Our New Agenda report revisited II

As we explored in my last post the analysis we did eight years ago for our A New Agenda for a New Michigan report has held up remarkably well. I think the same can be said for our agenda of what Michigan should do to return to prosperity. A status we had lost by 2006 when the report was published.

It was clear to us then that we were going to fall even further. As we have. Here is what we wrote in 2006 about what mattered most to Michigan reversing that decline. By and large we have not acted on those recommendations and our conclusion would be the same today, unless we do we are going to be one the nation’s poorest states.

” This report is designed to answer the question “what really matters in better positioning Michigan and its regions for success in a knowledge-driven and entrepreneurial economy?”

We started with a clean sheet. We didn’t assume that state and local policy was the answer. Nor did we start with preconceived notions of what the right answers are.

Our basic conclusions are:

  1. Our answer to the question “where do we want to go from here?” is 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 last century. After more than three decades of continuous decline compared to the nation, we are now consistently below the national average in both upturns and downturns.
  2. 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-pay, knowledge-based industries: information, financial services and insurance, professional and technical services and management of companies. 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 elsewhere or are lower-wage industries. Michigan is lagging the nation mainly because of our slow growth in the dynamic, high wage sectors of the knowledge economy. That combined with a still astonishingly high dependence on the now uncompetitive domestic auto industry mean that we almost surely will continue to lag the nation for the next several years.
  3. Economies are regional. States and municipalities are political jurisdictions, they are not economic units. State economies can best be understood as the sum of their regional economies.
  4. What most distinguishes successful areas from Michigan is their concentrations of talent, where talent is defined as a combination of knowledge, creativity and entrepreneurship. Quite simply, in a knowledge-driven and entrepreneurial economy, the places with the greatest concentrations of talent win. Metropolitan areas without concentrations of talent will have great difficulty retaining or attracting knowledge-based enterprises, nor are they likely to be the place where new knowledge-based enterprises are created.

So in a flat world, economic development priority 1 is to prepare, retain and attract talent. Our agenda to help better position Michigan and its regions to succeed in a knowledge-driven economy is centered on (1) developing a culture and (2) making key public investments that are aimed at preparing, retaining and attracting talent.

First, we need to resist the pressure to try to save jobs and enterprises which are no longer competitive. Such efforts are tilting at windmills (they won’t work) and, most importantly, take time, energy and resources away from doing what is needed to succeed in a flat world.

For the past dozen years, Michigan has centered its economic development strategy on cutting taxes. It didn’t work. And there is no evidence that it will work: the most successful areas around the US are not characterized by low taxes. Instead we believe the priority actions that can best position Michigan to succeed in the context of a flat world are:

Strategic Priority 1: Build a culture aligned with the flat world

Culture trumps policy. Our expectations about the economy and how one constructs a good-paying career is a big driver of how successful we will be in the future. Long-standing Michigan beliefs about the economy are now impediments to our future success. In a world where economic growth is driven by knowledge and innovation, the most successful regions will be those which highly value:

  • Learning: instilling the love of learning and learning how to learn may well be the most important foundation skills to economic success in a world characterized by accelerating creative destruction of both jobs and enterprises.
  • An entrepreneurial spirit: This is more than starting a business, although we need far more of that. It is a community that stops thinking of employment as a long term entitlement to a good job and starts valuing competing and constant reinvention of one’s career.
  • Being welcoming to all: the places that do the best in attracting talent from anywhere on the planet win. This means both building a culture that condemns, rather than tolerates, discrimination/segregation as well as welcoming, with open arms, outsiders.

Strategic Priority 2: Invest in higher education first and foremost

Our higher education institutions–both universities and community colleges–are the most important assets we have in developing the concentration of talent we need to be successful in a knowledge-based economy. This is particularly true of our major research universities. We propose a dramatic new structure for state support of higher education built around three principles:

  • Institutional independence (autonomy) at public universities and community colleges.
  • Rather than funding institutions, state higher education funds should go to students–no matter where they come from.
  • Provide a substantial state match for federal research funding.

Strategic Priority 3: Build regions that are attractive places to live

The most successful regions across the country are those where both the suburbs and central cities are prospering. Our framework for developing metropolitan areas that are attractive places to live for talented individuals:

  • Create vibrant central cities neighborhoods that offer something different from the suburbs. Neighborhoods characterized by an active street life: safe, with high densities, a mix of residential and commercial uses, an active arts and entertainment scene and a walkable environment.
  • Provide a quality infrastructure throughout our metropolitan areas. Traditionally this has meant physical infrastructure like transportation, water and sewer. These are still important. But it may turn out in a knowledge economy that the infrastructure that matters most is digital and international airports, both for their connections to the global economy, and green infrastructure (system of open spaces) as a key amenity in retaining and attracting talent.

Strategic Priority 4: Attract export-based business investment

The main impediment Michigan faces to the development of knowledge-based businesses is a lack of talent—not high business taxes or overly onerous regulations. When we have adequate talent, as is the case in the knowledge portion of the automotive industry, we attract enterprises from around the world

Our framework for how best to attract export-based business investments:

  • Business taxes should be easily understood and have the broadest base and lowest rate possible to raise needed revenues.
  • Regulations should be minimized so as to encourage competition and innovation. This can and should be done without reducing worker or environmental protections.
  • Stay away from government picking industries of the future to invest in.

Strategic Priority 5: Align k-12 with a knowledge-driven economy

There are no shortcuts. We are going to have to do the hard work to develop a quality flat world k-12 system. We need to develop educators–from superintendents to classroom teachers–who are thoroughly grounded in the realities of the flat world. And we need to give them the ability to experiment and innovate to help all students develop a love of learning and the academic and soft skills that are required to succeed in the flat world.

Strategic Priority 6: New Leadership

Its inconceivable to us that the big changes we are recommending can happen without strong civic and business (and ultimately political) leadership. If this project is going to avoid just sitting on the shelf, there needs to be some group with clout that takes ownership of this agenda. It is an essential ingredient in our future economic success.

Given that so much of what needs to be done is regional, new leadership should be organized on a metropolitan area basis with the groups networked together for state action. The most likely place to start building a new leadership is with leaders of those enterprises that are competing nationally or, better yet, internationally for talent. They are the enterprises who care most about our ability to prepare, retain and attract talent.”

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