Tax cuts over college grads ‒ no wonder Michigan struggles

Lou Glazer

For nearly 20 years, Michigan has centered its economic development strategy on cutting taxes. It didn’t work. There is no evidence that it will work: the most successful areas around the US are not characterized by low taxes. They are characterized by high levels of college graduates working in the knowledge economy.

Michigan’s two big metros not being selected as finalist for the Amazon’s HQ2 should not surprise anyone.

Amazon made clear that it wanted—really needed—to locate in a community with high talent concentrations today and tomorrow. Neither metro Detroit nor metro Grand Rapids are competitive talent magnets.

Phil Power: Amazon to Michigan: Fix your schools!
Related: Michigan gives more tax breaks than it collects for schools, government​

The reality is that in the growing high-wage, knowledge-based sectors of the global economy, talent—those with a four-year degree or more—is the asset that matters most and is in the shortest supply. This reality has been clear for more than a decade.

At both the state and regional levels Michigan’s policymakers, by and large supported by the business community, have chosen to ignore this reality. Rather they have focused on trying to revive Michigan’s 20th-Century economy and sectors largely through lowering taxes and organizing an education system to prepare most Michigan kids—but not theirs—to work in the declining factory-based economy rather than the growing knowledge-based economy.

In 2006, the organization I co-founded, Michigan Future, Inc., published A New Agenda for a New Michigan. It was clear to us then if Michigan did not change fundamentally we would not be competitive in attracting and expanding the high-wage jobs that are the key to prosperity. Here is what we concluded in 2006:

1.      Our answer to the question “where do we want to go from here?” is a high prosperity Michigan. Measured best by a per capita income above the national average no matter how well the national economy is faring.

2.      The only reliable path to a high prosperity Michigan is to be concentrated in knowledge-based enterprises. There is a clear pattern across the country that the states, and most importantly metropolitan areas, with the most successful economies are those that are concentrated in high-pay, knowledge-based industries: information, financial services and insurance, professional and technical services and management of companies.

3.      Economies are regional. States and municipalities are political jurisdictions, they are not economic units. State economies can best be understood as the sum of their regional economies.

4.      What most distinguishes successful areas from Michigan is their concentrations of talent, where talent is defined as a combination of knowledge, creativity and entrepreneurship. Quite simply, in a knowledge-driven and entrepreneurial economy, the places with the greatest concentrations of talent win.

Metropolitan areas without concentrations of talent will have great difficulty retaining or attracting knowledge-based enterprises, nor are they likely to be the place where new knowledge-based enterprises are created.

So in a flat world, economic development priority 1 is to prepare, retain and attract talent. Our agenda to help better position Michigan and its regions to succeed in a knowledge-driven economy is centered on (1) developing a culture and (2) making key public investments that are aimed at preparing, retaining and attracting talent.

This was the right approach to creating a high-prosperity Michigan in 2006. It is the right approach to creating a high-prosperity Michigan in 2018.

Now is the time for policymakers to stop trying to recreate a prosperous factory-driven economy, which has not and cannot work. We must change our policies to win the Amazon HQ2-type competitions (and retain our existing knowledge industries, not an easy job when CEOs are quietly questioning their ability to recruit to Michigan).

Unless we do we are going to be one the nation’s poorest states.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

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Comments

Daniel Schifko
Thu, 01/25/2018 - 9:41am

Your academic attitude is devoid of common sense or logic. Offshoring of manufacturing jobs and looking down on skilled trades as a good way of successful middle class life has cost Michigan many excellent jobs. Turning College education into a money making machine that provides bloated paychecks to professors while leaving more students without marketable job skills or, in many cases, a degree, while leaving them stuck with massive student loan debt is a huge problem. When manufacturing was local Michigan lead the world is prosperity. Detroit was the richest city in the world. When people like you decide that teaching manufacturing skills to our citizens is a worthy endeavor and admit that everyone can't work at Apple or Google we might just get back on top of the economic heap; As long as we pretend we can make a successful economy without producing anything tangible or that we can offshore previously created wealth in exchange for imported durable goods while not employing every able person we cannot.
As for your comments on talent, Southeast Michigan is the world center of automotive engineering, how's that for talent?. Had it not been for that we would a ghost town right now. The answer for a successful Michigan is to have a robust economy that provides opportunities on many fronts on many levels. The sooner we get that straight the sooner we win.
I also need to point out to you that unless you look at southeast Michigan as a whole instead of Detroit vs. Seattle, we will look way worse off than we truly are, and they will look way more prosperous than they are.
Finally, to ignore the liberal promotion of racism and its effect on both local reality and outside perception hurts the greater Detroit area more than anything.

John Q
Thu, 01/25/2018 - 9:31pm

Southeast Michigan is no more competitive than Detroit is in the national market. Even the fastest growing communities lag their peer communities in other states. The metro area as a whole has been stagnant when looking at population growth over the past 50 years. The metro area has sprawled while the population has hardly changed at all.

Bernadette
Thu, 01/25/2018 - 9:41am

Thank you for the thoughtful article.

The Republican Party is the most out of touch, short sighted and selfish organizations I have seen. In Michigan the rise of the tea party and gerrymandering over the past 15 years has taken them down the rabbit hole of no return. There is no foresight, hindsight or insight in their policy strategies. If it doesn't involve cutting taxes they just can't see it.

This is the party of Trump, which has denigrated to a narcissistic, lying, what's in it for me party. There is no compromise, there is no representation and there is no democracy. These are a bunch of spoiled little boys who bully their way around. When will they grow up?

Matt
Thu, 01/25/2018 - 4:11pm

Actually Bernadette, the Right at least my version and I don't know what Trump's version is, has more confidence in their own individual efforts to better their family's prospects than we have in the government/political system's ability to do it for us! The biggest impediment is the large percentage of our income they take to force their solutions down our throats. Quite frankly the last 40 years of efforts by your side of the spectrum has done nothing but to prove this suspicion correct.

Matt
Thu, 01/25/2018 - 9:50am

What percentage of college students are getting degrees in subjects that Amazon (your pick) is actually interested in hiring? My guess pretty small. Second, what percentage of MI students graduating with the degrees that Amazon, Google ... hire, actually stay in Michigan after graduation or aren't very open to pursuing opportunities in other states if presented? Why is this presented as a static population which can only addressed by Michigan U graduates? Third, by all evidence (sizes of Michigan Us, and sheer numbers of students in MI college and Us vs. say Washington, is there any doubt that Michigan produces more grads each year than Wash or any of a number of other states?) If sheer numbers of degrees produced drives prosperity as you contend, Michigan should already be in the top ten behind CA, TX FL etc. This idea/article is sheer unsubstantiated dogma which Bridge seems to be an epicenter.

Kevin Grand
Thu, 01/25/2018 - 12:27pm

"For nearly 20 years, Michigan has centered its economic development strategy on cutting taxes. It didn’t work. There is no evidence that it will work: the most successful areas around the US are not characterized by low taxes..."

I'm not certain from which alternate universe Mr. Glazer just returned from?

Was there a goateed version of Jennifer Granholm or Gretchen Whitmer behind these tax cuts?

What other explanation is there to rationalize a statement that flies polar opposite with the history that the rest of us all know?

In our universe, Income Tax hikes, Business Tax hikes, Pension Tax Hikes, Gas Tax hikes and a litany of fees was standard operating procedure from Lansing when it wouldn't live within its means.

I'd also recommend that he might want to double-check his premise on why Amazon didn't come here.

Hint: There wasn't any lack of "talent" that kept Detroit from growing for the first half of the last century. That talent migrated here all on its own when the opportunity presented itself.

Even Dan Gilbert finally had the integrity to acknowledge that "lack of talent" was just a polite excuse to not set up shop.

http://www.detroitnews.com/story/news/local/detroit-city/2018/01/24/gilb...

And regarding this: "Unless we do we are going to be one the nation’s poorest states."

Tell me how well California and Illinois state budgets are doing?

I'd wager not too well when resident are packing their bags and moving to low tax states like Texas and Florida.

https://www.ocregister.com/2017/04/23/leaving-california-after-slowing-t...

http://www.chicagotribune.com/business/ct-biz-homeowners-leaving-illinoi...

http://www.governing.com/topics/urban/gov-census-population-data-sun-bel...

I'd also wager that it'll be a little difficult to maintain your grandiose state budget when the people who you were expecting to pick up the tab are no longer living there.

Jim Rowlett
Thu, 01/25/2018 - 3:05pm

I would only agree that as societies evolve new and efficient technologies must be accommodated and new skills adopted. But Glazer must be unaware of Michigan's two largest industries, Agriculture and Tourism. We need an educated population that can be high performing in jobs across the board. How about reading at the third grade level and all the other K-12 benchmarks? Add to that a culture of work and entrepreneurs.

Valerie
Thu, 01/25/2018 - 8:55pm

How's about getting clean, safe drinking water to the people of Flint? And all the other MI cities that are no doubt in similar shape. Apparently people who are being poisoned with heavy metals don't do so well in school.

Mark
Fri, 01/26/2018 - 6:54am

The author makes a fatal error in assuming there will be more companies looking for homes with the magnitude of Amazon. His other fatal error is that we have been cutting taxes!!! Pension Tax, Doubling of Auto Registration Fees, Failing to rollback the legislated Income Tax to 3.9%, Elimination of the Michigan Charity Tax Credit, etc.

There are reports that indicate ~30% of students currently in college don't belong in college. The Detroit Area needs to focus on Skilled Trades and other vocational and service training jobs.

The economy in the last year under Pres Trump is expanding and is trending positively. People that don't have jobs are not looking hard enough or not selecting the proper training.

Bonnie Smith
Sun, 01/28/2018 - 1:57pm

Robots will soon replace most workers, even some in the professions---doctors, lawyers, educators. Even now some CEOs and CFOs are meeting with economists to discuss how people will live in the future, that is, have enough money to buy the things they need, when their jobs have been taken over by robotics. You can google all of that information, to be sure I'm accurate. So even jobs in technical fields will be lost to a machine. What will be needed? I suppose plants that make robots, but those will likely be run by robots, and even robots will be repaired by robots. What's left for most humans to do? I think that learning will still be important, for what good is an empty mind? Learning for the joy of learning, sharing, supporting each other, looking after the planet, which is our home. The arts to enrich our lives seems important. We continue to think of education as only a means to a job. Shouldn't we think of education as a means to a life, to opening the door to curiosity? Who knows where that will take humanity! Perhaps it will take people beyond robots to an even better life or to the realization that robots are not the answer to life.

Ed Haynor
Sun, 01/28/2018 - 2:48pm

As many economists and futurists predict, 30% of all jobs will be lost to automation by the year 2030, so what happens then, complete world anarchy? Just type into your browser “30% of job loss by 2030” and learn for yourself.

Once upon a time in Michigan, Governor Engler was promoting “gold collar” jobs, which highlighted the need for the skill trades covering all major industries, because these jobs had value and they were high-paying. As we learn today, Engler was right. In her terms in office, Governor Granholm was promoting that the very most of high school graduates seek and get a college degree because the economy of the future required some sort of post high school credentials, many up to a 4-year degree. Was she right, yes, she was.

So, how could polar opposite political party Michigan governors be both right? Mainly because the job market has shifted to the need of a more skilled workforce, regardless of how you get it. In the 1950s, 60% of jobs required basic skills generally earned though a high school education. That percentage now generally has been cut in half.

So, what are we in Michigan going to do to improve the lives of our citizens, particularly our children and grandchildren? There are no easy answers, but the course that our legislature is on, starting with Governor Engler, has been a very destructive one. There are two major events in my lifetime that have hurt the education of Michigan’s children. (1) Proposal A, which shifted revenue generated for schools to the state from local school jurisdictions, in which case local schools, over time have lost nearly all local control. Show me where an industry, any industry that can thrive, when it has no control over its own destiny, financial or otherwise. (2) Charters, cybers and probably next vouchers, again starting with Engler, has diverted school funding away from neighborhood schools to charters and cyber schools. Charters were supposed to be schools of innovation created for Michigan students. But what they’ve become is a huge money-maker for corporations, since 80% of Michigan charters are run by corporate managers, where profits are more important than learning.

If Michigan citizens are going to take education of its citizens, especially the children seriously, I propose we do at least three major things. (1) We eliminate for-profit public schools. Let’s make learning more important than profit. (2) We get the legislature out of running our schools and return schools to local control. (3) Re-create public schools in Michigan from K-12 organization, to a preK-14 one. Why? Because there is so much more that students need to learn in order to be successful in the future than a K-12 education can provide.

For children living and born today, they have a very bleak future with current education policies in Michigan. You can start this fall, being very careful in who you vote for; more of the same or a new course of action.