep tying its fortunes to the auto industry. Over the past decade, Michigan's economic output has plummeted - dropping from No. 16 in 1999 to No. 42 in 2007. Unemployment is almost 13 percent and seems destined to climb. Residents' per capita income lags 11.2 percent behind the national average.
"Not even during the Great Depression did we see that," says Michael LaFaive, a senior economist at the Mackinac Center for Public Policy. State government, for its part, faces a roughly $2 billion shortfall as of October.
Consensus is hard to come by. Take the state's flat income tax. Some economists, heads of business incubators, and small-business owners say it's one of the few business-friendly things in Michigan; others insist it's time for a progressive tax. Some say yearly cuts to education squander the state's human capital; others say hard choices must be made. Still others suggest that Michigan would be more attractive to business if it became a right-to-work state.
But agreement did emerge on some fronts - mostly about what not to do. For one, no one interviewed believes that green energy will translate into major greenbacks. (The field is not a proven jobs creator, they say, and how do you know you're pouring tax dollars into the right technologies?) For another, most economists wish Lansing, the state capital, would take a more hands-off approach to finding a cure-all for the state's fiscal woes.
The state, moreover, is not without its charms.
"A lot of the pieces are there for Michigan to do very well," says Michael Hicks, director of the Center for Business and Economic Research at Ball State University in Muncie, Ind., who has studied Michigan's tax incentive programs. "It has fantastic universities and not unreasonable high school graduation rates. That's easier to sustain than to build."
It also has a trained manufacturing workforce (although that's shrinking with every moving van headed across state lines). Plus, it's a border state with a good location and a lot of transportation assets. With its hundreds of miles of lakeshore, mineral deposits, and resource-rich Upper Peninsula, the state is hardly a wasteland.