In June 2006 we published A New Agenda for a New Michigan. It laid out Michigan Future’s vision for a prosperous Michigan and strategy for realizing that vision. It has been the guide for all the work we have done since.
In preparing for our next report I reread the New Agenda report and was surprised at how well the analysis has held up over what has been eight tumultuous years. Including the near collapse of the domestic auto industry––then and now the prime driver of the Michigan economy––and the worst national recession since the Great Depression.
Our analysis of the forces that were (and are) transforming the economy, the need to align with those changes to be prosperous and Michigan’s challenges in embracing those changes led us to the conclusion eight years ago that Michigan was in for a long period of economic decline.
What follows is what we wrote eight years ago. Its longer than I normally write in a blog. But I think its worth your time to read both as an explanation of what has led Michigan to becoming a poor state and because we will continue to be until and unless we align with the trends of the global economy and stop trying to make the old Michigan economy work again. (The data below is from 2004-5 and has not been updated.)
“Michigan’s economy is reeling. An unprecedented six consecutive years of declining employment. Maybe most worrisome, the past three years during a national economic expansion. There is widespread concern that what comes next will not be a good as what has been lost.
There is good reason to be worried.
The current downturn is largely structural, not cyclical. The jobs and enterprises that have been lost are likely gone forever. And it is clear that there are more losses coming in the next few years. Nor is the current downturn something new. For more than three decades Michigan has grown slower than the nation. We are no longer a leading-edge community.
Clearly, how to revive the Michigan economy is Topic A in our state today. We believe the need for a new agenda is clear. At Michigan Future, Inc. we have come to believe that Michigan’s decline is caused, in large part, because Michigan–its citizens, enterprises and communities–has been slow to adapt to a rapidly changing global economy. Today, leading-edge communities are leaving behind the Industrial Age for a more knowledge-driven and entrepreneurial economy. They seem to be adapting quicker and better to the requirements of a new economy.
It is clear to us that the only way to reverse these trends is to let go of the past–no matter how good it was to us–and embrace the future. A future where successful communities will be far more knowledge-driven and entrepreneurial.
… The title of this report is A New Agenda for a New Michigan. In many ways it is the latter concept–the need for a new Michigan–that is most important. Unless our actions are grounded in the realities of the emerging global economy there is little chance Michigan will get on a path that leads to a prosperous Michigan.
Two mega forces–technology and globalization–are driving a fundamental transformation of the economy. The changes we are going through are as basic and dislocating as the change when we left farms and craft production to move to cities and mass production factories a century ago.
New York Times columnist Thomas Friedman has labeled this new era the flat world. Flat because increasingly work can be done anywhere on the planet. The flat world is restructuring economic possibilities across the globe. In advanced economies, like the United States, work–particularly higher-wage jobs–increasingly involves knowledge, creativity and innovation. Many routine/repetitive functions can be done by machines or lower-wage workers in developing countries.
As we will explore later, knowledge-based industries–where work is done in offices, schools and hospitals–now account for 42% of American jobs and have increased in employment by 32% since 1990. Manufacturing–work done in factories–by contrast, now accounts for a little more than 10% of American jobs and has experienced employment declines of 19% since 1990. It is clear that American economic success in a flat world will be driven by knowledge-based enterprises.
Along with the transition to a knowledge-driven economy, the other major feature of the flat world economy is constant change. Globalization and digital technologies have led to big changes in the economy. There is far more to come!
We are at the early stages of globalization and technology-driven change. It is inevitable that an ever increasing number of residents of developing nations like China and India will migrate from competing with us mainly in low-skill jobs to being competitive in high-skill industries and jobs. It is also inevitable that technology (information, bio and nano) will allow advanced machines to do more of the work that humans now do as well as enable the creation of whole new products and industries that will reduce, if not eliminate, demand for some of today’s goods and services.
This all adds up to a world where the gales of creative destruction blow stronger and faster. The forces of trade and technology are so powerful that competitive advantage can disappear rapidly. For enterprises, the key to success, in all industries, will be innovation. Leading-edge enterprises–whether in well established industries, like our motor vehicle and office furniture mainstays, or in emerging sectors, like information technology and the life sciences–will be those that are constantly conceiving, designing and commercializing new products and services.
These same forces also make the path to success more unpredictable for workers. For almost all of us the unpleasant new reality is that the enterprise you work for, the job you have, and even your occupation, offer less security than ever before.
People will do well based on their ability to be continuous learners. Past guarantors of a good income–your college degree, seniority, unions, etc.–are of declining value. The only reliable employment security you will have is your current skills compared with those around the globe competing for the same job.
It is also clear in a world of constant change that states and communities can no longer rely on their most important enterprises being permanent mainstays.
In a global economy increasingly characterized by rapid and discontinuous change, successful individuals, enterprises and communities will need to be agile: able to let go of what is no longer working and embrace–or better create–the next wave.
This, of course, is the role Michigan played at the beginning of the Industrial Age. Because we embraced the new–and left behind the old–quicker than anyone else, we became one of the leading-edge communities in the world for the first half of the Twentieth Century.
Once again success is tied to letting go of the old and embracing the new. But embracing a profound transition seems to be particularly difficult for Michigan. We seem to be having trouble even having a public conversation about what a successful New Economy Michigan might look like. Our civic agenda seems to be dominated far more by efforts to preserve our Industrial Age legacies, rather than embracing the future.
But change we must. The long-term trends have lasted so long and Michigan’s decline, compared to the nation, is so steep that it is unrealistic to think that incremental changes can reposition Michigan as a leading-edge community. Michigan needs to get on a new path if we are to succeed in the knowledge-driven and entrepreneurial economy of the future.
We are not naive. We know that, just as in the Industrial Age, not all of us will be economic winners. We understand that for many Michiganians the transition to a flat world means a reduction in their standard of living. Some will lose their job. Others, who keep their job, will see their wages reduced. Some who lose their job will have a hard time finding a new job and many will only find new jobs that pay less. A lot of us will have our employer provided health care reduced or eliminated. Most of us will have less job security.
But the flat world is a reality. The forces of technology and globalization trump policy/politics. State and local policy makers have no levers to shape the flat world. At the national level, policy makers have levers (principally trade and currency policy) that can tilt the playing field more to America’s advantage, but not stop the transition to the flat world.
… Let’s turn our attention to how to revive the Michigan economy in the context of the flat world.
We started with the question, “Where do we want to go from here?” Our answer: a high prosperity Michigan. Measured best by a per capita income above the national average no matter how well the national economy is faring. This is a status we enjoyed for most of the first 70 years of the past century. After more than three decades of continuous decline compared with the nation, we are now consistently below the national average in both upturns and downturns.
… We found that the only reliable path to a high prosperity Michigan is to be concentrated in knowledge-based enterprises. There is a clear pattern across the country that the states, and most importantly metropolitan areas, with the most successful economies are those that are concentrated in high-skill, export-based industries.
States and metropolitan areas concentrated in manufacturing and/or natural resource- based industries will almost surely not be high prosperity communities. In the past, Michigan was able to flourish with an economic base concentrated in factories, farming and tourism. No more. In a flat world, these functions are either increasingly being done by advanced machines, overseas or are lower-wage industries. They will continue to be important parts of the Michigan economy. But they are not where high wage employment growth will come from.
… It is in the non manufacturing industries that Michigan is lagging the nation. Most importantly in the dynamic, middle and high wage knowledge-based industries. These industries now account nationally for 43% of all jobs. They have seen employment growth nationally of nearly 32% compared to 17% in Michigan. If Michigan’s knowledge-based industries had grown at the same rate as the country, there would be 223,000 more Michiganians working today in this growing good-paying sector of the economy.
As the data clearly indicate, what characterizes Michigan most from successful state and regional economies is its astonishingly high concentration in one industry: motor vehicles and parts manufacturing. Non-automotive manufacturing in Michigan is basically in line with the nation. So it is the domestic automotive manufacturing industry — an industry that is in deep trouble today–that is the primary reason Michigan’s economy lags the nation today.
… Maybe most worrisome is the wage premium of nearly $18,000 that Michigan motor vehicle and parts manufacturing workers enjoy today compared to their counter parts in the rest of the nation. In a highly competitive global economy this wage premium is not sustainable.
Not only are automotive sector wages here substantially higher than the industry nationally, but they also are more than $7,000 higher than the average wage in Michigan’s high-pay, knowledge-based industries. In the rest of the country, automotive sector manufacturing workers earn nearly $14,000 less than workers in high-pay, knowledge-based industries. This is an impediment for Michigan in making the necessary transition to a knowledge-driven and entrepreneurial economy.
The combination of being (1) under concentrated and growing less than 1/2 the nation in high-pay, knowledge-based industries and (2) highly dependent on the now uncompetitive domestic auto industry, means that Michigan almost surely will continue to lag the nation for the next several years.”