Stomach-churning: Highs and lows in Mich. economy

Michigan has starred in its own disaster movie in the first decade of 21st century. The economic equivalents of F5 tornadoes and magnitude 9 earthquakes have battered the automotive industry and smashed construction work in the state.

You knew all that, having lived here.

But amid all the destruction there was surprising growth over the past 10 years in health care, information, finance and educational services -- knowledge sectors that some experts say must become the foundation of a more prosperous Michigan economy.

It wasn’t entirely a lost decade. Wholesale trade and educational services also grew as the overall service sector became a larger slice of the state's economy.

Agriculture, although a small segment of Michigan’s output, was the state’s fastest growing sector, boosting output 59 percent since 2000.

Those are some of the highlights of Bridge Magazine's in-depth look at state gross domestic product data for dozens of industry sectors and sub-sectors from 2000 to 2010.

The data, which measure the output of final goods and services in the Michigan economy, provide a look at critical trends likely to shape the state’s economy for years.

Understanding those trends is essential for policy-makers in making smart tax and investment decisions. And knowing where opportunities are likely to be will guide citizens in preparing for the future.

“We’ve paid a lot of lip service to diversification, and we’ve had some success,” said Michigan State University professor Charles Ballard, an expert on the state economy. “But we have this very complicated love affair with manufacturing.”

Many say we can’t abandon manufacturing because it’s been such a good provider for decades and still is the foundation of our economy.

But others say we should end the affair and pursue the sexier knowledge jobs.

An upcoming report by Michigan Future. Inc. in Ann Arbor says Michigan is getting poorer largely because its major metropolitan areas lag their competitors in other states in the concentration of high-education-attainment knowledge jobs.

In 2009 metro Detroit ranked 41st in per capita income and 31st in the concentration of knowledge-based industries among the 55 largest metro areas of the country, according to the Michigan Future study.

Metro Grand Rapids, seen by many as an economic success story, ranked 54th in per capita income -- next to last among big metros -- and 54th in concentration of knowledge industries.

“Michigan and its largest metropolitan areas are lagging in the transition to a knowledge-based economy,” said Michigan Future President Lou Glazer.

When Michigan plunged into a decade-long recession in 2000, manufacturing represented 18.9 percent of the state’s overall gross domestic product of $371 billion. By 2010, manufacturing still accounted for 17 percent of state GDP of $345 billion.

Michigan’s GDP fell 7 percent over the past decade, largely because of the domestic automakers’ near collapse, and a banking crisis that shattered the housing industry.

But no other segment of the economy came close to approaching manufacturing’s output over the past decade. The next-largest Michigan industries were real estate, rental and housing at 11.6 percent of GDP and government at 11.5 percent.

Ironically, the industry that experienced the biggest growth in output over the past decade was the one that manufacturing leapfrogged a century ago -- agriculture.

Agriculture’s GDP jumped 59 percent, from $1.7 billion in 2000 to $2.7 billion in 2010.

Other high-growth sectors over the decade were information at 53 percent; finance and insurance 30 percent; health care and social assistance, 19 percent; and wholesale trade, 19 percent.

Agriculture’s growth resulted from a number of factors, including rising exports, a boost in biofuels and greater efficiencies that allowed farmers to increase crop yields.

Michigan Agribusiness Association President Jim Byrum said he foresees continued growth in state agriculture because of an escalating global demand for food.

“We still see export demand growing,” Byrum said. “The world is hungry.”

But despite its impressive growth, agriculture represented just 0.8 percent of state GDP in 2010, up from 0.5 percent in 2000.

The Snyder administration largely agrees with Glazer’s assessment that Michigan’s future is in knowledge-based industries, including design, engineering and marketing jobs in manufacturing.

Previous governors have tried to diversify the state’s economy by luring new companies with costly tax incentives. But Snyder’s economic development strategy focuses on helping home companies expand.

For instance, it recently formed a pilot project with the Edward Lowe Foundation in Dowagiac, to help 50 midsize companies find new markets for their products and services.

The Lowe Foundation, which provides educational support for entrepreneurs, will assist the 50 businesses with market research to identify new business opportunities.

“If the pilot works, we want to scale it up in a big way,” said MEDC President Mike Finney. “The reinvention of our state depends on the diversification of existing Michigan companies.”

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Comments

Allan Blackburn
Thu, 09/08/2011 - 11:32am
I run a small business and, while I hear so much focus on the far right that regulation is killing business today I see the rising cost of health care insurance will be the death of us all. I have watched our insurance rates increase by double digits every year for over a decade. This is largely unsustainable and the costs are being transferred more and more on to the backs of employees. Many companies are hiring people at substandard wages, while only providing part-time employment, so that they can absolve themselves of any responsibility in taking care of their employees. While we focus on destroying the labor movement, thereby destroying the Middle Class, I am wondering how people are going to afford to live anymore. People scream about a welfare state yet corporations are allowed to hire people at such low wages that their employees are eligible for food stamps and Medicaid. Walmart is subsidizing their benefit package on the backs of taxpayers as they are one of the guilty in paying substandard wages. The Affordable Care Act was designed to be an insurance plan that would have employers continue to provide insurance benefits or pay a penalty. Individuals were also supposed to buy their own or, if they were of a certain income bracket, they would be eligible for Medicaid. The lie that is being sold is that there is a product called Obamacare that we all have to line up against. Go down to your local insurance agency and try to buy some Obamacare. It does not exist. The real Affordable Care Act is supposed to lower overhead. Medicare has a 3% administrative overhead while private insurance has over 20% administrative overhead. This is because private companies operate health care out of a profit model which means denying you the care that you have purchased and sharing the profit with shareholders and wealthy CEO's. All the while my health care costs go up by double digits every year for over a decade. It has far outpaced inflation and you can see the growth has been over 30% for insurance companies. Regulations are not killing us; health care is.
R. Karl Burnett
Sat, 09/17/2011 - 8:58pm
Right on Allan! I think insurance companies are raising premiums in a desperate effort to grab and gouge before they have to deal with the implimentation of the Affordable Care Act in 2014? My best information is that only a few parts of it have been implimented so far. The part that was most feared in Washington, and every insurance board of directors boardroom, was the "strong public option" that (if it had survived?) would have given the insurance and providers industries the run for their lives?! The higher court challenges are based on the decrepid definition of "free market" and "modern capitalism" we are living with today. There was a federal policy established long ago that provided for requiring subscribing to certain products where doing so threatened an even playing field, and the spirit of competition in the markets. I believe it had to do with the concept of fair commerce, and was deemed "federal economic policy", and supported the Affordable Care Act notion of requiring citizen's participation? Anyway,... certainly something we may have to wait longer for? I enjoyed reading your comment! Write on,.. Allan!