Competing like the Tigers

Theme: The places with the greatest concentration of talent win

Among all the disappointing actions taken by Michigan policy makers the past two years––particularly in December––the most disturbing is explicitly positioning Michigan to compete with Indiana. As we and many others have pointed out incessantly Indiana is one of the poorest states in the country and is now and has been for decades the poorest of the Great Lakes states. Why would we want to be like them?

(For the details on Indiana’s economy see two recent posts here and here.)

What made Michigan special for folks across the planet––many of whom flocked here––for most of the 20th Century was we were one of the most prosperous places on the planet. The place that created the American mass middle class. Largely because of high paid, unionized factory jobs this was the place where if you worked hard you were most likely to realize the American Dream.

Obviously that was less and less true in the last decades of the 20th Century and collapsed in the first decade of the 21st Century. As factory jobs were eliminated here by the hundreds of thousands and nationally by the millions and high paid factory jobs––unionized or not––went extinct.

As the domestic auto industry––still the engine of the Michigan economy––collapsed Michigan suffered through what is now commonly described as a lost decade. The question for policy makers is “where do we want to go from here?”.

Basically there are two choices. One is to stay concentrated in the industries that made Michigan prosperous in the past, primary factories but also tourism and agriculture. But that is no longer a path to a mass middle class. Michigan’s traditional engines now are characterized by slow or no job growth and lower wages. This shrinking middle class economy is what you get if you choose to be competitive with Indiana. The other option involves positioning Michigan to once again be a place with a broad middle class.

To do that necessitates transitioning Michigan away from a factory-based economy towards one that is concentrated in the high education attainment sectors of the economy––primarily health care, education, finance and insurance, professional and technical services and information. These are the sectors where job growth has been the fastest for, at least, two decades and where wages are now the highest. (For details see our latest report on Michigan’s Transition to a Knowledge-based Economy.) This would mean competing with high prosperity states like Massachusetts and Minnesota.

The choice our state policy makers have made to compete with Indiana is like the Detroit Tigers during their lost decade (more like a decade and a half from 1989-2005 when arguably they were the worse team in baseball) choosing to compete with franchises who year in and year out don’t make the playoffs, rather than teams who compete for the championship year in and year out.

Like our state policy makers the Tigers had a choice to make: join the annual also-ran franchises or commit themselves to do what is necessary to build a championship contender every year. Tiger management chose the latter even though it is more expensive and more difficult. Far easier and cheaper to compete with the teams at the bottom than those at the top. Think how different the Tigers would be today if they were satisfied competing with teams like the Pittsburgh Pirates rather than the New York Yankees.

In terms of state economies Indiana is the Pirates. Actually worse. The Pirates have been terrible for two decades, Indiana has been the poorest Great Lakes state for more than four decades. In terms of state economies Massachusetts and Minnesota are the Yankees.

What distinguishes Massachusetts and Minnesota from Indiana (and Mississippi)? What would Michigan need to do compete with high prosperity rather than low prosperity states? The two defining characteristics of high prosperity states––other than those with large oil and natural gas deposits––is they are over concentrated in the high education attainment sectors of the economy listed above and the proportion of adults with a four year degree or more. Massachusetts and Minnesota are in the top 10 in each, Indiana is in the bottom 10 in each.

Michigan can do far better than settling for being like Indiana––a perennial low prosperity state. There is no reason, with the right policies, that Michigan can’t once again be a place with a broad middle class. The state starts with enormous assets, most prominent one of the country’s best public higher education systems anchored by one of planet’s preeminent universities in the University of Michigan. And the concentration of world class engineering and design connected to the auto industry.

Giving up on a Michigan with a broad middle class should be unacceptable. (Just like giving up on competing for championships was unacceptable to Tiger management.) That requires state policy makers who are committed to positioning Michigan to compete with high prosperity, not low prosperity, states.

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