New-model economy emerges in Michigan

There really is a new economy in Michigan, but not everyone knows it yet. Especially everyone in Michigan. People here still say simply ''the Big Three,'' instead of ''the Big Three automakers,'' as they say in the rest of the country. But there is a new awareness that the automobile industry, while still important, is not the whole of the Michigan economy.

Higher education and abundant natural resources (especially forests) seem important to the state's future. And across the state are found entrepreneurial sparks that business, academic, and government leaders are fanning.

''People here are either excited about the progress or frustrated that it's not happening faster,'' says George Gamota, director of the Institute for Science and Technology (IST) at the University of Michigan campus here.

He speaks of ''tremendous changes'' in people's attitudes toward the ''new economy'' over just the past few years: ''Three years ago, there was a tremendous glum. We had our annual conference - and it was like a wake.'' That has changed as the state has snapped back economically, largely due to the dramatic turnaround in autos.

The recovery in autos is important for a number of reasons, not least of which is that this industry is likely to be the principal market for many of Michigan's new technology-based companies. But a cyclical upturn in traditional manufacturing industries does not obviate the need for long-term structural change, which, economists say, hasn't happened yet.

Dr. David E. Birch, director of the Massachusetts Institute of Technology program on neighborhood and regional change, notes that Michigan unemployment remains high, 11.5 percent in July, seasonally adjusted (''And that's with autos back,'' he notes). Recovering businesses have sprung back with more automation and overtime and less new hiring.

Dr. Birch, who studies the process of job creation, predicts that ''in five or six years Michigan will be back to or below national unemployment rates.'' He adds, however, that ''the auto industry will not return to the employment levels of 1980.''

G. William Ince, president of the Michigan Technology Council in Ann Arbor, echoes: ''It's clear that new jobs are not going to come from the Big Three - or big companies in general.'' Dr. Birch sees a trend of ''young growth companies coming out of the universities.''

Ah, yes. The universities. Across the country, local officials eager to see their states develop the next Silicon Prairie or Silicon Swamp have been awaking with amazement to the realization that the universities in their backyards are more than just excuses for football games. Michigan has gone through a similar process of discovery - and has had some battles to fight with ivory towerism.

The state's big universities are all public institutions, unlike Stanford, for example, or MIT, and they have restricted their faculty members' involvement in consulting and in launching new business. Many observers across the state cite this as a damper on Michigan entrepreneurship - although these rules are changing.

John Shingleton, director of placement services at Michigan State University (MSU), notes that Michigan is doing better at retaining its university graduates nowadays. Some 51 percent of the engineering graduates of the class of 1984 have found jobs in-state, whereas only 39 percent of the class of '82 did, he reports.

But he wishes there were greater awareness in the academic community that, as he puts it, ''people have to go to work when they finish school.''

He adds, ''Keeping education apart from the business world was a mistake.'' Likewise, he chides business leaders for not making better use of the academic resources around them.

What's needed, one hears, is a mechanism for disseminating engineering advances among the business community, just as agricultural extension services (with their ''county agents'') have disseminated information to farmers - and have helped make the United States the world leader in agriculture. What's needed, some contend, is an industrial extension service.

This, says Dr. Herman E. Koenig, professor of systems engineering at MSU (the first of the land-grant colleges), is explicitly called for in the Morrill Act, which established those colleges and their agricultural extension services. But the industrial extension services were never developed - partly for lack of funds, but also, he says, because of the way American business developed. ''Industries grew into large firms with their own research-and-development teams. They didn't need anybody from the university to tell them what to do.''

Dr. Koenig says the newly built university-to-industry ''bridges,'' the Industrial Technology Institute and the Michigan Biotechnology Institute, are the industrial extension services that never got launched before. These institutes, he adds, are coming at a critical time for many of Michigan's businesses.

We've all read about how the major automakers have had to face the realities of new technology and global competition.

Less well known is that Michigan has some 2,400 small to medium-size manufacturing businesses, mostly suppliers to the auto industry, mostly in need of modernization. They are facing many of the same problems as the Big Three, but without the same resources to meet them. ''All of these firms desperately need assistance, strategic planning...,'' Koenig says. ''It is a challenging opportunity. These firms have had no engineering capability; they have no marketing or design capability.''

In times past, these firms didn't need any. ''They just got blueprints from the Big Three,'' he says, and were assured of a growing market for their products every year. But now the automakers are putting their suppliers in competition with one another, and these manufacturers are having to rethink the way they do business.

Mr. Ince of the Michigan Technology Council identifies machine vision, including laser-based systems, as a natural high-tech area for Michigan companies. These systems can be used in automobile manufacture, particularly to do quality-control work: An electronic ''eye'' can inspect a weld, for example, to ''see'' that it is done right. Ince says there are some half a dozen Michigan companies in this field and a dozen-plus in robotics - which also has big potential markets in the auto industry.

Interestingly, Michigan has not done much to recruit companies from outside - usually a staple of local economic development. ''To recruit companies would be an uphill battle,'' Ince says. The state has taken steps to improve the business climate, especially the venture-capital scene. Some $400 million of the $8 billion in pension fund money the state manages for state and local government employees is available for (largely indirect) investments in start-up companies.

''Michigan is not a poor state,'' says Donald N. Smith, director of the IST's industrial development division. ''But we looked at where our money was going and we found it was going out of state, to Chicago and New York.'' Since 1978, a number of laws, state and federal, have been changed to make it easier to launch businesses. ''The venture-capital situation here has improved 1,000 percent in the last five years,'' he says.

That is a steep improvement over a very small base, however. There are still some problems to work out.

One state official observes: ''It's my opinion that the entrepreneurial atmosphere here is dampened by big institutions: big labor, big government, and big business, which have dominated Michigan over the years. .. That entrepreneurial spirit existed when Henry Ford - the first - was here.''

Back then, he contends, ''the guys on the assembly line thought about setting up their own plant.'' This is the case today in entrepreneurial areas like Silicon Valley, but ''the guys on the GM assembly line in 1984 are definitely not thinking of setting up their own manufacturing plant. Their lights have been turned out.''

But this is changing, he insists. There is a new spirit of cooperation. People are saying, ''Let's help the auto industry, but it's not the be-all and end-all. There are lots of other folks.''

Says MIT's Dr. Birch, ''The future of Michigan is in small companies.''

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