WHAT’S WRONG WITH THE AMERICAN ECONOMY?

Just ask Jeffrey D. Sachs, as a left leaning economist he espouses more government economic planning to remedy the recessionary economic ills.

Sachs is a “firm believer in the market economy, yet American prosperity in the 21^st Century also requires government planning, government investment and long-term policy objectives that are based on the society shared values”.

His book, The Price of Civilization – Reawakening American Virtue and Prosperity details how “our challenges lie not as much in our productivity, technology or natural resources but in our ability to cooperate on an honest basis”.

He asks, “Can we make our [current] political and economic system work to solve a growing list of problems?

He answers no, “not with out major changes”

He claims the laws of supply and demand have stopped functioning as the best means for both the individual and society and that government must step-in to assure that the existing mixed role of the private and government market is converted to:

1. Redistribute income to protect the poor and unlucky,
2. Provide public goods such as infrastructure and scientific research, and
3. Stabilize the macro economy.

He is critical of government leadership where “Washington gradually stopped steering the economy in the Mid-70’s and increasingly handed over direction to the ‘corporatocracy’ composed of elite business leaders”.

Large corporate business is now the problem, rather than a solution participant according to Sachs.

Where in the past, labor unions and government provided principles of interclass equity balance, today corporate and business political influence have tipped the balance – social and economic fairness and equity is no longer possible without greater governmental involvement.

He chides American for letting this happen, “our government can go its merry way because much of the public allows this to happen by not working hard enough to stay informed” and lethargies to take action.        

He characterizes the economy as rigged, due to:

1. Weakened national parties and strong local political representation promoted local needs ahead of national needs.
2. Large military – industrial complex with dominance of a significant proportion of the national budget.
3. Big corporate money financing elections, funding which significantly determines election outcomes.
4. Globalization and the race to the bottom mentality that tilted the balance of power toward corporations away form workers.

Sachs believes that Americans would prefer to “give up some income through taxation in order to achieve shared social objectives” and it’s the role of government to raze sufficient tax revenue, by whatever means to meet these social objectives.

In order to achieve this goal, Sachs notes that “middle class Americans will need to make changes.  Today middle class American are “so sure that higher take home pay is the key to happiness, that they have lost touch of the need to pay taxes to fund society-wide undertakings and avoid an explosion of public debt.”

He advocates that richer folks should pay more and that social objectives should evolve from a higher degree of government planning that includes;

1. clear goals and benchmarks,
2. the mobilization and use of human expertise,
3. creation of believable and acceptable plans,
4. focus on the far distant future,
5. termination of the corporatocracy,
6. restore acceptable public management of government, and
7. decentralization of government decision making, somewhat.

This change would create a new civilization for the 21^st Century

Sachs, to me, is a recreation of FDR’s Rexford Tugwell who promoted more government planning as a means to change human behaviors creating a government controlled economy that not only cured depression ills but implemented social objectives.

Tugwell’s vision of a planned economy never materialized nor was many of the purported economic benefits for the depression “forgotten” ever achieved.

Only time will justify whether recommendations advocated by Sachs will take root and benefit Americans.

Readers will walk away with a better understanding of “Progressive Political Theory” being the foundation for much of the current Democratic Party election rhetoric.

GOVERNMENT POLICY AGAIN DIFFERENTIATES GROWTH VS. DECLINE

For the fifth year in a row, government policies differentiate growth in state economic performance.

Arthur Laffer and Stephen Moore, again in their American Legislative Exchange Council Rich States – Poor States Economic Competitive Index, document key government actions that encourage and restrict economic vitality.

 Policies for growth include –

•     Lower personal income taxes
•     Lower corporate income taxes
•     Lower sales taxes
•     Right–to-Work business cost advantages

According to Laffer and Moore, the opposite of these growth policies are the “growth killers” with death taxes being added to the “killer” list by them.

Laffer and Moore provide a strong argument that “low taxes, limited government and fiscal discipline are a recipe for job creation”, the benefits of supply-side economics.

They present a convincing argument for the conservative republican based economic platform being played-out in the election rhetoric and in the news media.

They conclude “no income tax states outperform their higher tax counterparts across a board in gross state product growth, population growth, job growth, and perhaps shockingly even in tax receipt growth”.

Using fifteen policy variables they have ranked each state economic outlook and encourage the reader “to read the evidence and learn about the proven principles, which lead to economic growth, job creation and higher standards of living”.

Of importance to us Midwesterner’s is how does Illinois, Indiana, Michigan and Ohio “stack-up” with other states; the 50-state ranking data for each –

 

                           2012     2011   2010    2009    2008

• Illinois            48        44        47        44        43
• Indiana           24        16       20         17        12
• Michigan        17        25       26         34        47
• Ohio              37        38       42         45        47

According to the 2012 rankings, Illinois would be noted as the worst with Michigan being the best; a result of Illinois increasing and Michigan lowering business taxes. 

Ohio while improving, remains behind Michigan and Indiana.

They note that Indiana’s ranking will likely improve in subsequent rankings due to the passage of Right-to-Work legislation not recognized in the current ranking.

It’s interesting to note that the best states are principally located in the south and western United States – Utah, South Dakota, Virginia, Wyoming, North Dakota, Idaho, Missouri, Colorado, Arizona, and Georgia, being the top ten states.

These states have –

•   Population in-migration
•   Lower tax burden
•   Are Right-to-Work states
•   Increasing their proportion of US GDP

I subscribe to this pro-growth low tax – less expense line of thinking.

After 30+-years as a community planner, economic developer and entrepreneur, it is evident to me that business and people “vote with there feet” and seek to live and work in communities that provide employment opportunities and lifestyles that meet or exceed their economic goals.

In this line of thinking, when all is equal, people will migrate to communities where personal economic benefits are greater.

Therefore, the notion that governmental policy that directly impact the personal or business “pocketbook” will influence where one chooses to locate influencing the economic vitality of the community.

PLACE MAKING – A REDESIGN OF THE NEW DEAL NEW COMMUNITY PROGRAM FOR THE 21ST CENTURY

As a planner educated in a HUD funded New Town where the University was to anchor the city center, government involvement in new community development and “Place Making” holds special interest.

We can trace the origin of federal government new community development to the Hoover/FDR era, where government policy focused on the relocation of over populated urban tenants to rural farm locations via the “back to the land” homestead subsistence program.

FDR’s subsistence and new community social engineering effort was designed to reduce unemployment and population density within urban centers by providing a garden plot for agricultural self-sufficiency ultimately reducing reliance upon governmental financial support.

Some 34 subsistence homestead experiments were begun in 1933 as a precursor of the WPA federal supported new community experiments.

However, after eight years of experimentation the efforts were terminated by congressional action.

This period of history provides an excellent example of governmental social engineering by the use of regulatory and incentive action.

Study of the 99 subsistence homestead and new community program experiments undertaken between 1933 and 1939 offer an understanding of the basics of today’s “Place Making” strategy being popularized by current planning and community economic developers.

“Place Making” today is the federal government’s modern-day social engineering experiment to create vibrant urban oases that will attract young creative class residents for which new businesses will be attracted seeking employees.

Government planners seek to replicate the strategy of regulating and incenting human behavior to create concentrations of selected population to behave in a certain manner – young well educated – especially skilled population in central city locations that would otherwise remain economically stagnant and wither.

The pundits claim higher density urban living will solve environment and social ills.  Compact higher density urban living will reduce auto emissions, reduce oil consumption, create a lower carbon footprint, create less crime ridden safer neighborhoods, offer higher-wage job opportunities, reduce poverty and more.  “Place Based” community development will offer opportunities for improvement in “open space green infrastructure”, creation of walkable communities less dependent on auto transport and create small business economic viability due to higher concentrations of household shoppers to patronize locally owned businesses.

But will social engineering of where and how people live actually work?

For community planners this is a question that needs to be asked and answered?

Using the FDR experiment as an example, one can question whether this form of social engineering will achieve its desired and expected outcome.

Reading the Paul Keith Conkin book Tomorrow A New World: The New Deal Community Program will provide some background and stimulate thinking about the need for, and role of, government in shaping where and how people choose to live.

He chronicles the beginnings of the “back to the land movement” and its rise to suburban and rural new community planning.  He focuses on the rise of the professional city planner in advocating the” need for government [sponsored] whole new towns or communities in spacious rural environments” to house a growing population and to remedy social and economic ills.  The need for government involvement was based on the fear of private sector “inefficiencies and waste that would occur by non-government involvement in effort to provide housing and jobs to the mass of unemployed suffering the effect of economic depression”.

Conkin begins by summarizing early efforts of the federal government to provide housing for veterans returning from the Civil and World War I where federal government policy was formed establishing the role of government to provide housing opportunities, a policy that grew in stature through the great depression and end of WWII.

Documented is government’s experiment applying Garden Cities and City Beautiful city planning principles to what we today might call “Place Making”.

As the new communities movement grew over the years, the Department of Agriculture’s Rexford Tugwell (an original FDR Brains Truster) responsible for the program sought to intuitionalize within government a “long-term solution [for the provision of housing and geographic population distribution] through economic planning for agriculture with social control over the individual and his use of the land”.

His main goals were to “point to a new way of life …to promote industrial decentralization and to show what social and economic planning might accomplish if given a chance” using example governmental planned communities scattered throughout the US.

Sixty suburban new communities were planned as this social experiment.

The success of the FDR new communities program is a matter of serious debate.  Tugwell’s  legacy of federal government involvement in the provision of housing,  although scattered, remains encased principally in the Department of Agriculture, Department of Housing and Urban Development but remnants are found in other departments.

Today’s Place Based planning strategy is just more of the same, the current edition of principles discovered during the FDR era  repackaged to meet modern concerns similar to those of the great depression era, lack of individual employment opportunities, insufficient affordable housing opportunities and lack of individual economic opportunity all giving way to national economic turbulence and US economic instability. 

My study of history raises question of the ability of government via social engineering to regulate and incent human behavior for successful implementation of a federal land use policy directing where people live and work.

For government sponsored “place making” to be successful – individual choice, not governmental regulation and incentives will need to prevail.

Reading Conkin’s book will give the reader much to think about – the government’s role to influence individual choice in determining where and how we live.

For the most part, I’m a skeptic.  While I fully support urban revitalization much which, by necessity, must be completed by government action,  I have serious questions about social engineering policies to regulate and incent behavior that reduces individual choice.

SOUTHWESTERN MICHIGAN COMPETITIVE ADVANTAGE – INDIANA GROWS MANUFACTURING JOBS

Southwestern Michigan (SWM) economic development strategy may need to be revisited based on latest Wall Street Journal findings about where Midwest manufacturing jobs are being created.

While SWM lost over 16,000 manufacturing jobs since 1980 and has had little success in repopulating them recently, maybe it’s time to rethink SWM’s past approach to economic development and begin emphasizing partnerships within a larger multi-state regional economy.

The Upjohn Institute’s regional labor economist George Erickcek recently made a convincing statement that SWM is not a single regional economy focusing on Benton Harbor/St. Joseph as the metropolitan city center.

In his March 19, 2012 presentation before the Stronger Economies Tomorrow (SET) local economic development strategy group, he clearly outlined his feeling that SWM’s economy is pulled outward toward the stronger economies of Kalamazoo, Elkhart, South Bend and LaPorte/Michigan City. 

He presented census data showing that a large portion of the employed population travel outside their home county for jobs. 

His claim is substantiated by 2010 employment data reported by the US Census Bureau.  Today, more than 50% of SWM’s employed residents travel outside their county to work – 38% in Berrien, 80% in Cass and 66% in Van Buren.  It’s easy to comprehend that a sizable portion may be commuting to Indiana as their place of employment.

He further noted only the Twin Cities of Benton Harbor & St. Joseph functions as a unified self-contained economic unit. He further opines that the strength of the Twin Cities area economy may be insufficient to override the “outward pull” of these stronger surrounding economies.

This challenges current governmental economic development thinking shaped on the premise that economic development in Michigan should be guided by state policies and intrastate geography.

It’s an obvious fact that residents needing jobs and their geographic labor market don’t respect state policy or boundaries – people will gravitate to their job “of choice” regardless of whether it’s in the county they live, another Michigan local or the State of Indiana.

Based on a new understanding of where people work, the question arises – What should Southwestern Michigan’s economic development and job creation strategy be?

The notion of aligning economic development strategy with Indiana may not be as far-fetched as one may believe, especially for the Benton Harbor/St. Joseph Twin Cities Area and southern Berrien and Cass county communities.

According to the Wall Street Journal article, “Over the past decade Indiana’s performance has been better than other Rust Belt States.  Its manufacturing employment is down 20% compared with drops of 26% in Illinois, 29% in Ohio and 35% in Michigan, per Moody’s Analytics.”

“Indiana’s efforts to attract manufacturing jobs are encouraging so far.  The number of Indianans employed in manufacturing at the end of 2011 was up 7.6% from two years before to 472,500 compared to 3% nationally after plunging during the recession.”

Indiana, as the Wall Street article states, has been more “recession proof” than Michigan and seems to be better positioned for manufacturing economic recovery, especially automotive related employment which historically benefited Southwestern Michigan communities bordering Indiana.

Corroborating this claim is data from the Using US Census that reports the number of jobs by employer showing that between 2000 and 2009 Michigan lost 18% of its manufacturing employers and 43% of their manufacturing jobs compared to Indiana’s loss of 9% of their manufacturing employers and 31% of their manufacturing jobs.

Maybe it’s time for the Southwestern Michigan political and business leadership to “take stock of economic realities” and recognize that for Berrien and Cass counties to achieve an economic sustainable future it’s time to rethink how we wish to grow – what we need to do.   A 30-year history of status quo and distrustful separatist local government mentality cannot remain the predictor for a growing future economy attractive to new residents and job creators.

Here are my thoughts of actions which should be considered –

1.  Grow the Twin Cities area economic dominance by increasing household growth.

2.  Conceptualize a new economic region somewhat larger than now established – one that overlaps state borders.

3. Consider an economic development strategy based on a new economic vision based on connection with regional centers of population.

4. Reformulate local and county government growth policies and incentives that stimulate population and household growth.

5. Consider how to improve transportation access – the journey-to-work trip – to job centers located in regional population centers.

6. Establish a goal of creating a world class small metro city center that can serve as a population and job attractor in the new global economy.

7.  Educate Southwest Michigan’s population with trends that facilitate growth – such as migration, diversity and tolerance.

8.  Make education and post high school learning an inbred family vision and goal for all youth.

9. Identify and train leaders with common understandings and bonds – mitigating political isolationism and status quo biases.

10. Form a multi-geography business driven economic development organization, with leadership connectivity to leaders in the larger regional economy.

It’s takes bold action to break away from tradition and move into uncharted territory which fosters new roles and relationship demands upon community leaders.

As the political pundits voice during every election season………If not now …when……if not us…then who!

New Deal Planning; The National Resources Planning Board

For every community planner and economic developer, the history of the 1920’s and 30’s hold special meaning. 

It’s the Hoover and FDR presidential era that provides the “birth right” of government regulation of private property land use and governmental aid to assist private business investment in new job creation.

As a student of this period of history and an avid follower of current political and economic conditions, comparison of history with today supports the claim that “history repeats itself”.

Planning and economic development was born out of necessity – the remedy of economic depression and the depilating financial impact upon a vast majority of the American population.

Marion Clawsen in his book New Deal Planning; The National Resources Planning Board documents the history of FDR’s attempt to introduce national cooperative planning to reshape the role of government’s effort to reinvigorate the depression economy.

Through several iterations of national planning organizations FDR’s goals of creating an institution within the federal government that would plan and program public works investments; stimulate city, county and regional planning; coordinate all federal planning activities with state and local planning efforts plus conduct various forms of research was rebuffed and eventually terminated by  direct congressional action.

While the difficult economic times paved the way for imaginative and innovative ideas that would better coordinate new and existing programs to stimulate the economy, this experimentation, the Hoover Employment Stabilization Act of 1931 and the formation of the FDR’s Nation al Planning  Board in 1933; work which continued under different names and authorities till 1939, never achieved the stated FDR goal of achieving a long-ranged plan “laying out a 25-50 year program for national development”.

What the reader will take from reading Clawson’s book is the dependence today upon similar “depression era” programs by federal and state government to remedy today’s economic recession.

Additionally, for those followers of federal government bureaucracy, it will easy to identify the legacy of the depression era government planning and research activities now embodied, but scattered, among various federal agencies.

Two messages from reading this book – First, government new deal planning remains, abet scattered, uncoordinated, unrecognized and largely ineffective within our current federal government.  Second, faced with national economic difficulties the federal government response is to fall back to strategies and program, much of which originated in the FDR era, many which history has questioned their overall long-term effectiveness.

IN THE FUTURE THE CITIES RULE WHILE SUBURBS & BEYOND LANGUISH

Edward Glaeser author of “Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier and Happier” offers a convincing argument that future suburban and rural development will languish as the benefits of dense urban development force rethinking of the here-to-for generally accepted American lifestyle pattern of urban, suburban and rural development.

Glaeser a Professor of Economics and Director of the Taubman Center for State and Local Government at Harvard, is probably the most noted spokesperson on the role of cities and the benefits of dense urban development.  An out spoken critic of past urban planning practices that result in low-density suburban and rural development, he offers clearly stated reasons that compact higher density development will make significant contributions benefiting a new American city-centered lifestyle.

Convincingly stated, Glaeser credits urban density as the remedy for many economic, social and environmental evils.  He claims that “urban density provides the clearest pathway from poverty to prosperity” and future environmental sustainability.

His arguments include that –

• City workers earn 30% more wages,
• Workers are 50% more productive,
• Increasing city population by 10% results in 30% GDP increase,
• City per capita income is 400% greater,
• City folks report higher happiness, and
• Cities serve as global cultural & market gateways.

all which contribute to the clustering of commerce, intellectual skills and entrepreneurial innovation in cities.   He credits the attributes of cities with the unique ability to magnify human creativity.

Glaser advocates public policy that capitalizes upon the fact that cities along with their economic benefits, use less energy, have a smaller carbon footprint, conserve land, maximize governmental supplied infrastructures, and offer pathways for elimination of poverty.

To grow this success he suggests:

1. Giving cities a level playing field – don’t prop them up – letting them find their own competitive advantages for sustainability.
2. Eliminating limitations on global free trade that will increase city transport economics.
3. Allowing enhanced immigration which increases city population.
4. Increasing city resident population education attainment.
5. Eliminating public school monopolies to obtain better education delivery services.
6. Eliminating government redevelopment subsidy programs.
7. Eliminating government programs that sustain “live in place” unemployment lifestyles.
8. Creating consumer centric places which attract creative class residents.
9. Reversing NIMBY’ism and status quo biases.
10. Redirecting mortgage interest rate dedication away from single-family homes on large lots.
11. Refocusing transportation infrastructure funding away from suburban expansion projects.
12. Equalizing per person tax burdens to geography redirecting urban tax generation from suburban/rural geographies.
13. Creating a carbon tax.

However while well-intentioned, absent in this analysis is comment on “what will the suburban and rural communities of today look like in this future?”

Will we create “ghost towns” and dying pockets of rural poverty, a trend now emerging especially across the Midwest due to globalization and productivity innovation of the US manufacturing economy?

Will we abandon traditional smaller towns which sprang-up along transportation routes when the rail and highway system dominated the movement of people and goods?

Will we incent or regulate out-of-existence urban sprawl advancing the notion that a better life is always available in the more dense cities?

Aaron Renn the “Urbanophile Passionate about Cities” blogger takes Glaeser to task on this vary subject in his March 25, 2012 posting.

http://www.urbanophile.com/2012/03/25/replay-buffalo-you-are-not-alone/

Aaron takes an exception to the idea that only the denser big cities can, or should survive, and become the catalyst for this preferred future.

Personally, I subscribe to a more middle road position advocated by Richard Longworth in his book Caught in the Middle: America’s Heartland in the Age of Globalism. He recognizes the Midwest of the future will be populated with more ghost towns, as we move to a more centric form urban development functioning on higher capacity and speedier transportation of information.

This new globalization transportation mode – the movement of information – will likely require more education and innovation of younger workers, skills likely to be more readily available in urban areas compared to rural areas.

This plays well into the idea, supported by Glaser, that cities leverage and magnify human resources for community and personal benefit.

The future is clear under Glaser’s scenario. 

First, cities will “out shine” all competition for human and financial capital providing greater personal advantages than offered in suburban and rural settings.

Being close rather than farther is better. Suburbs will survive, as a personal choice, especially geographic locations with transport convenience to the denser urban cities with demonstrable advantages.

Bottom line – some additional ghost towns, some additional cities will depopulate over time into ghost towns and some additional economic stronger, yet unidentified, cities will revitalize.

Today, the questions before the smaller town and suburban planner and their local elected officials is which do we choose – do we take action to identify our true competitive advantages and leverage them to our future advantage or do we stick with our “status quo biases” and let time determine our future!

For me activism is called for!

INDIANA RIGHT TO WORK – FUELS MICHIGAN’S BORDER WAR – “GAME-ON” REBUTTAL TIME!

No bout a doubt it – Indiana’s right-to-work is intensifying the Michigan/Indiana border war for new business investment.

The phone calls are coming in according to a recent discussion with an Indiana economic development colleague, “we have had several calls from Michigan businesses asking about right-to-work and Indiana’s cost advantages”.

It’s inevitable, I guess.

Right-to-work is a national issue.  It’s even more pronounced in heavily unionized Michigan, where it’s become part of economic development debate over the proper legislative basis for encouragement of business job growth.

Whether pro or con, Indiana is poised to use the real, or perceived, right-to-work advantage to their economic development marketing benefit.  Indiana Governor, Governor Daniels has already cited right-to-work being the subject of 31 prospective new businesses being pursued by him.

http://www.insideindianabusiness.com/newsitem.asp?id=52641

I’m repeating a question I recently posed to an upper management staffer of the local Michigan state funded business recruitment organization.

What do I say to level the playing field when asked about the difference between Michigan and right-to-work state Indiana?

Since a forthcoming response was not made, here’s my thoughts –

1.  Unionism in Michigan for the most part is automotive driven and is not the same throughout the state.

Once a popular manufacturing area, southwest Michigan has lost over half of its manufacturing (most auto related) jobs during the last 30-years with resultant decrease in union member workforce.  Only about 7-8% of the private sector workforce remains unionized.

2. Michigan’s workforce is not all auto driven.

Where once names like Clark Equipment, Auto Specialties, Essex Wire, Modern Plastics and other auto suppliers dominated the unionized workforce, they no longer exist in southwest Michigan.  Yes, southwest Michigan workers still make some auto parts, but it’s no longer the dominate portion of the labor force. Detroit’s auto wage and union policies do not automatically transfer into southwest Michigan business practices.

 3.  Unionization is not always adversarial.

The loss of southwestern Michigan manufacturing jobs over the past 30-year has been a life lesson teaching the importance of positive labor/management relations.  There have been no work stoppages (or threats) in recent memory demonstrating the positive ability of labor and management to live by new rules that recognize the importance of maintaining successful businesses and profitable business management.

 4.  Right-to-work does not mean unfair or uncompetitive wage differentials.

Right-to-work doesn’t automatically mean unfair or noncompetitive wages. Southwest Michigan has historically been known for fair wages, typically less than wages offered in the more urban east side Michigan labor markets.

 5.  Union/management relations are most important.

Bottom line – manufacturer labor relations in southwest Michigan are better than other places in Michigan, probably due to the decline of the manufacturing job base and efforts of both labor and management to retain existing and increase the number of locally-based manufacturing jobs.

 6.  Employment productivity trumps wage costs.

In southwest Michigan the total gross manufacturing product value, even with the loss of over one-half of the labor force has increased.  Productivity per worker ratio, over the past 30-years, has increased due to efforts of both management and labor to increase productivity.  Today, workers enjoy higher wages due to greater productivity, a positive demonstration of labor/management relations.

 7.  Out state Michigan’s competitive strengths supersede Michigan’s unionization.

Everyone celebrates the unique living environment of southwest Michigan, resulting in a competitive advantage for recruitment and retention of workers. To live in southwest Michigan has a “personal value” fully recognized by workers resulting in a wage differential compared to other places in Michigan.

 8.  Economic developers need to prepare a proactive “elevator speech”.

Right-to-work is one of a number of decision items businesses must consider when locating a new business in southwest Michigan.  In fact, a recent study of corporate executives identified right-to-work being 19^th in importance to a new site location.

Economic developers need to have ready a “2-minute elevator speech” to emphasize along with the lower union participation rates, greater harmony between labor and management, fair competitive wage rates plus a superior quality of life – right-to-work isn’t as important due to these advantages when compared to the east side of Michigan where the statewide perception is made and publicized.

 9.  Economic developers need to organize a labor and management response.

Communication of positive relations will be the “proof”.  But laudatory statements may not be easily accepted by the doubtful analyst so …….economic developers need to pre-organize a response and have ready, a team to be the spokesperson for documentation of the claim of positive labor/management relations.

 10.   Economic developers need to “take a strategy to the market place”.

Let’s face the facts.  It’s “game on” time, and time to take Michigan’s mitigation strategy to the market places.  Using a sports analogy, a “good offence is the best defense” and a good offence may be the best strategy in this case. 

I’m suggesting economic developers, especially those representing communities along the Michigan/Indiana border, accept the fact that Indiana will use right-to-work to lure new businesses. It’s time to  cite the difference between the states and begin to publicize Michigan’s, especially southwest Michigan’s, advantages to mitigate the perception that Indiana’s right-to-work status provides a business location advantage.

POLITICAL MANUFACTURING ELECTIONEERING – WILL POLITICS HELP REBUILD THE MICHIGAN MANUFACTURING JOB BASE?

McKinsey Global Institute confirms the notion that the US manufacturing job force will not likely return to historic job counts, identifying the challenge facing those relying on an economic development strategy focused on replacing manufacturing jobs.

Can Michigan rebuild its auto dominated statewide manufacturing base and diversify into related manufacturing jobs to create jobs for Michigan residents?

 It’s the million dollar question………..

According to Susan Lund, director of research at McKinsey, “If job creation is your goal, manufacturing is probably not the sector you’d look at”.

She expounds – US manufacturers have added 400,000 jobs since 2011, after a loss of 5.8 million jobs from 2000 to 2009. Manufacturing employed more than a third of the nation’s nonfarm workforce in 1950 but now employs less that 9% (WSJ 3-2/3-2012).

It’s easy to understand, as Lund explains, advances in technology and management processes have allowed factories to boost their production, or output per hour of labor.  The result is less manufacturing jobs providing the same, or more, product and at the same time providing higher wages for these jobs.

Economic developers are charged with two goals:

• Create new jobs that increase household income and wealth which ultimately is reflected in increased government revenue from income, sales and real estate taxes, and
• Provide jobs for local residents.

For the economic developer, this creates a conundrum – less jobs & higher wages vs. the difficulty of replacing lost manufacturing jobs – when the economic developer is typically graded on a scale of “how many jobs they create”.

Maybe Washington will help.

Today, both President Obama and all GOP hopefuls offer their perspectives on how to reinvigorate US manufacturing employment.                                                                                   

While the electioneering rhetoric offers varied ideas such as employment training credits, reduced profit taxation, government supplied special financing and regulatory barriers/exemptions, many economists question the merits of “industrial policy” – government efforts to promote certain sectors by picking “winners and losers”.

They claim the recent “rise in manufacturing employment of the past two years is more of a blip than a trend” and that future mechanization and management improvements will continue to work against large gains in total manufacturing jobs.

On the other side, are claims that government manufacturing incentives will incentivize business decision making resulting in new manufacturing employment.

Regardless of your political perspective, the reality remains, that manufacturing employment will not return to the “1950’s good old days” or pre-recession levels.

So what’s this mean for the Michigan’s economic development practitioner?

Michigan’s economic development platform will still focus on manufacturing, both auto related and those compatible jobs skill that are transportable to similar jobs, but for different products.

1. Michigan’s economic development platform will still focus on manufacturing, both auto related and those compatible jobs skill that are transportable to similar jobs, but for different products.
2. Retraining of existing workforce and training of the “up and coming workforce” will strive to provide skill sets required for the continuation of the auto related labor force as well as for new manufacturing processes that are “targeted industries” chosen by state government.
3. State and local incentives will be created and used (a Michigan tradition) to induce new business formation or new location of selected manufacturing businesses.
4. There will be increased local competition for new manufacturing jobs between Michigan communities as they vie for the location of a lesser number of new businesses.
5. Greater emphasis will be imposed on the success of the economic developer to “create new jobs” through location of new businesses.
6. The current state emphasis on “core communities” will be challenged by smaller urban and smaller rural communities seeking their “fare share” of job creation attention by state government.
7. Due to need for local job creation the role of the economic developer, especially in communities not cited on the states “favored list”, will focus more on  “economic gardening” the process of creation new jobs by forming new local-owned businesses.
8. Greater attention will be given to removal of barriers to job creation, especially state regulatory, taxation and other rules that place Michigan in an uncompetitive position when compared to other states.
9. As the complexity of local economic development programs increase, consolidated regional (multi-government) economic development organizations will become more common place in order to provide sufficient economic development funding for professional trained economic development staff functions.
10. The educational and experience qualifications for leadership positions in Michigan’s economic development profession will require new, more advanced qualifications and experience, aimed more toward entrepreneurial skills rather that the traditional menu driven activities that currently underlies the Michigan economic development delivery system (that being offering new and existing business state and local incentives from a menu of options to create new jobs).

Finale

Regardless of election outcomes, the role of Michigan’s economic development practitioner is positioned to change, and the future role will be different.

We can expect to see a bifurcation of economic development strategy, first, continuing the competitive effort to secure new businesses wishing to locate in Michigan and second, local efforts to create new businesses that increase local jobs.

In either case, the pressure upon Michigan’s economic developers to produce new jobs and investment will increase.

WILL AUTO MANUFACTURING JOBS FULFILL MICHIGAN’S ECONOMIC DEVELOPMENT JOB QUEST?

On the way home from Gaylord last week, under a beautiful blue Michigan early spring sky, I found it easy to let my mind wander.

With little traffic on I-75 to give attention to, I began to think about the I-75 of the mid 1980’s and the formation of the Auto-nation alley corridor where manufactures began locating from Canada to the southern states of Alabama, Tennessee and the Carolina’s, all being connected by easy access to Detroit by I-75 where the “Big-3” car companies made a large portion of the 60% of the cars annually sold in the US.

Tool & die shops, plastic parts producers, and other suppliers, both big and small, sprang-up along this corridor as the “Big-3” began to out source and move toward what we now refer to as Tier I and Tier II (among other) suppliers.

Economic development in Michigan, for the most part, focused on new business location or expanding existing businesses into new buildings in industrial parks or on free-standing industrial sites.

Even studies I completed in the mid-80”s as a real estate consultant for the Detroit office of a national accounting firm endorsed the notion that the “Big-3” outsourcing of auto parts would continue to provide a continuous supply of new businesses and jobs.

Community economic development strategy focused on industrial parks and sites, both private and public owned, many developed using Michigan Community Development Block Grant, US Department of Agriculture, US Economic Development Administration and local government funds for infrastructure.

Today, it’s a completely different story. 

As my mind wandered, I began to think about the many Michigan communities I recently visited or worked in during the past 35-years and how many of them no longer have their auto related employers.  Many of these lost employers were the single reason for people living in the community.

It’s a hard realization that today the “Big-3” market share is in the 20-30% range of cars and trucks annually sold in the US and there is no longer a need for these smaller community-based employer’s products.

In southwest Michigan, where I spend most of my time today consulting and teaching, I studied the loss of manufacturing employment between 1980 and 2008.  I found County Business Pattern data showing that manufacturing employment, while continuing to make an equal contribution to the gross county product (the total value of goods & services), has decreased employment by 55% over 16,000 jobs.

What I also found is that southwestern Michigan has replaced the lost manufacturing jobs with HEART jobs – hospitality, entertainment, arts, recreation and tourism.

On the surface this sounds good but, looking at the average wage contribution by job ratio, one finds a hard fact – a HEART job, at best, contributes only 20% of the wages of a manufacturing job.

So as I journeyed home on this warm spring day, my thoughts focused on what’s important for Michigan communities to “think about” and what do they do to strengthen their economic vitality.

In my opinion Michigan’s future community economic development will be shaped by the following: 

•  the recognition that the local economy will change,
• an understanding that consumer spending patterns will likely decline until population, more specifically, household growth resumes,
• an understanding that future local government tax revenue for expanded governmental services economic development strategy requires population growth and new jobs,
• governmental “sustainability” must first focus on service maintenance and service expansion later,
• the realization that household income will not increase until new job growth returns and under and unemployed residents are working in “good jobs” defined as 35-hours per week providing county average household incomes. and
• acceptance that HEART jobs create seasonality in the business economy adding a new requirement to business planning and cash flow management.

To help my understanding, I picked-up two books to read –

The End of Detroit – How the Big Three Lost Their Grip On The American Car Market by Micheline Maynard.

Overhaul – An Insiders Account of the Obama Administration’s Emergency Rescue of the Auto Industry by Steven Rattner.

Several interesting thoughts emerged from these readings. Maynard in her book, published in 2003, states that the auto industry suffers from “myopia, stubbornness and bureaucratic malaise among other maladies” that:

• prohibit them from supplying products to smaller market segments,
• prohibit them changing away from mass auto supply manufacturing strategy to a more customer based selection methodology, and
• embraces an economic model that results in diminished profitability that precludes them from having enough income to support the vast changes needed.

She concludes that in the future customers will only support “the best quality and most desirable products” which may not be products offered by the “Big-3”.

By 2010 according to her:

• One, or more, “Big-3” company will shrink forced by financial crisis even seeking Chapter 11 reorganization protection,
• One “Big-3” company will seek a foreign partnership for survival, moving management control into foreign hands, and
• The remaining two will service a much smaller market share.

Looking back over the shoulder of time, her predictions were extremely profound, to say the least.

Fast forward to Rattner’s history of the “Obama Auto Team” provides another view. 

In his opening remarks, Rattner credits the demise of the “Big-3” to:

• Failure of management,
• Globalization,
• Oil prices,
• Organized labor, and
• Dysfunction of Congress.

It’s interesting to read a “before and after” the economic crisis summary of the “Big-3” auto industry’s ability to manage and reorganize their businesses in face of crisis.

Because so much Michigan’s manufacturing job base is connected to automobile production and  now that national public policy has venture into the realm of industrial policy to retain the economic viability of automobile production, the question is whether Michigan’s manufacturing jobs will return.  Will auto manufacturing replace the lost jobs, and will those jobs return to the now vacant plants and facilities scattered throughout Michigan.

In Rattner’s opinion “manufacturing as a percent of total jobs were inevitably going to decline; the more reasonable objective – still tough – should be to try to maintain and ideally grow the absolute number of these jobs.

[With the auto bailout] we chose to move dangerously close that discredited approach [industrial policy] again, in our well-intended effort to jump-start the economy.  When the dust settles we will be disappointed by how little lasting benefits we get.”

The question remains, will future Michigan auto jobs be sufficient in quantity to have an impact upon Michigan’s population and household growth and ultimately “full-time – good paying” employment.

My honest evaluation is that Michigan cannot go back to the economic development strategy that places its greatest emphasis on repopulation of next generation auto manufacturing jobs.

The state economic development strategy must acknowledge the need for wide diversity  of jobs – especially jobs that can located in our small to medium sized communities as well Michigan’s “core communities” where historic state economic development strategy has focused.

The future of many of the smaller communities that once relied on an auto related major employer for their economic survival need this “life line” for future economic sustainability.

THE COMING GLOBAL JOB WARS – ARE YOU PREPARED?

  

Gallup pollster Jim Clifton shares some

interesting global facts:

 

7b people

3b want to work

1.2b formal jobs exist

1.8b jobs shortfall

50+% deficit of full-time jobs

 

Scary information – to say the least!

Jim Clifton (Chairman of Gallup), in his newly released book “The Coming Job Wars” states that globally, politics will focus on this dilemma ….how to double the number of globally available good full-time and part-time formal jobs defined as 30-hour weekly employment paying living wages.

In the future the United States will compete, along with every country, state and local territory for these new jobs.

Clifton opines, since 70% of US GDP (Gross Domestic Product) is based on consumer spending any solution to job creation “requires consumer spending and any solution to job creation requires a lot of consumer spending or the GDP falls leading to less spending and higher unemployment”.

He concludes the US GDP growth rate is most important to job growth and, in the future, US GDP growth will come from global customer demand.

What’s needed today to remedy US and global unemployment according to Clifton, is a “transformational event that will cause a sudden extra ordinary surge of entrepreneurship and innovation just like the introduction of new technologies 30-years ago that saved America from the 1970’s recession” a technology transformation which created new global customer demand.

He further states the US has an oversupply of innovation and an undersupply of entrepreneurship; “innovation is not rare in America, neither is creativity, rather there is mass shortage – a significant undersupply – of successful business models”.

According to Clifton, “America’s job creation needs to focus on the connection between innovation and entrepreneurism – the person – the entrepreneur”.  He states that entrepreneurs are rare – “lots of people have good ideas, but most new businesses fail.  It’s not for the will or passion, but the lack of customers “and business knowhow.

While most Americans believe the US is run by “big business” in reality America is dominated by small and medium sized businesses – those with less than 500 employees which represent 99% of the proximate 6 million businesses with at least 1 employee.

Clifton believes it is here, these small to medium sized businesses along with entrepreneur formed new businesses is where job creation is most likely to occur.

He further opines that US GDP must grow at a minimum of 5% in order to create sufficient jobs to remedy present unemployment…this being double the near-term best future growth rate offered by leading economists.

This is how we get there –

1. Make Entrepreneurism a #1 Public Priority

The goal of economic policy must embrace the notion that private sector employment is most important.  Clifton opines that “if the overwhelming majority of Americans are not working outside of government jobs, America will go broke”.  He further states that “when GDP falls so does the amount of money government’s share [used] to fund services” 

The solution is to create new businesses which will create “new jobs” thus increasing GDP.

2. Seek Early Identification of Individual Entrepreneurial Potential

Researchers have documented a number of characteristics of people that start businesses.  The most common entrepreneurial traits include 1) parents that are entrepreneurs, 2) early age business involvements, 3) ability to take risk and 4)  an individual stick-to-itiveness personality trait.

According to researchers, these traits can be identified in youngsters aged 8-12 years when early education and mentoring can be provided to encourage them to consider entrepreneurship and business ownership as a chosen career choice.

The solution is to test and identify entrepreneurship personality traits of young people, most likely, as part of current K-12 student education testing programs.

3. Introduce Entrepreneurship as a Career Choice in Early Education

Today’s education system is designed to prepare youth for many types of careers, but often does not provided encouragement nor specific training for entrepreneurial careers.

There are a number of educational program designed to remedy this deficiency, however educational programs seldom integrate these into the classroom experience.

The solution is to redesign current K-12 educational programs to integrate entrepreneurship course content as a career choice equal to the emphasis given to college preparation course content.  

 4. Provide Our Youth Entrepreneurial Opportunities

A 2010 Kaufmann Foundation sponsored study survey shows that “interest in starting a business is consistent among tweens (eight- to 12-year-olds – 39 percent), teens (13- to 17-year-olds – 39 percent), and young adults (18- to 24-year-olds – 41 percent). Males (45 percent) are more likely than females (35 percent) to be attracted to business ownership.

The research concluded that “youth who personally know another entrepreneur have the strongest interest in starting their own businesses. Among youth who know an entrepreneur, almost half (46 percent) would like to start, or already have started, businesses, compared to only one-third (31 percent) of the young people who do not know a business owner”. (Underline added)

The importance of business owner contact and actual business experience contact is critical to shaping the personal characteristics and propensity for young people to pursue entrepreneurship and as career choice.

The solution is to provide business owner contact and business experience for young people – more Junior Achievement programs – more child operated lemon aid stands please.

5. Reformulate Government Assistance Programs to Reduce New Venture Risk

Starting up a business is costly.  Start-up costs many times include attorney, accounting, monthly banking fees, plus computer software purchases that can easily add up to $1,000 in the first year, more if you have partners in your business requiring partnership agreements, filing incorporation paperwork, etc.

All of these require immediate cash payments, always coming from the entrepreneur’s pocket.

Young businesses need cash, typically more than planned.  Elimination or deferral of startup expenses may be the difference between success and failure in the first year of operation.

The solution to encourage new business formation is to remove these start-up costs or allow payment of them upon the first anniversary of the business formation.

6. Incent Commercial Lenders and Investors to Accept New Business Start-up Risk

Lenders and investors are, by their very nature, adverse to accepting risk. They are trained to identify how and why a business can fail and to install loss prevention programs for any investment they make in a business.

While business risk aversion is a good thing the amount of risk lenders and investors are willing to assume varies.  Risk is measured by commercial lender interest charged for use of funds or investor dividends paid and resultant increased value of their investment in the business.

New business start-ups being “more risky” imply greater risk requiring higher interest charges, higher dividend payments and higher business ownership valuation to secure business start-up funding.

Since interest, dividends and capital gain on the sale of business interests are all taxable – federal, state and, where applicable, locally – after tax return on investment becomes the final measurement of the investment in a new start-up business.

The solution to expanding the amount of capital dedicated for new business start-ups is to reduce or eliminate taxation for a period of time for funds loaned or invested in new start-up businesses.

Last Thoughts

Today job creation is caused by a “rare breed of people” those of a certain state of mind having a business plan of action, a totally consuming idea resulting in unstoppable determination and optimism, an unwavering confidence in their personal business skills plus understanding of what customers really want.

These rare soles understand that customer relationships “trump” all business challenges and leads to identification of new products and services desired by customers and when provided by the business assures success.

It’s these “rare soles” that ultimately produce additional GDP, by creating innovative products and services for which new jobs will be required to produce and deliver the products and services to the customer.

If Clifton is correct, and a new transformational innovation is required to fill the global job deficit, it will most likely come from a start-up business idea.