Amazon says no to Michigan for HQ2. We aren’t surprised.

Michigan’s two big metros not being selected as finalist for the Amazon’s HQ2 should not surprise anyone. Amazon made clear that it wanted—really needed—to locate in a community with high talent concentrations today and tomorrow. Neither metro Detroit nor metro Grand Rapids are competitive talent magnets.

The reality is that in the growing high wage knowledge-based sectors of the global economy talent—those with a four-year degree or more—is the asset that matters most and is in the shortest supply. This reality has been clear for more than a decade.

At both the state and regional levels Michigan’s policymakers, by and large, supported by the business community have chosen to ignore this reality. Rather they have focused on trying to revive Michigan’s 20th Century economy and sectors largely through lowering taxes and organizing an education system to prepare most Michigan kids—but not theirs––to work in the declining factory-based economy rather than the growing knowledge-based economy.

In 2006 we published A New Agenda for a New Michigan. It was clear to us then if Michigan did not change fundamentally we would not be competitive in attracting and growing the high wage jobs that are the key to prosperity. 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.”

This was the right approach to creating a high-proserity Michigan in 2006. It is the right approach to creating a high-prosperity Michigan in 2018.