Experts attribute Michigan’s 30-year lag in economic growth to focus on manufacturing, low taxes

By Kyle Davidson, Michigan Advance

Michigan’s manufacturing sector is a central part of the state’s economic policy, but experts argue Michigan’s focus on factories has harmed its development over the last 30 years.

Michigan Future Inc., a nonpartisan organization focused on promoting Michigan’s success in a knowledge-driven economy, hosted a roundtable Thursday to discuss potential solutions to the state’s lagging economic policy. 

Michigan Future President Lou Glazer and Rick Haglund, a longtime journalist specializing in economic policy, compared the state’s past 30 years of economic policy to policy success in another Midwest state, Minnesota.

While median household income was roughly the same for both states in the early ‘90s, Minnesota now stands ahead of the nation in income while Michigan stands behind. 

This summer, Minnesota reached the lowest state unemployment rate ever, at 1.8%. In July, the average wage for the state’s private sector workers was $34.43 an hour. 

In comparison, Michigan ranks 43rd in state unemployment and tails the rest of the nation for average private sector worker wages by more than 7%.

If Michigan had the same unemployment rate and labor participation rate as Minnesota, there would be 630,000 more Michiganders working, Glazer said. If the average private sector wage was the same, year round wages in Michigan would be $9,000 higher. 

While Minnesota has flourished, Michigan has fallen farther behind the nation over the last 30 years, with the trend continuing regardless of the party in control in Lansing and in Washington, D.C., Glazer said. 

Haglund attributes Minnesota’s success to the state’s investments in education and placemaking efforts, while Glazer noted its participation in high-paying industries and success in bringing in college-educated workers from other states. 

“I think the reality is that what made Michigan rich was not making cars, it was inventing both the vehicle and the way we make the vehicle,” Glazer said.

“One hundred years ago, we were Silicon Valley; we were the place that was creating the next economy,” Glazer said. 

For the last 30 years, Michigan has competed for factories, particularly auto factories, with a focus on big incentive packages and low business taxes, Glazer said. 

Meanwhile, Minnesota invested in public education and placemaking efforts, creating spaces where talent wants to live and work, Glazer said before noting the importance of transit in placemaking investments. 

Minnesota has the highest number of Fortune 500 companies per capita, with 16 homegrown companies. Additionally, the state also houses the headquarters of Cargill, the nation’s largest private company, and the operational headquarters for Medtronic, a leading global healthcare technology company. 

“This was not a situation where Minnesota went out and, you know, threw a bunch of incentives that companies to get them to move their headquarters to Minnesota,” Haglund said. “They use economic development incentives like everybody else, but they’re not nearly as aggressive as many other states in that regard.”

For 50 years, Minnesota’s economic strategy has focused on a public investment base, particularly investment in education from birth through college, Glazer said. 

As the economy shifts from a factory-based economy to a knowledge-based economy, Minnesota’s investments have opened it up to participate in high-wage industries including technology, health care, finance, insurance, information and software and telecommunications, Glazer said. 

While Minnesota has not cut taxes during its 50-year investment period, Michigan has cut business and income taxes. During the Great Recession, the largest cuts in Michigan were made in education and revenue sharing that provides funding for local governments. This slaughtered education and placemaking efforts, which also declined after GOP former Gov. Rick Snyder cut business taxes last decade, Glazer said. 

While Minnesota has followed a public investment agenda, Michigan has followed a low-tax agenda for the last 30 years. By not investing in education and placemaking, Michigan has excluded itself from participating in the high-wage, high-growth, knowledge-based part of the economy, Glazer said. 

The last four years of the Gov. Gretchen Whitmer administration have not broken with the state’s 30 -ear pattern of bipartisan support for low taxes and large incentives for businesses, despite investing state surplus money American Rescue Plan Act funds into early childhood and K-12 education, as well as a scholarship fund, Glazer said. 

Alongside these investments, the state has continued to increase business incentives. Whitmer this week signed a bipartisan budget supplemental with almost $1 billion for more business tax breaks.

Whitmer is up for reelection against Republican Tudor Dixon, who has proposed eliminating the state’s income tax through a phaseout to be more in line with GOP states like Texas.

In terms of the state’s economic future, Glazer said there are positives and negatives. 

The state’s biggest challenge is embracing the knowledge-based component of the auto industry as companies move toward producing electric vehicles. While new battery and electric vehicle assembly plants are good news, the sector that invents and develops the mobility industry is more important to the state, Glazer said.

While Haglund noted Whitmer’s efforts to reverse cuts to education and state revenue sharing, Glazer praised her effort to fund parks, which are important in placemaking and attracting talent.

Glazer also said the bipartisan passage of Senate Bills 842 and 844, which create the Michigan Achievement scholarship, is the first time in a decade where the Legislature has agreed to invest in higher education and four year degrees.  

However the state will need to make efforts to retain and attract college grads, he said.

“Places that import talent are the economic winners these days,” Glazer said. 

Disclosure: Rick Haglund is the Michigan Advance’s business columnist.

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