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Michigan should follow California’s lead
In a recent article, The New York Times reports “BMW and Daimler, Once Rivals, Join Forces to Fend Off Silicon Valley.” Of course, they are attempting to fend off Silicon Valley becoming the dominant player in the automobile industry, as it transitions from vehicle maker to mobility provider.
Michigan’s automobile industry faces the same challenge as BMW and Daimler. One cannot take for granted the industry that has been the prime engine of the Michigan economy for the last century will continue to have Michigan as its North American center. As important as being competitive for the Amazon HQ2 was, being competitive in the future of the automotive industry is far more important to Michigan’s future prosperity.
That California has emerged as arguably the biggest threat to Michigan’s long-term prosperity will surprise many.
Many during the Great Recession wrote off the Golden State as in permanent decline. Conventional wisdom had it that high taxes, not friendly to business, a structural budget deficit, paralyzed politics, etc., had ended California’s golden age. Those predictions of permanent decline were redoubled after California passed a major tax increase in 2012. Didn’t happen.
Since 2010, California has contributed 20 percent of the country’s GDP growth with 12 percent of the country’s population. California is sixth in per capita income, 14 percent above the national average. California’s per capita income in 2010 was 8 percent above the national average, which gives it a growth of 6 percentage points since 2010.
By contrast, Michigan is 30th, 10 percent below the national average. Michigan in 2010 was 13 percent below the national average giving it a 3 percentage-point gain since 2010.
The difference between the two states is more than $12,000 per person.
California is ranked 48th in the Tax Foundation’s 2018 State Business Tax Climate Index, Michigan is 12th. What matters more is that California is a high college attainment state; Michigan is a low college attainment state.
California is now, and almost certainly in the future, a leading-edge state. Rather than looking to California to learn what not to do, Michigan leaders should be looking to California for lessons about what matters most in an economy driven by globalization and technology. We have a lot we could/should learn from them.
Gov. Rick Snyder was right when he said in 2011: “In the 20th century, the most valuable assets to job creators were financial and material capital. In a changing global economy, that is no longer the case. Today, talent has surpassed other resources as the driver of economic growth.”
What matters most to high-wage, knowledge-based employers like the global players in the creation of the mobility industry is college-educated talent (just as it is for Amazon’s HQ2). The states and regions with the highest concentration of those with a four-year degree or more are going to be the places where high-wage, high-growth enterprises concentrate.
Gov. Snyder’s 21st Century Commission on education and infrastructure are a good starting point for what needs to be done for Michigan to be world class in the education and infrastructure of today and tomorrow. The combined price tag of the two commission recommendations is $6 billion a year. That requires raising taxes.
The reality is that places with the strongest economies are those that combine high-quality education systems and high quality of place that retains and attracts mobile talent. Both education and placemaking require public investments. These types of public investments, paid for by our taxes, are the state policy playbook most likely to return Michigan to high prosperity, creating an economy with lots of good-paying jobs.
Imagine if we had spent the last two decades not cutting taxes but investing in education from birth through college, building a 21st Century transportation system and creating places where people want to live and work after college. It’s highly likely the Michigan-based auto companies would be better positioned to compete with Silicon Valley and Germany. And it’s highly likely both metro Detroit and Grand Rapids would have been strong competitors for Amazon HQ2 and all the other high-wage job creation that comes from being an attractive place to locate a knowledge-based enterprise. We have been following the wrong path. States like California have been following the right path. It’s hard to see how Michigan competes with California unless we get on the right path.
Lou Glazer is president of Michigan Future Inc.