Rx for Michigan

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Michigan's Economy Needs a Complete Overhaul

A DBusiness Economic Analysis

Detroit’s knack for all things mechanical, coupled with its abundance of natural resources, put the world on wheels and largely ushered in the middle class. The eventual concentration of the Big Three automakers in the Motor City brought untold wealth to Michigan, allowing parents to send their children to college in greater numbers here than in most other cities across America.

In the wake of the automotive revolution, thousands of companies were created in Michigan. Many of these were related to the industry, while many other businesses that bear no relation to manufacturing have thrived. In fact, if you ask anyone from another country to name America’s most-famous cities over the last century, Detroit invariably makes the list.

But those days are gone.

Today, metro Detroit and Michigan are in a much different state. For nearly a decade, Michigan has been mired in annual billion-dollar budget deficits, and the state routinely hovers near the top of the unemployment ranks. General Motors, Chrysler, Delphi, Visteon, and numerous other automotive suppliers and peripheral companies are working their way through bankruptcy court or have already closed.

High-paying jobs are disappearing, the housing industry is fraught with foreclosures, office and industrial leases are down, and the governor and state Legislature have yet to develop a long-term comprehensive strategy to ignite a sustainable recovery.

So where do we go from here?

The state’s tax structure is still built on a manufacturing model, even though services account for approximately 60 percent of all business transactions today. Fifty years ago, services made up around 40 percent of such expenditures. That’s got to change.

Many state workers enjoy more generous benefits than their private-sector counterparts. Bringing public benefits in line with the private sector’s would save the state billions of dollars annually. In addition, many civic and nonprofit organizations, such as Detroit Renaissance (soon to be Michigan Renaissance) and the Mackinac Center for Public Policy, have proffered myriad initiatives to pare state expenditures and lure businesses and investment.

But because of the potential for negative political ramifications, most of those initiatives have been ignored.

There’s also the matter of the generous tax incentives doled out to companies, large and small, that want to expand their operations or relocate here from other states. In some instances, the process for applying for these grants becomes a shell game. Threaten to leave the state, make some preliminary contacts with other areas of the country about moving, and — presto! — Michigan comes through with tax breaks. Of course, this is typically accompanied by a press conference to show that at least our elected leaders are doing something.

In addition to remodeling and enhancing Michigan’s revenue stream, our state leaders should designate tax breaks for industries that are experiencing growth or poised for it. On the following pages, we consider a number of such business sectors.

One good example of successful lawmaking is the recent legislation that provides the highest tax relief for film studios in the country. The fledgling market for advanced battery research shows great promise, as well. By developing and building the next generation of batteries, Michigan can provide a lucrative transition from combustion to the electric-powered transportation industry.

There’s another benefit to targeting such industries for tax relief. Both film production and battery research help retain young, talented workers who might otherwise leave the state for supposedly greener pastures.

DBusiness proposes a simple, three-step plan for transforming our economy:

First, instead of pointing fingers and blaming someone — or something — our political leaders need to make Michigan the most appealing place in the world for business. Start with a simple spreadsheet and list the top economic and social factors that would induce businesses to relocate to — or remain in — Michigan. Prioritize these categories and then enact legislation that would make these proposals realities. Michigan must become the most business-friendly place on the planet, bar none.

Second, business leaders and owners need to invest in research and development. They must diligently search for new sales while maintaining what they have. In order to deal with change and find new revenue, we suggest business and political leaders read Spencer Johnson’s Who Moved My Cheese? Invest in the future, invest in new technology, invest in new products and services, and invest in whatever will distinguish a business. The state of Michigan can’t do it all. The state’s corporate and business leaders must build better mousetraps.

Third, eradicate our notions of entitlement. Michigan needs to become a right-to-work state. There aren’t many businesses that are drawn here by our entitlement sentiment. As outside businesses consider relocating to Michigan, it’s imperative they understand that we can offer a highly trained workforce with the right mindset and attitude. We need to embrace change and support our political leaders as they strive to make Michigan the most attractive place in the world to conduct and grow a business.

Growth Sectors

By identifying and offering incentives to lure fast-growing companies among the following industries, Michigan could do a better job of retaining and attracting businesses, as opposed to merely offering tax incentives across a broad spectrum:

Our economic turnaround plan for Michigan also includes four viewpoints for setting the state on the right path for growth:

• Senior economist David Littmann appraises Michigan’s decaying private sector and offers a straightforward prescription for our state’s economic recovery.
• House Majority Leader Andy Dillon and Senate Majority Leader Mike Bishop opine on Michigan’s future economic prosperity.
• Former State Rep. Andy Meisner, who championed the film legislation, addresses the many side benefits to the incentive package.

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