Some thoughts on our Rust Belt economy

I:  The jobs situation

Can I tell you how nice it is to have your state go from having the highest unemployment rate for most of a decade, to being only #4 on that unhappy list?  And to have former Sunbelt darlings like Florida, California and Nevada ahead of you? And to have also had the biggest drop in unemployment in the whole country over the past year?

Still, a blogger at the Economist writes of the post-Big 3 bailout era:

(I)t may or may not have been a good idea to step in and rescue the carmakers, but the critics who pointed out that it would not save Detroit were right. This should have been obvious at the time, given that it was widely agreed that putting carmakers on a firmer footing would involve drastic cuts to their labour forces and rationalisation of production facilities.

A second point follows from this: however strongly America’s manufacturing sector rebounds from the crisis and benefits from global rebalancing, it’s unreasonable to think that rising manufacturing employment can do much to absorb labour market slack. Manufacturing has only grown less labour-intensive over time, and the truly labour-intensive industrial jobs will seek out markets abroad where labour costs are far cheaper than in America. Just as economists pointed out before and during the crisis.

It would be too early to write off the Detroit area entirely. As you can see, nearly 1.7m people continue to work in the area. But if Detroit is to thrive again, it will have to discover new and growing industries that depend for their success on the kinds of benefits firms now derive from urban proximity.

How, and how much, should the state be assisting those  ‘new and growing industries’?

II:  New industries

I have written previously that I see Governor Snyder as a step in the right direction as far as economic policy is concerned.  Joel Kotkin agrees.  In an article this week he argues that

(f)or decades Midwestern governors and mayors tried to emulate the Northeast and West Coast. Historian John Teaford observed that the struggling Midwestern cities in the 1960s and 1970 employed “cookie cutter” redevelopment in a vain effort to replicate the great coastal cities. Ultimately the building of “international style” towers, sports stadia and cultural palaces did little to restore places whose economies had become increasingly uncompetitive.

(I immediately picture Detroit’s Renaissance Center, the city’s greatest monument to the “over-promise and under-deliver” school of urban re-development.)  Kotkin, citing Michigan as ‘the most risible example of coastal aping,’  summarizes our previous governor’s approach:

Under Gov. Jennifer Granholm Michigan focused on a strategy of promoting “cool cities” to lure the young entrepreneurial hipsters away from the coasts. Like California, Michigan placed huge bets on renewable fuels and other green industries.

In contrast, Lou Glazer  writes,

Governor Snyder in his State of the State address announced the state would no longer pick winners and losers. The way he proposed to implement that was by expanding eligibility for subsidies from the state’s Twenty First Century Jobs Fund to all industries rather than just a few pre-selected industries.

I agree with Glazer that Snyder needs to take it a step further by scrapping the state’s alt energy & film tax credits, and in fact just getting out of the subsidy business:

If the goal is to stop picking winners a far better way to do it would be to eliminate the fund altogether. Why should the state be in the business of providing capital to so-called promising enterprises at all?

III:  Our workforce

Kotkin praises Kalamazoo in his discussion of ‘the new brand of Midwestern realism’:

(N)on-partisan business and civic leaders in Kalamazoo, Mich., have pushed both educational reform and economic diversification. The region, though hardly booming, has done better than the state overall and is experiencing an entrepreneurial and community renaissance.

Kalamazoo entrepreneurs tend to understand that the key to Midwestern renewal lies with the region’s core competencies and attractions. David Zimmermann, founder of Kalexsyn, a flourishing biotech company, identifies these assets:  Michigan’s resident pool of skilled labor, a low cost of living and a generally community-oriented, family-friendly atmosphere.

Zimmermann says his company, which now employs 30 workers and has revenues of $5.4 million, has surprisingly little trouble attracting younger skilled workers. The median age at the company, he notes, is only 36, and many have come to Kalamazoo from traditional coastal biotech hot spots. This includes several researchers some who originally left the Midwest in their teens and twenties.

“People are looking at the Midwest and crunching the numbers,” Zimmermann says. “Maybe you take a 20% pay cut from San Francisco but you buy a nice house for $200,000. You come out way ahead. We think this a very strong advantage.”

Alas, the cost advantage only gets you so far.  Glazer has a bucket of cold water to douse any fuzzy optimism we Michiganders might be feeling (and finds more evidence for his mantra that growing companies relocate to where they can find the most skilled workforce, not where taxes are lowest):

In a terrific article entitled “Fast-growing IT sector struggles to find qualified applicants” the Lansing State Journal details the job shortages at fast growing Liquid Web and other Lansing area IT companies. Because they can’t find enough workers in Lansing, Liquid Web has opened an office in Scottsdale, Arizona. Yes that is right: the company moving to where the workers are, not the other way around… Even with double digit unemployment here, in skilled occupations Michigan has more jobs than workers. And the shortage is going to increase as the economy expands. In low skill occupations we have more workers than jobs… (W)e do not do very well in attracting talent from elsewhere. Given the labor shortages, it is clear that it is more than just no jobs that are causing the net out migration of talent. And when companies can’t find enough workers, they leave.

IV:  Investments in learning

Neal Pierce at highlights a possible strategy to address both the employment and the recruitment problems at once:  proactive coordinated efforts by a region’s education, civic and a business leaders to help get students and job-seekers trained in the skills the local employers need.  He cites a new book, Closing America’s Job Gap, by the University of California-San Diego’s Mary Walshok:

We we have what Walshok and her co-authors call a “broken education-to-employment system, which is dangerously disconnected from America’s globally respected research leaders.”…Walshok… (contends t)oo little’s done at the regional level, where employers and jobs actually interrelate, to identify the clusters of companies and then match training programs to qualify workers for opening jobs.
Colleges and community colleges, for example, presumably produce graduates who can think, analyze, read manuals. “But they’re turning out people who can’t do anything” — as simple, Walshok suggests, as working with spreadsheets, building a website or describing a complex piece of technology like an iPad application. So targeted post-graduate job training becomes critical.
(T)he country has an estimated 2 million jobs unfilled because of lack of job skills — a situation would be even worse without immigration (now imperiled) of scientists and engineers into the United States.
Some cities and regions are starting to respond. “Chicago Career Tech,” for example, is a new program launched by Mayor Richard M. Daley to take in middle-class workers adrift in the current recession and retrain them for technology careers. It’s a six-month, six-day-a-week program that combines broad career and professional development with hands-on employer-based learning with participating local companies.
The specific fields the Chicago program covers — among them digital media, computer network management, web design and telecommunications — are samples of the broad field that Walshok and her coauthors list as highly relevant for today’s economy…
Close to 100 percent of welding school graduates get snapped up by industries spread from aircraft manufacturing and ship building to erecting and repairing bridges — not to mention mass transit and railways along with green industries such as building wind energy turbines.
But twice as many welders are retiring as being trained — the U.S. shortage may be as high as 200,000, in a field that pays solid wages. Indeed, the impending retirement of some 25 million baby boomers creates a clear threat of loss of seasoned experienced workers in multiple occupations — but by the same token, massive job opportunity for properly trained replacements…
San Diego… has vaulted past many famed U.S. regions to star in such areas as biotechnology and software… The story’s a complex one, involving a new University of California branch and growth of research institutions such as Salk and Scripps. But CONNECT, a civic-scientific coordinating group Walshok helped found in 1985, has been a key catalyst for innovation and entrepreneurship in the region. And it’s never taken its eye off the priority, with local employers, of constant workforce training and “reskilling.”

I’ll close on that note of optimism.  As Walshok describes, business, government and educational leaders can work together to make southeast Michigan a better-educated, higher-skilled region.  I can only hope that, instead of relocating across the country, Liquid Web and other businesses make the effort to reach out to local schools and unemployment programs, and to invest in training for job seekers and students that ultimately benefit everyone.


5 responses to “Some thoughts on our Rust Belt economy

  1. I’ve always wondered about and followed discussions without progress about whether government should “pick winners and losers” and how if at all government’s encourage growth. Usually those debates play out with groups that have already benefiting from being picked a winner (e.g. banks & farmers) saying that the government should keep its hands off and lower taxes. That view is then pitted against those who think they’re the next big things but can’t get any traction (e.g. green/renewable/clean ____ and the next dotCom bust).

    I did like Granholm’s UM speech about government investing in Michigan’s 4 or 5 W’s–Waste, Wood, Workers, Water, and Wheels (e.g. Detroit’s industrial infrastructure). I understand the sentiment that government isn’t a great decider and should stay away from picking winners. But I feel that perhaps especially in Michigan’s case, to wait for successful businesses to organically appear or show up on the doorstep might be just as futile.

  2. Here’s a good piece for you, an e-mail that was sent to the Michigan Municipal League this summer – it takes the “firms follow the talent” line one step further to the “talent likes good places” step. Refreshing to see the Oakland County business types sounding like urban planners for a change:

  3. Pingback: Connecting skilled workers | Motown To Tree Town

  4. Thanks Murph, I recall Lou Glazer posting this one too at some point though I could be wrong. Did MML ever respond? Did anybody ever CC L. Brooks, the Oakland County Commission, zoning authorities, MDOT, the local Chambers of Commerce, state legislators, etc.? I’m sure MML has a certain amount of influence but I sure hope it wasn’t the only org he contacted. Given the job market for JDs right now I am a little skeptical about his claims about not being able to recruit, too… On the other hand, I’m not going to lie, there are many much more expensive parts of the country I’d happily relocate to for less than I’m earning now so I understand where he’s coming from.

    I had the same reaction as him the first time I visited the OC administrative complex, and I agree the Woodward corridor north of Ferndale has a lot of potential too. He doesn’t say anything about Ann Arbor, so I’m guessing it’s so small it just flies under his radar.

  5. The MML could be considered “preaching to the choir” on this sort of argument about place (as could the Michigan Suburbs Alliance, my own employer). Basile has certainly managed some amount of media attention, as an Oakland County, Republican, business-owning supporter of transit and place – he’s also set up Woodward as a repository for some of the media bits he’s put together or had done about him.

    So he’s not being ignored (nor is he the only transit-supporting OakCo Republican and/or businesses type), but this is the sort of physical-political change that takes years to produce – nobody’s come out yet and said, “Gosh darn it, that dude’s right! We’re totally doin it rong!”, but that doesn’t mean momentum’s not building.

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