Like a patient surviving a medical emergency, Michigan has the chance to learn some important lessons as it emerges from 10 straight years of job losses.
And like a patient learning to do push-ups and knee bends, Michigan must learn to become better educated and entrepreneurial in its business model as it recovers from this lost decade.
The state will add jobs in 2011 for the first time since 2000. The prolonged period of job losses tells many experts that even the state’s core manufacturing industries require a more educated work force — something the state may have trouble delivering.
David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, estimated that the minimum education required now even for an assembly-line job is a two-year college degree. Michigan’s below-average performance in producing college grads has many business and civic leaders worried.
“We’re not sure the work force is there,” Cole said.
Charles Ballard, a professor of economics at Michigan State University, echoed that.
“If there’s any lesson that we should take away, it’s that we need to ramp up the skills of our work force,” Ballard said. “All the richest states have one thing in common: They have a high proportion of college degrees.”
What Michigan can learn from its decade of decline
In 1998 and 1999, Michigan’s unemployment rate was almost too low to measure in places such as Ann Arbor and Oakland County. Economists cautioned that the good times couldn’t last forever.
But nobody expected what was ahead: Michigan shedding jobs for 10 years in a row, an unprecedented period of decline for the state. The state lost one in every five jobs overall and nearly half of the state’s factory jobs, the backbone of Michigan’s economy for generations.
Now the trauma appears to be easing. University of Michigan economists forecast in November that Michigan would end 2011 with the first positive net increase in jobs since 2000, with more job growth expected in 2012 and 2013.
But the emotional and cultural legacy of the state’s prolonged plunge into economic misery promises to linger. Leaders and citizens alike are still grappling with the meaning of recent events.
Perhaps the most important lesson: The dreadful decade was not just another cyclical swing but a fundamental break with the past that required Michigan to embrace a more entrepreneurial business model and new ways of thinking.
“We had a significant emotional experience and a significant economic experience to make it clear we need to make changes,” said George Jackson, president of the Detroit Economic Growth Corp.
Today, the Free Press looks at some lessons from Michigan’s lost decade.
Time for a new strategy
For former Gov. Jennifer Granholm, the key lesson is that the state — and the nation — cannot compete with a low-cost, laissez-faire strategy alone.
Rather, she said, America must develop policies that promote manufacturing and other high-end industries.
“We have to decide that we’re going to compete on quality of talent, quality of product, quality of life,” she said. “And you have to makeinvestments in your talent, your education system, investments in your quality of life, and clearly there has to be investments in innovation, high-end technology, high-end manufacturing.”
Not all the lessons have been positive. Charles Ballard, a professor of economics at Michigan State University, notes that income inequality and poverty rates rose throughout the decade.
“I think it’s important to emphasize how uneven the changes have been,” Ballard said in an e-mail. “For an awful lot of CEOs, doctors, lawyers, scientists, engineers (and yes, economics professors), the last decade has been fine. The struggles are very much concentrated in the middle and at the bottom.”
Perhaps the most important lesson is that Michigan cannot hide from the implications of its economic challenges, said Patrick Anderson, an East Lansing-based economic consultant.
“If we’ve learned anything, it’s that denial is not an effective turnaround strategy,” he said.
Some Michiganders entered 2000 thinking that manufacturing was so last century, and that the state could build a future on education, health care and other services. But the loss of almost half of Michigan’s factory jobs since 2000 vividly illustrated the fallacy of that idea, as government revenues plunged and the state’s economic growth was the slowest in the nation.
“Manufacturing still matters,” said Doug Rothwell, president of the corporate group Business Leaders for Michigan. “If you look at what’s driving growth right now in Michigan, it’s our manufacturing base. It generates some of the most wealth. It helps drive innovation. We need a certain base of manufacturing to drive the research and development jobs.”
Careful cuts are needed
The manufacturers that survived the decade did so by learning a hard lesson: Get lean.
David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, estimated that, entering 2000, the industry operated with a break-even point of 13 million to 14 million vehicle sales a year. Today, that break-even point is down to 10 million to 11 million.
Among the reasons: two-tier wage rates for line workers, the shifting of auto companies’ health care costs to the UAW’s Voluntary Employee Benefit Association and the end of jobs banks in which workers were paid even during lay offs. All those helped make operations at General Motors, Ford and Chrysler dramatically leaner.
“It’s a very strong foundation for the future right now,” Cole said. “It enables them to do things they could never do in the past.”
That focus on lean operations has played out through Michigan’s economy, even in government. Michigan was busily building prisons in the 1980s and ’90s, but now it is rethinking that policy and closing prisons to save money.
“The good news is that even though it was a tough decade, we’re coming out of it with a cost-value proposition that is much more competitive,” Rothwell said. “We’re not only leaner but fitter. We’ve got more muscle to be able to really compete.”
But in cutting fat, Michigan needs to take care that it doesn’t cut into muscle and bone, too. Ballard cautioned against cutting back government so much that Michigan becomes a less desirable place to live.
“I don’t think crummy roads and crummy schools are the way to a prosperous future,” he said.
“The advent of globalization is this enormous wake-up call that the old solutions of just smaller government, lower taxes are completely and wholly inadequate for us to compete,” she said.
“For those who think that you should be competing solely on cost, well, you’ve got to wake up and smell the roses because we’re not going to be paying people a buck a day, and we’re not going to be chasing this race to the bottom.”
Working together helps
Tight times forced more cooperation and new ways of problem solving, seen, for example, in efforts by local government to share services.
“The old Michigan divisions of geography and race and class and all those things, we paid a high cost for those divisions over the last few decades,” Rothwell said. “No city stands as an island, no place stands as an island, and we don’t have the resources anymore to afford anything but unified solutions to our problems.”
Karla Swift, president of the Michigan AFL-CIO, the state’s biggest union coalition, said the recent round of contract talks between the UAW and GM, Ford and Chrysler illustrate the benefits of working together.
“Collective bargaining works,” she said. “There are positive outcomes for everybody when those relationships are fostered and nurtured, and the collective bargaining process is respected and used as a key process for both managing the business and protecting workers and their families.”
There is no easy fix
Michigan has tested out a number of potential silver bullets for its problems, from big developments such as casinos to single-shot public policies such as tax cuts. Many people now understand that Michigan needs to advance along many fronts at once, from education to generating entrepreneurial businesses.
“I think it’s going to be a large number of tiny slivers that’s going to get us there,” Rothwell said.
The big question that remains is whether Michigan as a whole — its people, its culture and its leaders — will actually take any of these lessons to heart.
“I hope so,” Granholm said. “If this crisis didn’t wake people up, I’m not sure what will.”
John Gallagher, Detroit Free Press