Guest Column

Michigan hasn’t adapted to knowledge-based economy

October 9, 2015
| By Lou Glazer |
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Data are now available for 2014 for per capita income and education attainment by state. Michigan ranks 35th in per capita income and 34th in the proportion of adults with a four-year degree or more.

Michigan is now structurally a low-prosperity state. Every year from 2006 through 2014, the state has ranked between 34th and 38th. This is the first time ever Michigan has been a lower-tier per capita income state with a booming domestic auto industry.

Michigan’s per capita income is $40,740, which is $5,300 less than the national average. In 2009, in the depths of the Great Recession and a near-bankrupt domestic auto industry, Michigan’s per capita income was $5,200 less than the national average.

This is a far cry from 20th century Michigan in which it was a top 20 state virtually every year from 1929 (when the statistic was first collected) through 2000.

The chief cause for Michigan’s decline is the state has not adjusted to the transition in the economy from factory-based to knowledge-based. Nearly all high per capita income states are now over-concentrated in the knowledge-based sectors of the economy. And because it is the asset that matters most to knowledge-based enterprises, nearly all high per capita income states rank high in the proportion of adults with four-year degrees or more. The two go hand in hand.

The other path to high per capita income is commodity-based states (predominantly energy). North Dakota, Wyoming and Alaska are all top 10 states in per capita income with low college attainment.

The top 10 non-commodity-based states in per capita income in 2014 are Connecticut, Massachusetts, New Jersey, New York, Maryland, New Hampshire, Virginia, California, Washington and Minnesota. Eight are also top 10 states in the proportion of adults with four-year degrees. The other two: California ranks 13th in college attainment and Washington ranks 11th.

The two top 10 states in college attainment that are not in the top 10 in per capita income are Colorado, which is 14th in per capita income, and Vermont, which ranks 19th.

The same pattern holds true for the bottom 10 states in per capita income. They are Arizona, Arkansas, Utah, Alabama, Kentucky, New Mexico, Idaho, South Carolina, West Virginia and Mississippi. Eight rank 38th or lower in the proportion of adults with a four-year degree of more. The two exceptions are Arizona, which ranks 31st, and Utah, which ranks 15th.

Michigan almost certainly won’t return to the high prosperity it enjoyed for most of the 20th century unless we become better educated. Specifically, this means more of us with four-year degrees or more.

The new path to prosperity is the broad knowledge-based services industries. High prosperity is occurring chiefly in those places where knowledge-based enterprises across many sectors are concentrating. They are concentrating in areas with a high proportion of adults with a bachelor’s degree or more.

Our basic conclusion: What separates successful areas from Michigan are their concentrations of talent, where talent is defined as a combination of knowledge, creativity and entrepreneurship. Quite simply, in a flattening world where work can increasingly be done anyplace by anybody, the places with the greatest concentrations of talent win.

Michigan’s fundamental economic challenge is that we rank 34th in the proportion of adults with a four-year degree. States without concentrations of talent will have great difficulty retaining or attracting knowledge-based enterprises, and are unlikely to be the place where new knowledge-based enterprises are created.

In 2000, at the end of the boom years, Michigan still ranked 18th in per capita income. We were also 34th in bachelor’s degree attainment. In many ways, 2000 marked the end of an era when you could have high prosperity with low education attainment. That time has passed.

Michigan has lagged in its support of the assets necessary to develop the knowledge-based economy at the needed scale. Building that economy is going to take a long time, and it will require fundamental change. But it is the only reliable path to regain high prosperity.

The choice we face is: Do we do what is required to build the assets needed to compete in the knowledge-based economy, or do we accept being a low-prosperity state?

Lou Glazer is president of Michigan Future Inc.

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