The Limits of State Policy
Hal Wolman, formerly of Wayne State, now at George Washington, was in town this week. He is working on a national project to try to figure out what characterizes resilient regions – those that recover from big economic shocks.
I participated in a meeting he convened of a small group of “old hands” on the Michigan economy. Most of us – including Hal – had worked together on crafting the basic economic development plan of the Blanchard Administration.
Its interesting the common ground we share on the Michigan economy and what can be done by state, regional and local leaders to fix it:
1. The reason Michigan looks different than the nation today and for the past ten years is the same reason Michigan has looked different that the nation for a century: the domestic auto industry. When it does well Michigan does better than the nation, when it slumps, Michigan does worse than the nation.
What is different this decade is the domestic auto industry slumped in a national expansion and then collapsed in a severe national downturn. So Michigan for the first time ever lost jobs in a national upturn and it is now clear that unlike past national recoveries the auto industry will not lead us back to prosperity. The days of a high prosperity Michigan anchored by the domestic auto industry are over!
2. State, regional and local economic development policies are basically irrelevant in explaining the mess we are in. Nor does it matter which party the Governor is from or controls the state legislature. Turns out state and local economic policies are a weak lever at best.
As an example both the Blanchard and Engler administrations – who pursued quite different economic policies – presided over recoveries for part of their terms, but then downturns. Same policy was in place during upturns and downturns. And the different policies between the two produced basically the same results.
3. The key characteristic of resilient states and regions in the future will be human capital. The talent of its citizens. This is the asset that matters most in an increasingly knowledge-based economy. The skill, creativity and entrepreneurship of residents. Michigan’s fundamental challenge is that we are thirty fourth in education attainment.
4. Since talent is mobile – basically can live anywhere they want – creating places where talent from anywhere on the planet wants to live matters most to the future prosperity of the Michigan economy. And what matters most are amenities. Things like natural resources (a real Michigan advantage if we take care of them), vibrant central cities, good schools (k-16), the arts, transit, biking/walking friendly and parks and outdoor recreation. Not the normal priority list on how to grow an economy, but now what matters most.
The answer from candidates that matters most for our economic future is “what does Michigan need to look like for your kids (or grandkids) to live here after they graduate from college?” Because when they and their peers leave Michigan after college – as far too many are – they are taking the Michigan economy with them.
5. Depressingly, we had no good answer to the question how to help former factory workers – still the core of Michigan’s middle class – find good paying work. We all agree that high paid factory work is gone forever. To get good pay they will have to get higher skills so as to take advantage of the jobs that will be created as the national economy recovers. Understanding that community college level skills lead to $18 an hour job, not $28. But for many getting higher skills is a challenge because of the lack of basic foundation skills. For those without higher skills, they will compete for jobs in the lower wage economy.
6. Getting to an amenity driven agenda is politically real difficult. Most Michiganians want policy makers to get their old, good paying job back for them. Something policy makers can’t do, but have strong incentive to claim they can. And focusing on mobile talent is a long term strategy, not the quick fix most of us are demanding. Add to that many will view policies aimed at mobile talent as elitist.
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I agree with your general idea that Michigans must attract talented people to attract employers to develop a knowledge based economy. However, we are facing the proverbial question of what comes first “the chicken or the egg?” Yes, we must attract talented young people, but many of them are leaving the state because employment opportunities are so unavailable. I am semi-retired and working part time teaching at a local university. So I am trying to do my small part to increase our intellectual capital. However, I talk all the time with students who are approaching graduation or who are recent graduates, and now are planning to leave the state because they cannot find meaningful employment in Michigan. What comes first? Should we try to attract more talent even though talented people in the area are unemployed? Or should we try to attract employers? I agree that developing and attracting young talent is a key to long term success. But does this work in the short term when young talented people cannot find employment?
Agreed that it is a chicken and the egg situation. Obviously both job/opportunity and amenities/quality of place matter. So policy makers should work on both. Our argument is that, by and large, policy makers only work on one – jobs/economic development. What should we do that we are not doing already to attract/create more jobs now? Our conclusion is that the levers available to state, regional and local policy makers to create jobs now is limited.
What they can do is focus on creating communities where recent college graduates want to live. As the Wall Street Journal just noted Portland, Oregon – even with a high unemployment rate – is one of the top five meccas for young professionals. They continue to flock there because its where they want to live even if its hard to find a job today. Over the long term that will be a major competitive advantage. What Portland has done – that we can do here – is create a vibrant central city anchored by rail transit and great outdoor recreation. This is the kind of agenda that we need to make a priority here as well.
I wouldn’t worry about attracting talent; I’d worry about keeping the college grads we already have with jobs that pay sufficiently to help them pay off their student loans. When one owes umpteen thousands of dollars of student loans, it doesn’t take a long time (or much thought) to say, “Are you kidding?” to the $8/hr jobs that are currently being offered to new college grads. The wages in Michigan are low and, until that changes, Michigan’s ability to keep its few remaining college grads will gradually evaporate. I’ve spent years getting the skills employers want. I am currently stuck in Michigan due to family responsibilities, but this is temporary. When I have a choice of where to live, I will likely move somewhere with higher wages, unless Michigan employers offer me sufficient incentive to stay, which I have yet to see. The employers around here want MIT-level qualifications, but offer Burger King wages. Until that changes, Michigan is headed the way of Mississippi and Alabama in terms of educational attainment.
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