Michigan and the Knowledge Economy Manufacturing won't support the middle class.
By WILLIAM MCGURN
With the highest unemployment rate in the nation and two of its Big Three auto makers bankrupt, Michigan could benefit from a dose of Sen. John McCain's tough love.
Instead, it got Vice President Joe Biden bearing $2 billion in stimulus bonds for roads and infrastructure. And that's sad news for anyone hoping to see the emergence of what this depressed state economy needs most: a new middle class for a new century.
At a groundbreaking ceremony for a road project in Kalamazoo, Mich., on Friday, Mr. Biden joined Democratic leaders from Gov. Jennifer Granholm to Sens. Carl Levin and Debbie Stabenow in suggesting that prosperity is around the corner. The federal government, he said, was doing all it could to help Michigan "lead us into the 21st century like you did in the 20th century."
Only one small problem. As Mr. McCain so bluntly put it on the eve of last year's Republican primary, "Some jobs that have left Michigan are not coming back. And the answer to that isn't to raise false hopes that somehow we can bring back lost jobs but to create new ones."
Mr. McCain took a lot of grief for those words and ended up losing the primary to Mitt Romney. But Lou Glazer thinks Mr. McCain had it right. Mr. Glazer heads a nonpartisan think tank called Michigan Future. And he advances a simple argument: While the reliance on manufacturing made sense in the 20th century, the sooner we recognize that manufacturing is no longer the key to a prosperous middle class, the better off Michigan will be in the 21st.
"One of the things we do today is look back and say, 'Boy, weren't we stupid to concentrate so much in the auto industry,'" says Mr. Glazer. "But it wasn't stupid then. It's only stupid now."
Mr. Glazer says that the state's most pressing need is to transition to the "knowledge economy," which Michigan Future defines as any industry where the proportion of workers with bachelor's degrees or higher is 30%. That's important, because the knowledge economy is more than the Googles and the Microsofts. The top knowledge industries include information, finance, insurance, professional services, health care and education. Not only are these industries creating jobs, they pay higher wages.
What does this mean for Michigan? It means, for example, that if President Barack Obama is right that the future lies in "building the next generation of clean cars," the most promising part of that future will not be on the factory floor. It will be on the knowledge side, e.g., the engineering department. In many ways, says Mr. Glazer, that's not so different from the heyday of the Big Three, when Detroit was synonymous with innovation.
Ironically, perhaps the greatest challenge to Michigan's transformation is a function of its past success. Until very recently, the auto industry offered those with low educational attainment high-wage jobs. One legacy is that too many Michiganders do not aim for college. And too many of those who do get a college degree end up moving to cities like Chicago, where opportunities are more attractive.
The result is that a state that once laid claim to creating the middle class is fast losing it. As recently as 2000, Michigan ranked 16th in terms of per capita income. Today Michigan ranks 33rd, with its per capita income 11% below the national average -- the lowest it's been since the federal government started keeping figures. Over those same years, Michigan has steadily hemorrhaged jobs.
In other words, even allowing the rosiest assumptions about a restructured GM and the jobs created by the stimulus, Michigan is likely to continue to suffer for some time ahead. The question is whether this suffering will lead to more of the same -- or to a restructuring that provides for a more hopeful future. In this light it's hard to see how priorities at the federal and state level -- e.g., card check in Congress, or raising taxes to meet budget shortfalls in Lansing, Mich. -- do much to address the hard truth Mr. McCain pointed out last year.
The larger point is that what the middle class needs more than anything else is an economy where employers have to compete for their labor. The more open a state's economy is to investment and entrepreneurship, the more employers there will be. And the more education a state's citizens have, the more advanced the industries they can support.
"Both national and state policy are all designed to restoring a broad middle class that is factory based," says Mr. Glazer. "But manufacturing will not be the driver of the middle class. The path to Michigan's prosperity is knowledge."
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