Pfizer, which in 2007 announced it would close three Michigan facilities, represents the high-tech companies that Michigan would be able to attract were the state to reform its business climate and lower taxes.
AP Photo/Mark Lennihan
Michigan’s auto industry is in decline. Along with it, many of
our tool and die shops and basic auto part suppliers have disappeared. But
crises often catalyze new opportunities. What are the chances that a thriving
knowledge or information-based economy will arise from these ashes?
Info-industries deal in the high-tech collection, organization
and dissemination of data and information in order to raise client productivity.
In a globally connected universe, those who are first to the trough with
state-of-the-art techniques and networking capacity gain market advantage.
True reform can only come when we first secure a more rewarding business climate as the source of all new job creation.
At first glance, Michigan may appear ideally suited to profit
from the transformation to a knowledge-based economy and away from its
traditionally heavy reliance on manufacturing. For one, info-firms are rarely
unionized and can adapt quickly to changing technology. Second, info-sciences
don’t require large facilities, purchases of land or heavy equipment. Some are
home-based or housed in low-cost office space. Third, much of the prerequisite
infrastructure already exists: reputable colleges and universities and
well-established transportation/communication systems.
However, with any economic balance sheet, the advantages must be
set against liabilities in the minds of prospective employers, employees,
investors and venture capitalists. When it comes to attracting or retaining
knowledge-based firms, it is utterly essential that "human capital" be treated
well. Why? As we know from painful out-migration of college graduates from
Michigan over the past decade, human capital, or brainy, ambitious
entrepreneurs, are fleet-footed. They have the least difficulty pulling up
stakes and migrating across borders if they sense a hostile environment.
For Michigan to appeal to any industry as a headquarters,
low-tech or high-tech, the economic fundamentals are the same: low operating
costs and profitable growth prospects.
Does Michigan match the "better-faster-cheaper" business
paradigm sought by start-up firms and customers around the globe? You be the
judge. In 2007, Michigan raised business taxes by 22 percent. Also, the Reason
Foundation ranked Michigan the sixth most burdensome state in the imposition of
occupational licenses on entrepreneurs. Moreover, with real personal income
levels falling sharply, especially in the private sector, Lansing legislated
another $1.7 billion in tax burdens — including an 11 percent hike in personal
income taxes — with the possibility of more on the way as a national recession
Knowledge or info-based industries deal in the most mobile,
flexible, competitive, cost-sensitive and fungible resource available in an
economic system: human capital. Cross-pollination is the key. Creative human
beings, especially when clustered and stimulated by the presence of other
innovators, will generate new ideas and become the critical mass from which old
industries are transformed and new industries are born. That’s what iPods,
laptops, cell phones, DVDs, radar, automatic pilots, genetically-modified foods
and polio vaccines are all about.
To achieve critical mass, Michigan’s economy first must be
forthcoming to the best, the brightest, the most energetic, and the most mobile
of our people. Venture capital will follow! It searches for the most profitable
businesses in the best markets.
Unfortunately, 21st century Michigan turns economic incentives
on their head. Like so many other misconceived policies, Michigan puts the cart
before the horse. Lansing creates huge bureaucracies that subsidize politically
favored businesses and individuals, rather than improving pocketbooks statewide
by lowering overall taxes and regulations. Similarly, Lansing keeps throwing
billions of dollars into the public education arena without return on
"investment." The monies, instead, simply drive tuitions and other costs higher
by bloating unfunded pensions and heath care benefits of academic and
non-instructional personnel. It has become a swinging door policy: Students get
a Michigan diploma and land jobs out-of-state.
True reform can only come when we first secure a more rewarding
business climate as the source of all new job creation. By catering to special
interest industries, Michigan has, instead, showcased to the world its
When Michigan’s politicians treat its private sector economy —
income, profits and savings — with the respect shown a stallion or even a work
horse, rather than as the cart onto which the burdens of government are heaped,
then Michigan will restore its rightful place among the most productive,
prosperous places on earth.
David 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