Michigan Economy Needs to Join the Information Age

For much of American industrial history, Michigan entrepreneurs figured prominently.  In businesses as diverse as autos, cereals, pharmaceuticals, chemicals, and baby food, names such as Ford, Kellogg, Upjohn, Dow, and Gerber faced great obstacles.  Yet they persevered, prospered, and became household words from coast to coast.

When the business history of the next 50 years is written, will Michigan entrepreneurs stand out from the crowd as in the past?  If a new report from the California-based Milken Institute is to be believed, we have some work to do before we can answer "yes."

In a thorough study of "Knowledge-Value Cities," Joel Kotkin and Ross DeVol examined the factors that are driving economic growth in America's major cities.  They found that "high-tech" production, which was growing at slower rates than "low-tech" production just 10 years ago, has suddenly surged dramatically, comprising nearly 25 percent of American economic growth by the year 2000.  Whether in jobs or in wages, this change is dramatic and significant: The average annual wages paid by information technology industries is now estimated to be double the average wages of all industries.

In the cities where these industries appear, they will have the effect of boosting an entire region, or state, in which they are located.  Kotkin and DeVol use the term "nerdistans" to describe these new high-tech places, but whatever the term, these urban areas will be critical forces in attracting the next generation of entrepreneurs.  Unfortunately, among all Michigan cities, only Detroit showed up in the report, and that as an example of decline.

Surprisingly, some of the factors once associated with the "Sun Belt" boom do not play a role in attracting people to nerdistans.  A survey by the Pennsylvania Economy League showed that the most important factors in determining company location were quality of life, the proximity to professionals, and the proximity to markets.  Ranking at the bottom were factors such as climate and taxes.   Labor and access to universities ranked in the middle.

For wintry Michigan, the good news is that climate is not a significant factor in attracting high-tech industries, and that the truly significant factors are a skilled labor force and proximity to markets.  The bad news is that what causes people to rate an area as having a high "quality of life" category often depends on a sense of "hip-ness" and a perception that a particular region is "happening."  Also, the report suggests that the benefits of the excellent University of Michigan system are minimal.  It also indicates that people will tolerate higher taxes if they perceive they are living in a hotbed of entrepreneurial activity.

"Entrepreneurial hotbed" does not seem to describe Michigan right now.  A recent study by the Ohio-based Buckeye Institute found that of the five Midwestern states, Michigan trailed all except Ohio in real personal income per capita over the last decade.  Indeed, in the entire Midwest, only Chicago stands out in the Kotkin and DeVol study as an "information age" center. 

At the same time, the change in Chicago in computing and data processing services just since 1990 was remarkable: Employment in information sectors more than doubled. A "knowledge invasion" is transforming Chicago neighborhoods that once were decaying, as new urbanites employed in the high-tech sectors move in.  Yet Detroit, with no such info-tech transformation, has declined in population to half the size it was 40 years ago.

Skeptics may argue that Chicago has always had significant advantages over, say, Detroit.  But what about Omaha, Neb., which Kotkin and DeVol conclude has "emerged as a major center of telecommunications technology"?   Surely Detroit can do as well as Omaha. 

What are the keys to "high-tech," digital-age growth?  While there is no government initiative that can by itself change a community's quality of life, it's clear that policy-makers should spend less time and money on flashy, subsidized projects like stadiums and casinos.  To attract high-tech entrepreneurs and employees, Detroit and other Michigan cities need to focus on core functions of city government: protecting the citizens and providing high-quality municipal services at reasonable cost.  They should upgrade police and fire departments, improve sanitation, cut crime, fix the schools, and contract competitively for a wide range of activities.  They also should shed themselves of sky-high taxes, burdensome regulations, and wasteful bureaucracy and begin to think and act like the very entrepreneurial firms they seek to attract.
Detroit's motto ought to be, "If Omaha can do it, so can we!" 


(Larry Schweikart is a professor at the University of Dayton in Ohio and an adjunct scholar with the Mackinac Center for Public Policy.  Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.)

For much of American industrial history, Michigan entrepreneurs including Ford, Kellogg, and Dow figured prominently in the emerging U.S. economy. But if Michigan is to lead in the 21st century "information age," then our cities must rid themselves of high taxes, burdensome regulations, and wasteful bureaucracy and begin to think and act like the very entrepreneurial firms they need to attract.

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