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Revitalizing Michigan Depends on a Knowledge-Based Economy

By Lou Glazer

Detroit Neighborhood

Michigan needs to place a much higher
value on education and an entrepreneurial spirit.

For two decades—whether the nation’s economy is expanding or contracting—Michigan’s economy has been going through a profound structural transformation from an industrial to a knowledge-based economy. How well Michigan transitions to this new economy will, in large part, determine whether we get more prosperous or poorer. As detailed in the Michigan Future report A New Agenda for a New Michigan, making this transition is now the most reliable path to prosperity (view the complete report at michiganfuture.org).

From January 1990 (also a recession year) to February 2010, low-education attainment industries employment rose 5 percent compared to 39 percent in the high-education attainment industries. When the current severe downturn ends, knowledge-based industries will continue to be where job growth is the strongest and average wages are the highest.

There are some hard truths that Michiganians need to confront: Michigan’s prosperity last century was built primarily on good-paying, low-skill jobs. Those jobs are gone forever. The auto industry will never again be the major engine of prosperity in Michigan. Even if the domestic auto industry survives the current downtown, it will be substantially smaller, employ far fewer, and will pay its workers less with fewer benefits. Manufacturing makes up about 10 percent of the American workforce today and is declining. It is no longer a sustainable source of high-paid jobs—nor is it a source of future job growth. So whether it’s traditional Michigan industries like autos and furniture, or new industries like alternative energy, factory jobs will not be a source of new high-paid jobs for Michiganians.

key termsTo be clear, Michigan Future is not advocating that Michigan abandon these industries—they are and will be important parts of the Michigan economy. But they are not a path to high prosperity or a broad middle class. The world has changed fundamentally. We either adjust to the changes or we will continue to get poorer compared to the nation.
Our state is at the bottom of the national rankings in both employment and per capita income growth. Michigan Future is focusing on identifying a path to better position Michigan to succeed in the flattening world economy of the future—a path that will return Michigan to high prosperity, measured by per capita income consistently above the national average in both national economic expansions and contractions.

After collecting data for states and the 55 metropolitan areas with populations of 1 million or more plus Lansing and Madison, WI, we found that almost all states with the highest per capita income:

  • Are over-concentrated compared to the nation in the proportion of wages coming from knowledge-based industries;

  • Have a high proportion of adults with a four-year degree or more;

  • Have a big metropolitan area with even higher per capita income than the state;

  • And, in that big metropolitan area, the largest city has a high proportion of its residents with a four-year degree or more.

More specifically, we found:

  • The larger the metropolitan area, the higher the per capita income and the greater the concentration in both knowledge-based industries and college-educated adults.

  • It is the broad-based knowledge economy where most of the good paying job growth is occurring in the American economy. High-education attainment industries in 2008 were 44 percent of national employment and 58 percent of the wages earned by American workers. The average wage in these industries is nearly $60,000 as compared to nearly $34,000 in all other industries. Most importantly, high-education attainment industries accounted for 82 percent of the job growth in America from 2001-2008.

  • Metropolitan Detroit and metropolitan Grand Rapids and, to a far lesser degree, metropolitan Lansing are the main drivers of a prosperous Michigan. In fact, it is hard to imagine a high-prosperity Michigan without an even higher-prosperity metropolitan Detroit.

Employment nationally in the high-education attainment industries is highly diversified across the economy. These industries are not narrowly focused in industries commercializing new technologies. They are concentrated in, but not limited to, five broad sectors of the economy:

  • information,

  • finance and insurance,

  • professional and technical services (including management of companies),

  • health care and

  • education.

Detroit Neighborhood

High Education attainment industries accounted for 82 percent of job growth in the U.S. from 2001-2008.

In fact, health care and education, which dominated job growth from 2001 to 2008, account for about 40 percent of the employment in high-education attainment industries.
Michigan and its largest metropolitan areas are lagging in the transition to a knowledge-based economy. In 2008, Michigan ranked 36 in per capita income, an unprecedented drop of 18 places in a relatively short eight-year period. It ranked 32nd in the share of wages from knowledge-based industries and 34th in proportion of adults with a bachelor’s degree or more.

In 2008, metro Detroit ranked 36th in per capita income of the 55 metropolitan areas with populations of 1 million or more. It ranked 33rd in knowledge-based industries concentration and 37th in college attainment. Metro Grand Rapids lagged even further. It ranked 53rd in per capita income, 54th in knowledge-based industries concentration and 45th in college attainment. The story is basically the same for the Lansing region, which substantially trails metropolitan Madison, Wisconsin on most of our metrics.

We concluded that what distinguishes successful areas from Michigan is their concentrations of talent, where talent is defined as a combination of knowledge, creativity and entrepreneurship.

Our best guess is that unless we substantially increase the proportion of college-educated adults—particularly in our biggest metropolitan areas—Michigan will continue to trend downward in the per capita income rankings towards the bottom 10.

There are no quick fixes. The Michigan economy is going to continue to lag behind the nation for the foreseeable future. But there is a path back to high prosperity. As laid out in the report A New Agenda for a New Michigan, our framework for action is:

  • Building a culture aligned with (rather than resisting) the realities of a flattening world. We need to place a much higher value on learning, an entrepreneurial spirit, and being welcoming to all.

  • Creating places where talent—particularly mobile young talent—wants to live. This means expanded public investments in quality of place with an emphasis on vibrant central city neighborhoods.

  • Ensuring the long-term success of a vibrant and agile higher-education system. This requires expanded public investments in higher education—particularly the major research universities.

  • Transforming teaching and learning so that it is aligned with the realities of a flattening world.

  • Developing new private and public sector leadership that has moved beyond both a desire to recreate the old economy as well as the old fights.

Michigan needs leadership that is clearly focused, at both the state and regional level, on preparing, retaining, and attracting talent.

 

Lou Glazer is president and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world-class community in a knowledge-driven economy. Its work is funded by Michigan foundations. You may reach Lou at 734-747-8120 or
lou@michiganfuture.org.


 

 

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