Thatcher of the West

(The following is an edited version of a brief speech delivered at a May 25, 2005 Mackinac Center event by David L. Littmann, who recently became the Center’s senior economist.)

Ladies and gentlemen, I’m always delighted to be in the company of honest and committed reformers.

There’s no state in the union today in greater need of economic and financial reform than Michigan. What Lou Schimmel did for Ecorse needs desperately to be done for the state of Michigan!

In truth, the "Margaret Thatcher moment" is on its way for Michigan, and the Mackinac Center for Public Policy is here to handle it.

Just think about the analogy. By the year 1979, Great Britain wasn’t so "great" anymore. In fact, Britain had already become the second-weakest economy in Western Europe. Only Portugal had a lower per-capita personal income.

I saw it starkly when I was a student there 16 years before. The health care system was a costly shambles. The work ethic — there was none. Shops opened at 10 a.m. during the weekdays and stopped twice a day for tea and lunch. The infrastructure was old and in many cases crumbling. Militant labor unions had industry and government by the jugular. Strikes were rampant. The British railways ran out of fuel and heat.

Great Britain was just not a competitive entity. Not surprisingly, I also experienced what I now see as a growing anti-Americanism, which even then seemed steeped in envy.

Michigan is in much the same position, especially vis-à-vis our competition, the other 49 states. Our unemployment rates are the highest; our population growth and employment growth are negligible; actually, Michigan was the only state in the United States to exhibit a payroll employment decline in 2004. Our per-capita personal income — which is the finest measure of material well-being for a population — was below the national average for the fourth year in a row. This year, 2005, Michigan will ace it! We will have experienced five consecutive years below the national average income level.

In short, Michigan is a relatively poor state. This is a shocking situation when you compare our fortunes with the halcyon days of 1965. It’s especially galling when you consider that for the past three years, we’ve been sending the flower of our youth — ages 25-34 — to other states in search of good, exciting and permanent jobs that have upward mobility. Nearly 40,000 members of this Michigan age cohort bolted in just a three-year period!

So when the governor tells us in her State of the State message that we need to throw another $2 billion of borrowed money into the Michigan educational establishment in order to be competitive, I must ask that those beneficiaries of Michigan largesse be so kind as to send us a dozen roses when they land their jobs elsewhere.

What major reforms could reverse our sinking fortunes? Well, if our immediate model is the best, fastest growing state economies in the nation, the answers aren’t hard to come by.

From what I’ve observed and studied over the past three to four decades, the two outstanding features of the pre-eminent U.S. state economies are the following:

1. Of the three major state taxes — personal income tax, corporate income tax and sales tax — the states that have consistently eaten Michigan’s lunch are those with only one or two such taxes, not all three. Not only are Michigan’s taxes above the U.S. average in their burden on our diminished tax base relative to income levels, but they’ve been on the upsurge on all fronts in recent years, with more onerous taxes being proposed by both the Republican Legislature and the Democratic executive branch.

2. The economic growth rate of "right-to-work" states has so convincingly and consistently eclipsed the average growth of non-right-to-work states as to make the whole argument for more workplace flexibility a noncontroversial subject. It resembles the contrast between mandates for a minimum wage, prevailing wage or living wage and a free and competitive labor market.

In short, Michigan’s incentives are upside down. Twenty-first century global imperatives are for better, faster, cheaper and greater resource mobility.

Michigan, instead, sees little threat to its future.

Fortunately, the Mackinac Center understands the threats quite clearly and has written, catalogued and educated on the subjects of fiscal and economic reform for 18 years. When the pain gets bad enough, and when the population gets angry enough, the policy‑makers will turn to the "Thatcher of the West." We should all take heart at the growing influence and constructive, realistic economic and legislative reforms being proposed by the Mackinac Center for Public Policy and its board and staff under the magnificent and talented leadership of Larry Reed.

David L. Littmann is senior economist for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.