Analyst: Look Beyond Those 'Usual Suspects'

February 20, 2008
| By Pete Daly |
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GRAND RAPIDS — George Erickcek has worked out a "recipe" for the future of the economy of West Michigan, which he shared last week at a gathering of the Economic Club of Grand Rapids. A clue to his conclusion was found in the subtitle of his presentation: "Emerging Industries Report — Looking Beyond the Usual Suspects."

Erickcek, a senior regional analyst at the W.E. Upjohn Institute for Employment Research in Kalamazoo, said the "recipe" ingredients might be unpalatable to some — such as his suggestion that we ought not to rely solely on specific emerging industries such as the medical and life sciences industry or alternative energy.

Erickcek has spent the last year studying and analyzing the economy within the seven West Michigan counties that make up the West Michigan WIRED region. WIRED — Workforce Innovation in Regional Economic Development — is a federally funded local initiative backed by a $15 million, three-year grant from the U.S. Department of Labor, Employment and Training Administration. The West Michigan WIRED region includes Kent, Ottawa, Allegan, Barry, Ionia, Newaygo and Muskegon counties.

In laying the background of his report, Erickcek said West Michigan is facing a long-term forecast "that none of us wants to accept." The challenge to the region is not competitiveness but rather the structure of its industry, and the key question is: How can we change the industrial structure here?

The future here "is not as bright as we would like," he said, noting that total private non-farm employment in the WIRED West Michigan region is projected to increase at a 0.7 percent annual average rate over the next 10 years. That's better than the rate for Michigan as a whole, which is only 0.4 percent, but worse than the 1.4 percent rate predicted for the nation as a whole.

Industry in the WIRED region is competitive, but the industries are not expected to grow in terms of employment levels.

The challenge facing many firms, due to the global economy, is "automate, emigrate or evaporate," said Erickcek.

Some would argue that this is why we must look to emerging industries, said Erickcek — but he disagrees. He said most economic research indicates that "healthy industry clusters" are the incubators for new ideas and products. Silicon Valley in California is an example, he said, of "one big cluster where a lot of ideas are percolating."

He said office furniture is a cluster industry in West Michigan, and he predicted it will likely yield future innovations.

Erickcek said an example of an unhealthy industry cluster was the paper industry in Kalamazoo, which was still viable when he moved to the area in the 1980s. But the reality was that paper "was a commodity production," and it was controlled by companies that were not based in the area. Erickcek warned that business must focus on "not becoming a commodity producer, no matter how good."

He also said that within healthy clusters of industry, "there is greater potential for the creation of job chains which can reach the unemployed and underemployed."

Success depends on identifying the interaction of three key elements in regional economies, he said: global factors, technological change and regional structure.

Global factors include the aging population in developed countries (which impacts the markets there), growth areas outside of the U.S., growing environmental concerns and political unrest in developing countries.

Technological change is a variable because there can be rapid shifts in competing technologies. "The most promising technology can always be eclipsed by a better technology," he said.

The challenge to alternative energy, for example, is that opportunities for growth are still small, "and there are a lot of competitors."

The more powerful technologies cross traditional industrial lines, he said, which means "technological change in industry is likely to occur in cluster locations."

To grow, a region must expand its export base, which does not necessarily mean exports overseas, he said. It means exports out of the region "to exotic places like Indiana."

Competitiveness, such as lean manufacturing, is important "in the short-term," he said. Innovation, however, is important "in the long-term."

There are new opportunities in addition to the "usual suspects," he said. Existing companies can adapt new technology in their product development, and existing businesses may also be able to develop new markets in the global economy.

In his list of conclusions and recommendations, Erickcek put up a slide that stated, "Avoid jumping on the bandwagon in trying to attract the next best thing."

Thirty-two states are going after life sciences, he noted.

"If industry clusters matter at all, then it is risky to go after industries that are currently not in the region," he said. "Many of the 'usual suspects' are top heavy with highly educated professionals, meaning that 'job chains' that reach the underemployed and unemployed will not be created."

Work to develop an innovative culture, he said, which includes sharing ideas across industries — which he said he realizes requires an environment of trust.

Acquire an understanding of innovation, he urged. The three steps are idea generation, product development and marketing.

"The problem is that firms may not be equally good at all three," he said, which is why he recommends working with other firms to explore new opportunities.

"Work toward the creation of an attractive location for professional workers," he said.

"It is becoming clear that in the knowledge-based global economy, 'amenities' cities will outperform 'productive' cities, especially in developed countries."

Future success of the West Michigan WIRED region will likely depend on its human capital, physical capital and "network capital" — the ability to develop ideas and the partnerships necessary to bring the ideas to fruition.

"We also have to realize the bottom line is employment," said Erickcek.

In response to a question from the floor, Erickcek said the emerging life sciences and health industries here will create many jobs, but he added, "What I worry about is, we don't know what is happening in other places in the world, in terms of research in the life sciences. We could be blind-sided" by new technology that crops up somewhere else.

Rather than trying to figure out "which seed to plant," he said, we should be "creating fertile soil where any seed can grow."

Erickcek told the Business Journal after the program that he wants people to think about economic development as laying the groundwork for cultivation of new ideas, regardless of the industry.

"It's tempting, and we all want to do it, but we can't pick winners. But you can create an environment where winners can occur," he said.

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