Ding Dong the Witch is Dead

Ding dong the witch is dead, the wicked witch, the mean ole witch, ding dong the Single Business Tax is dead! Stand back people, don’t get trampled by the rush of companies trying to setup shop in good ole Michigan now that the SBT is dead. And if you believe that, can I interest you in a bridge?

Many, many people would have you believe that the SBT and other “taxes” are the biggest reason we have lost jobs in this state and our economy is in the dumper. Fact of the matter is, without shutting down the SBT, we ranked 26th in the country total tax burden. But we ranked 48th in economic growth. States like Minnesota, Massachusetts, rank much higher in taxes, 6th and 7th respectively but their economies are booming, ranked 1st and 7th respectively. While we in Michigan have pursued a political agenda of cutting taxes since 2000, our economy has gone into the toilet?! What gives?

The world changed over the last two decades, that is what happened, and Michigan and it’s attitudes failed to keep up. Michigan prides itself on being the Automotive Capital of the world, specifically the Automotive Manufacturing Capital. But we can no longer compete. Not because of anything we in Michigan have done. It is the rest of the world. Anyone can build cars.

The automobiles that America drives are made all over the world. Japan, Mexico, Korea and soon China. The quality is as good as American, after all, in most cases we taught them how to build quality in. And they are doing it with labor rates that are 10% or less of what we pay in the US, little or no benefits, retirement packages and lower overall costs with respect to regulations and taxes. New York Times columnist Thomas Friedman has labeled this new era the “flat world.” A flat world because anything can be made virtually anywhere and manufacturing goes to the lowest bidder. We don’t want to be the low bidder. The only way we can compete with this long term is to slash or standard of living, compromise our environment and abandon our proud consumer economy. That is something we won’t do, nor should we.

Just take a look at the recent announcements at Ford. They are indicative of Michigan’s economic problems. Many Michiganders will lose their job and we will see another decline in our economy as a result. Michigan has lost 240,000 manufacturing jobs in the last 6 years, that is staggering. And we stand to lose even more.

So how do we change? How do we stop the lose of manufacturing jobs? Hold it right there…. As I said above, we cannot compete on the world market in automotive manufacturing or most standard manufacturing for that matter. So the first thing we have to do is quit wasting resources on trying to save manufacturing. Now I’m not talking about shutting down what we have or not trying to preserve what we have to a reasonable point, that would be stupid. But we spend a tremendous amount of money and effort trying to replace manufacturing jobs with more manufacturing job. And that is crazy.

We need to take a new attitude, one that comes to grips with the fact that the hay-day of manufacturing in Michigan is past. We are going to continue to see reductions in manufacturing jobs to the point it becomes a minor part of our economy, just like it has in the most prosperous states in the country. Then we need to start looking at how do we replace manufacturing as the driving force in our state economy. But with what?

America and Michigan with its high standard of living can’t compete in simple manufacturing in a Flat World. As is stated in their recent report, A New Agenda for a New Michigan, Michigan Future Inc. states, “The flat world is restructuring economic possibilities across the globe. In advanced economies, like the United States, work—particularly higher wage jobs—increasingly involves knowledge, creativity, and innovation. Many routine/repetitive functions can be done by machines or lower-wage workers in developing countries.” So to turn Michigan’s economy around we need to shift from manufacturing jobs to “Knowledge Worker” jobs. These jobs include information, financial/insurance, professional/technical services, education, health care, bio-medical technologies and management of companies. This is what the most prosperous states are doing. And these jobs take a highly educated work force.

If we look at growth of per capita income, how much is each person earns, and the growth of that income from 1993 – 2005 we find that Michigan is 45th in the country with growth 5.29% less than the US Average. Who is on top? Massachusetts with 13.89% above the US average. Colorado is at 10% above and a neighbor Great Lakes State, Minnesota is at 10.7% above. These states are high in knowledge based jobs and a highly educated work force. Minnesota finds 23.5% of its jobs come from high education industries, Colorado, 25.5%, Massachusetts.. 28.58%! Michigan on the other hand finds only 18.9% of its jobs from a highly educated work force. Less than 25% of Michiganders have college degree. Minnesota 29.7% with degrees, Colorado, 33.7%, and Mass…… 37.4%. The national average is 27%.

In Michigan, we have 2 of the top major universities in the country and a third top 10 engineering school. Yet we are number 3 in the country for the number of degreed professionals leaving our state. Only Ohio and Pennsylvania see more. And it is no wonder, we pay on average $7000 more to a non-degreed manufacturing worker than we pay a degreed knowledge worker. The national average pays the knowledge worker $14000 more. We are driving our greatest assets out of the state.

And it’s not taxes that are the problem. Massachusetts pays $585 per person more than the national average in state and local taxes. Minnesota pays $532 more than the average. Michigan pays $61 less than the national average. The SBT? Well a close look at the SBT will show you that the businesses most affected by the SBT are small manufacturing businesses with large amounts of capital. Not knowledge based businesses. So in all reality, if these taxes could be 0 and we still couldn’t save manufacturing in the long term. Anyone that believes the elimination of the SBT tax will spur all this new investment in manufacturing in Michigan is fooling themselves. Manufacturing is headed to Mexico, China, Korea and India, tax change or not.

But eliminating the SBT has done one thing significant. It has set us up for a $ 1.8 billion dollar short fall in our state budget in 2007. Coupled with huge job loses looming at Ford, 2007 is prepped to be the worst yet. And where will that $1,800,000,000 come from? Our education systems which are already woefully underfunded. From state research grants, new business initiatives to draw other companies like Google to the state. And from our infrastructure that maintains roads and parks and a communities that make Michigan a desirable place from a highly educated work force to live in. We haven’t shot ourselves in the foot, we have put the gun in our mouth and the hammer is headed for the firing pin.

So what do we do? First we need talent. In a recent speech to the National Conference of State Legislatures, Microsoft Chairman Bill Gates said, “The industries that I think about the most, information technology and biological industries, they are far more sensitive to the quality of talent in a location than they are to the tax policies. If you say, okay, where in the United States did jobs around information technology grow up disproportionately, well, California would be number one, and not because they have the most friendly tax policies compared to other states. This state [Washington] would be strong, Microsoft distorted that a little bit, but again it wasn’t based on any particular tax policy. And so those things, you can go overboard on those things.”

State and local taxes do not drive growth, availability of talent does, as Gates goes on to say, “... take the two big leading industries, industries around biology and medicine, that's one, and industries around computer technology, that's two. The job creation and the success for those industries have been overwhelmingly in the locations where there is a great university. There's an almost perfect correlation between the number of jobs in a region and the strength of the universities. And, that will continue, whether it's new fields like nanotechnology, or those two fields I mentioned, on the ongoing strength that they'll have. And so for this country, we have to have the best universities. We're in very good shape on those. The top 30 or so in the world, we'd be over 25 of those. And, it's very impressive that although a number of those are private universities, almost half of those would be state universities as well. So, it's a phenomenal system. In fact, if you think of numbers, the state system turns out more world-class graduates than the private system. So, it's incredible how that's worked. And legislators have decisions to make about the level of investment that is made there, and really thinking through what the follow-on benefits for them are in terms of not only the country, but also their state as well.”

We need talent, home-grown talent. We need to fund our universities and K-12 education. K-12 education should emphasize knowledge based careers. We need to revamp university financial aid so that everyone can get a degree, everyone regardless of economic stature. And we need to draw the brightest and the best from everywhere in the world to Michigan’s schools and keep them here after they graduate. Think if the Kalamazoo Promise was the Michigan Promise and covered the whole state and the stipulation was that you got the money only if you stayed in Michigan for 5 years after you graduate. That is kind of what Michigan Future Inc. proposes. Now that would generate talent. We need to make sure our infrastructure and communities are attractive places to live. This will need money. And thus a replacement for the SBT’s $1.8 billion needs to be a number one priority.

We need to retrain our manufacturing work force. This is means that state government and labor must put in place strategic opportunities and funding for this to happen before we have more plant closings. And it means our manufacturing work force needs to see the writing on the wall and take advantage of these opportunities before they are standing in the un-employment line.

We need to fund in state research. We need to foster initiative and actively court those high education/high paying jobs. Leave the Toyota engine plant to Indiana. What Michigan wants is the Toyota North American Headquarters. The Knowledge Worker jobs. The Googles, the nano-techs, the bio-meds. We need to understand and embrace the “Flat World” so that we can excel in it.

And we need new leadership. So that is my next task. To look at the candidates for office this fall and really evaluate them against what we really need to do. Who’s plan is the most compatible. Who is spewing the same old rhetoric. And I put my thoughts in this blog. Stay tuned. Microe

Footnote: I did a lot of research into this blog, and could have wrote 5 times as much. A lot of the information and statistics came from sources online but the most came from three places, Michigan Future Inc.’s website http://www.michiganfuture.org/, Tim Walsh’s columns in the Detroit Free Press and articles I found on http://www.mitaxtruth.com/, like Rick Haglund’s article from Mlive.com. If you would like to learn more please see these sources as they deserve the credit for this information, I’m just a messenger. I think everyone should read “A New Agenda for a New Michigan” by Michigan Future Inc. They have done a great job in putting this all together and backing it up with great stats and looking at what matters. My hat’s off to Lou Glazer and their staff.