Michigan's Economic Future: A New Look

Introduction

2 xiii Introduction I n 2003, the Michigan State University Press published Michigan at the Millennium : A Benchmark and Analysis of Its Fiscal and Economic Structure.1 It was an honor for me to serve as one of the editors of this landmark work, which was sponsored by Michigan State University, the University of Michigan, and Wayne State University, with additional financial support from the Charles Stewart Mott Foundation. It includes thirty-three chapters covering nearly every aspect of economic life in Michigan. Because of its exhaustive coverage, Michigan at the Millennium is an essential reference work for anyone who wants to gain a highly detailed, in-depth understanding of the Michigan economy. However, there is a downside to this level of detail: Michigan at the Millennium is more than seven-hundred pages long. In an attempt to provide a shorter and more accessible discussion of the critical economic issues facing us in Michigan, I wrote Michigan’s Economic Future: Challenges and Opportunities, which was published in 2006. The subsequent four years have been among the most turbulent in the history of the Michigan economy. Thus the time has come for this new book, to amplify the themes of the first edition and analyze the momentous changes that have taken place in the last few years. xiv 2 INTRODUCTION Some Key Themes of This Book This introduction will set the stage by briefly discussing a few issues and ideas of central importance in this work. The Decline of Manufacturing In the late nineteenth century, much of Michigan’s economy was agricultural, but massive changes were under way. There was an opportunity to create a more prosperous future in an economy based on manufacturing. Visionaries like Henry Ford, Herbert Dow, W. K. Kellogg, R. E. Olds, and W. E. Upjohn helped to turn that opportunity into reality for Michigan. By the middle of the twentieth century, Michigan was an industrial powerhouse whose economy was the envy of the world. Millions flocked to Michigan to work in the automobile plants and other manufacturing facilities. However, manufacturing’s share of the economy has been shrinking for more than half a century both in Michigan and in the rest of the United States. This long transition has been more painful for Michigan than for most states because manufacturing was (and still is) a much larger portion of the economy in Michigan than in the average state. In a sense, Michigan has become a victim of its own success. Few regions, if any, were more successful than Michigan in riding the wave of manufacturing, and this made the transition out of manufacturing more difficult for Michigan than for most other states. For the foreseeable future, manufacturing will certainly continue to be an important part of Michigan’s economy. But all the evidence suggests that a more diversified economy is crucial if Michigan is to achieve a more prosperous future. If we in Michigan are to realize our economic potential in the coming decades, we will need to focus more on the skill-intensive, knowledge -driven sectors of the economy. When I wrote my earlier book in 2005 and 2006, the U.S. economy was expanding,butMichigan’seconomywasbasicallyflat.WeinMichiganweren’t losing a lot of ground, but we weren’t gaining much either. By December 2007, however, the U.S. economy had sunk into a recession.2 For the first eight months of 2008, the national recession was fairly mild, but then in September 2008, the Lehman Brothers investment bank collapsed. Credit markets froze up to a degree not seen since the Great Depression of the 1930s. From then until the summer of 2009, the national economy was in free fall, and INTRODUCTION 2 xv Michigan’s manufacturing economy was hit especially hard. As a result, the unthinkable became a reality: both General Motors and Chrysler went into bankruptcy in 2009. In the pages to come, I will describe this devastating recession in more detail, and I will offer some thoughts about what we can learn from it. In addition , I will take a more detailed look at the decline of manufacturing, with particular emphasis on the struggles of the automotive industry. And I will identify some of the sectors of the Michigan economy that can propel future economic growth. The Widening Gap between Rich and Poor The American economy enjoyed tremendous success from the end of the Second World War...