Tackling the Michigan Problem
10.01.07, 12:00 AM ET
Is there any link between the struggling state of Michigan’s economy and the University of Michigan football team’s shocker loss to Appalachian State, called “the greatest upset in the history of college football” by sportswriter John Feinstein? Call it a metaphorical stretch, but I think there is. Here are some commonalities:
--Insularity. Why were the fifth-ranked Wolverines, with their glorious football history, playing an NCAA Division 1-AA team? Sure, majors often warm up with a patsy. But dropping down a whole division smacks of an unwillingness to benchmark against one’s peers.
For years Detroit’s Big Three automakers used to benchmark only against each other and not against the Europeans and Japanese. If you spent any time in Detroit in the 1970s through the 1990s, you discovered how insular it was. My colleague Jerry Flint, who has forgotten more than I could ever learn about the car business, says Detroit needs car guys running car companies. I’m not so sure. Outsiders like Alan Mulally at Ford and Bob Nardelli at Chrysler might be just what Detroit needs now.
Here’s another contributor to insularity. A perk for Big Three brass hats is use of a new car, always washed and perfectly maintained. It’s easy to think your own cars are the best in the world when your personal chariot is kept in showroom condition.
--Lack of Innovation. A favorite memory of mine is the 1972 Rose Bowl, when underdog Stanford kicked a last-second field goal to beat highly ranked Michigan, 13 to 12. What made the upset delicious was the complaint of Michigan fans that Stanford didn’t play “real football,” i.e., Stanford passed the ball and used trick plays, while Michigan, predictably, ran the ball. As if innovation were somehow unfair.
Similarly, the Michigan economy is locked into the Old World era of union labor and high taxes. Unions protested the new technique of flexible manufacturing pioneered by Toyota and embraced around the world. Michigan’s high taxes created a vicious cycle: Investors and entrepreneurs left the state, thus eroding the tax base, thus fooling politicians into raising taxes on those left behind.
--Loss of Talent. The Wolverines and the Big Ten had one huge advantage during the 1920s–60s. Most Southern colleges were segregated. African-American high school stars from the South would head north for college. Today they don’t have to, which is why the Southeastern Conference has become the country’s top football league.
The state of Michigan has suffered similar losses of talent: Google cofounder Larry Page; Sun Microsystems cofounders, Scott McNealy and Bill Joy; and Microsoft’s Steve Ballmer, all have Michigan roots. All departed.
By now you might be ready to depart this column because I’ve stretched the football metaphor too far! Okay. Let’s move on and look at what Michigan must do to revive its economy.
--Benchmark From the Best. While it might be useful to study hot spots like Boston, Seattle and Silicon Valley, Michigan’s more relevant lesson can be found in nearby Minnesota. The Minnesota economy hums because it is remarkably diverse. Its anchor companies span the range from agriculture and food products (Cargill, General Mills) to medium tech (3M) to aviation (Cirrus Design) to health care (Medtronic) to retail (Best Buy, Target) to a cluster of tech startups in the southwestern suburbs of Minneapolis. Such diversity protects Minnesota from industry slumps.
As in Michigan, Minnesota is not lightly taxed. But in Minnesota the taxes don’t all go to waste. Minnesota’s public schools consistently rank among the top in the nation. Biking trails, wellkept lakes and other public amenities make life nice for its middle class. Corruption in government is rare in the Gopher State. Of course, if neighboring Wisconsin were to lower its taxes, Minnesota would have to do the same or feel the pain.
--Practice Ichironomics. Think Detroit has it bad? Consider the fall and comeback of Spokane, Wash. In 1974 Spokane hosted the World’s Fair, its theme being “Celebrating Tomorrow’s Fresh New Environment.” President Richard Nixon opened the fair, but his and Spokane’s fortunes soon went south. The 1982 U.S. recession hit Spokane especially hard. America recovered by early 1983, but Spokane, dependent on old industries such as forestry and railroads, struggled throughout the 1980s.
Today Spokane is ranked by FORBES as the 20th-best business city in the U.S. How did the city do it? My colleague Mark Tatge profiled Spokane in our Apr. 23 issue. Tatge wrote: “Cheap electricity, cheap land and favorable taxes are luring entrepreneurs from the coasts. … Five years ago the economy began to surge. Washington State has no personal income tax, no corporate income tax (corporations pay on gross receipts only) and relatively low property and sales taxes. Electricity from the hydroelectric dams on the Columbia and Spokane rivers is 50% cheaper than in California.”
Spokane, like Minneapolis-St. Paul, refuses to bet the economy on one or two industries. Rather, it practices what one city booster calls “Ichironomics. Like the Seattle Mariners’ center fielder, Ichiro Suzuki, we try to hit singles and doubles. We want to improve the overall conditions for small businesses, not chase the large employer.”
Good lessons, Michigan. Now, about those Wolverines …