The Gateway Lesson We Need to Learn

Lost in the latest political attacks against Rick Snyder – did he send Gateway factory jobs to China or not? – is a more fundamental matter that none of the candidates for governor seem willing to admit, and may not understand.

The lesson from the Gateway job contraction is that even in South Dakota, the state with the lowest state and local tax collections per capita in the nation, the Gateway factory couldn’t survive. Ditto Tennessee. When Americans, no matter how “skilled” they may be in factory work, have to compete against $4 an hour labor overseas, they lose the competition. End of story.

This means any state seeking to compete for factory jobs as the basis of its economy is doomed to failure. Sure, some factories may survive and hire. But they will pay less and less – GM is trying to drive down the $13 an hour pay for new workers at its battery factories – and every year, productivity gains will almost guarantee there are fewer of the jobs at almost any plant.

Yet, that’s exactly the strategy every one of the gubernatorial candidates is following. All are saying we need to cut taxes and reduce state services to attract more jobs – factory jobs, primarily. But it has been proven time and time again, cuts in services like mass transit, higher education, police protection, museums and the like, drive away young talent needed to attract knowledge industry jobs.

Right next door to South Dakota is Minnesota. Minnesota has attracted a lot of college grads (highest percentage in the Midwest) and thus has the lowest unemployment and the highest per capita income in the Midwest — and relatively high tax burden. South Dakota has relatively few college grads, and much lower per cap income.

If Michigan follows the low-tax, low-service strategy, it will get low-tax, low-service results…a few low-paying factory jobs may come, but they will be at the expense of public policies that attract young talent, and our economy will never return to prosperity.

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This Post Has 7 Comments

  1. South Dakota comments as usual right on, Lou. Those that are pursuing the race to the bottom cannot win vs competition from Latin America, China, Southeast Asia.

    I’ve started carrying copies of some of the Electrolux clippings around–$1.57 an hour in Mexico at that time vs zero taxes here for 10 plus years. That war can’t be won, and all of the leading candidates are talking more tax cuts in the face of real world deficits on the horizon. Not the best prescription for investing in the future.

  2. Your comments on Gateway make one point that I think is very important in supporting our transition to a knowledge based economy, but one that has not been discussed that much. You mention that productivity gains will almost guarantee fewer factory jobs. I believe it is possible that capital investment and productivity gains may enable us to keep more manufacturing production in Michigan and the USA. However, I believe this will only happen with increasing productivity, which is the only way we can compete with low wage countries. Highly productive, automated factories will require far fewer workers than are required today. Interestingly, those factories will probably require those workers to be highly trained, perhaps moving workers in such factories into the knowledge category. Factories of the future may need fewer workers, but the workers they do have, may be knowledge workers.

    1. Agree. There was an interesting recent article in the New York Times on manufacturers having a hard time – even with so many unemployed – finding plant floor workers with the skills they now need. And my guess is as machines are able to more and more of the work that factory workers used to do, the skill level will continue to go up for those who work in factories. And that means we are going to have to do a lot better in preparing foks for those jobs. There are not enough today with the right skills or even the foundation skills to learn the technical skills.

  3. The bottom line is that, even if we are able to maintain a high level of factory production due to increased productivity, factories will no longer be a major source of high wage jobs for people with low skills or low levels of education. Highly productive factories will require much fewer workers and those workers will have to be well educated and highly skilled. Neither Republican tax cuts nor Democratic support of labor unions will ever we able to create large numbers of well paid factory jobs for poorly educated workers. Those days are simply gone.

  4. The reason I emphasize this so much is based on personal observations. I know many families in Michigan who have teenaged kids who graduate from high school, but do not go on to college because they still think they will eventually make good money working in a factory. It seems like this is a pervasive attitude among Michigan young people even as factory employment has decreased so rapidly. Many of them have a dad, uncle or older sibling who went into factory work at a high wage immediately after high school, and the kids are still convinced they can do the same as soon as the recession ends. If we do not overcome this attitude among young people, it will be hard for Michigan to make the transition to a knowledge-based economy.

  5. Uh, the author says cut taxes is the policy “every one of the gubernatorial candidates is following.” This is not true. Virg Berenero has said time and time again that cutting taxes is not the way to bring in business. So, I don’t get why this author is transferring Republican ideas to democrats.

  6. Andrew: This from the Free Press on Bernero’s positions:
    • Supports overhauling business taxes to attract more businesses.
    • Supports possibly lowering the state sales tax rate and expanding it to include soda and other nonnutritional beverages and some services.
    • Supports ensuring that eligible families get federal Earned Income Tax Credit and other federal support programs.
    • Supports pressuring Congress to allow states to capture sales tax revenues lost to Internet commerce.

    Read more: Virg Bernero’s positions in the governor’s race | | Detroit Free Press

    Two of the four are tax cuts, and depending on how the expansion works, it might be too. We’ll see about the net. And he’s not going to get the sales tax on the web stuff.

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