Virtual Devestation

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TOM WALSH: State at risk of economic devastation


BY TOM WALSH
FREE PRESS COLUMNIST

April 7, 2005

Michigan and its neighboring Great Lakes states were America's dominant economic engine during the 20th Century.

Not anymore.

What are we going to do about it?

That question lies at the heart of two major ongoing studies about the post-industrial future of Michigan and its heartland neighbors -- one by the prestigious Brookings Institution think tank in Washington, D.C., and another called the Michigan Roadmap project, led by former University of Michigan President James Duderstadt and funded by philanthropic grants.

Neither study is complete, but both start from the ominous premise that the Rust Belt region may soon be an economic wasteland if we don't get serious about knowledge creation and innovation.

Given the shaky state of Michigan's auto companies and suppliers, along with our dubious distinction as the state with the nation's highest unemployment rate (7.5 percent in February), that forecast looks too close for comfort.

In a concept paper prepared for a meeting at U-M in mid-March, Brookings described the Rust Belt region as an economic giant "precariously balanced, with one foot still planted in a waning industrial era and another foot striding the emerging global knowledge economy."

The paper used these dire words to describe our future if we stumble in transition from one era to the next: "hollowing cities, declining populations, closing plant doors, depopulated rural communities -- a backwater in the world economy."

Duderstadt's Michigan Roadmap project appears poised to present a bleak assessment of the state's current outlook. And it's likely to have harsh words for Michigan policymakers.

"Michigan's old manufacturing economy is dying, slowly but surely, putting at risk the welfare of millions of citizens in our state," begins a preliminary draft of the Roadmap executive summary.

"Thus far, the state has been in denial, assuming our low-skill workforce would remain competitive and our factory-based manufacturing economy would be prosperous indefinitely," the draft continues.

Meanwhile, Michigan has slashed investment in higher education at a time when we need to be doing exactly the opposite.

"Ironically," the Roadmap draft states, "at a time when the rest of the world has recognized that investing in education and knowledge creation is the key to not only prosperity but, indeed, survival, too many of Michigan's citizens and leaders ... have come to view such investments as a low priority, expendable during hard times.

"The aging baby boomer population that dominates public policy in our state demands, instead, expensive health care, ubiquitous prisons, homeland security, reduced tax burdens -- and to hell with the kids and the future."

Phew.

Feel strongly about this, do you?

Neither the Roadmap project nor the Brookings study look to assign blame to Michigan Gov. Jennifer Granholm, former Gov. John Engler or other Great Lakes political figures. Rather, the numbers speak for themselves.

Michigan has reduced state funding to its public universities for several years running. In the 2004 fiscal year, according to data in the Roadmap report, state support per student dropped to $6,067 (versus an average of $6,735 in other Great Lakes states), ranking Michigan in the bottom one-third of the nation. One recommendation in the Roadmap draft calls for Michigan to move into the top 25 percent of states in higher education appropriations.

Duderstadt told me a final report from the Michigan Roadmap study, funded by Atlantic Philanthropies, is expected by late summer.

He said he became convinced while researching it that Michigan's economic woes can't be cured by Michigan alone. Rather, a collaborative effort by Great Lakes states -- built around the strength of the Big Ten research universities and the University of Chicago -- could help the region compete with California and other new-economy hot spots for knowledge workers.

The Brookings Institution initiative, expected to last several years, is explicitly focused on the Great Lakes region. It will aim to engage civic and business leaders in discussion, present policy papers and hold forums in Midwest states and in Washington, D.C., said John Austin, a Brookings fellow and vice president of the Michigan state board of education.

The first forum, held March 14-15 in Ann Arbor, was attended by about 30 people, ranging from Duderstadt to Federal Reserve Bank Vice President William Testa to Doug Rothwell, a General Motors Corp. real estate executive and former chief executive officer of the Michigan Economic Development Corp.

Talking points included a list of the region's economic strengths: lots of high-tech jobs, lots of patent activity, lots of college graduates in science and engineering.

Then came the daunting weaknesses: We don't commercialize enough of our research because there's too little venture capital in the region, and we have a huge brain-drain problem, losing many of our college grads to other parts of the country.

Michigan lost more than 80,000 young, single, educated workers to other states from 1995-2000, according to a Brookings summary of census data. We weren't alone: Indiana, Pennsylvania, Ohio and Wisconsin lost even more.

"One major problem," Austin said, "is that the region doesn't have an entrepreneurial culture. You have an industrial culture that was organized around paternal institutions like the Big Three auto companies and big labor. For years, they delivered the goods. But they no longer deliver the goods."

It's easy to be cynical about high-minded studies, even from a think tank as respected as Brookings or a guy as smart as Duderstadt, a nuclear engineer and U-M president from 1988 to 1996.

But whatever the ultimate recommendations, the Brookings and Michigan Roadmap initiatives are exploring the right questions.

The road we've been traveling for too long will lead us straight to a swamp.

Contact TOM WALSH at 313-223-4430 or twalsh@freepress.com.

Copyright © 2005 Detroit Free Press Inc.