Michigan’s manufacturing sector is a central part of the state’s economic policy, but experts argue Michigan’s focus on factories has hurt its development over the past 30 years.
Michigan Future Inc., a nonpartisan organization focused on promoting Michigan’s success in a knowledge-driven economy, hosted a roundtable Thursday to discuss possible solutions to the state’s lagging economic policy.
Future Michigan President Lou Glazer and Rick Haglund, a veteran economic policy journalist, compared the state’s past 30 years of economic policy to the success of policy in another Midwestern state, Minnesota.
While the median household income was about the same for both states in the early 1990s, Minnesota now leads the nation in income while Michigan trails behind.
This summer, Minnesota hit the lowest statewide unemployment rate in history, at 1.8%. In July, the average wage for private sector workers in the state was $34.43 an hour.
By comparison, Michigan ranks 43rd in state unemployment and trails the rest of the nation in average wages for private sector workers by more than 7%.
If Michigan had the same unemployment rate and labor force participation rate as Minnesota, there would be 630,000 more Michiganders working, Glazer said. If the average private sector wage were the same, Michigan’s year-round wages would be $9,000 higher.
While Minnesota has flourished, Michigan has fallen far behind the nation over the past 30 years, and the trend continues regardless of which party is in control in Lansing and Washington, DC, Glazer said.
Haglund attributes Minnesota’s success to the state’s investments in education and place-building efforts, while Glazer highlighted its involvement in well-paying industries and success in bringing in college-educated workers from other states.
“I think the reality is that what made Michigan rich was not making cars, but inventing both the car and the way we make it,” Glazer said.
“A hundred years ago, we were Silicon Valley; we were the place that was creating the next economy,” Glazer said.
For the past 30 years, Michigan has competed for factories, particularly automakers, with a focus on big incentive packages and low business taxes, Glazer said.
Meanwhile, Minnesota has invested in public education and place-making efforts, creating spaces where talent wants to live and work, Glazer said before noting the importance of public transportation in place-making investments.
Minnesota has the largest number of Fortune 500 companies per capita, with 16 local businesses. In addition, the state is also home to the headquarters of Cargill, the largest private company in the country, and the operating headquarters of Medtronic, a leading global health technology company.
“This was not a situation where Minnesota came out and, you know, threw a bunch of incentives at companies to move their headquarters to Minnesota,” Haglund said. “They use economic development incentives like everyone else, but they are not as aggressive as many other states in that regard.”
For 50 years, Minnesota’s economic strategy has focused on a foundation of public investment, particularly investment in education from birth through college, Glazer said.
As the economy shifts from a factory-based economy to a knowledge-based economy, Minnesota’s investments have opened it up for participation in high-wage industries including technology, health care, finance, insurance, information and software, and telecommunications. Glaser said.
While Minnesota hasn’t cut taxes during its 50-year investment period, Michigan has cut income and business taxes. During the Great Recession, the biggest cuts in Michigan were made to education and the revenue share that provides funding to local governments. This killed off education and venue-building efforts, which also dwindled after former Republican Gov. Rick Snyder cut business taxes last decade, Glazer said.
While Minnesota has followed a public investment agenda, Michigan has followed a low tax agenda for the last 30 years. By not investing in education and place-building, Michigan has excluded itself from participating in the high-growth, high-wage, knowledge-based part of the economy, Glazer said.
The past four years of Gov. Gretchen Whitmer’s administration have not broken the state’s 30-year pattern of bipartisan support for low taxes and big business incentives, despite investing surplus funds from the American Bailout Act in early childhood and K-12. education, as well as a scholarship fund, Glazer said.
Along with these investments, the state has continued to increase business incentives. whitmer this week signed a supplemental bipartisan budget with nearly $1 billion for more business tax breaks.
Whitmer signs bipartisan supplemental plan funding business tax incentives
Whitmer is running for re-election against Republican Tudor Dixon, who has proposed eliminate the state income tax through a phase-out to be more in line with Republican states like Texas.
In terms of the state’s economic future, Glazer said there are positives and negatives.
The state’s biggest challenge is to embrace the knowledge-based component of the auto industry as companies move toward producing electric vehicles. While the new electric vehicle and battery assembly plants are good news, the sector that invents and develops the mobility industry is more important to the state, Glazer said.
While Haglund highlighted Whitmer’s efforts to reverse cuts to education and state revenue sharing, Glazer praised her effort to fund parks, which are important for creating places and attracting talent.
Glazer also said bipartisan passage of Senate bills 842 Y 844creating the Michigan Achievement Scholarship, marks the first time in a decade that the Legislature has agreed to invest in higher education and four-year degrees.
However, the state will need to make efforts to retain and attract college graduates, he said.
“The places that import talent are the economic winners these days,” Glazer said.
Disclosure: Rick Haglund is the michigan advancebusiness columnist.