Some so-called advanced thinkers who have been claiming that manufacturing will "vanish" over the next generation would have been startled if they had attended the CEO Forum put on last month by the Michigan Manufacturers Association.

I was asked to moderate a panel on the "Michigan manufacturing transformation and what it means to the state." The participants were some of our top manufacturing executives  and what they had to say made my eyes widen.

Manufacturing, they assured us, is anything but dead.

In Michigan, of course, manufacturing plays an enormous role, accounting for nearly a quarter of gross state product (almost twice the average national rate) and 15.3 percent of the state's workers. Nationwide, barely one in 10 workers toil in manufacturing today.

But manufacturing employment in Michigan has been plummeting for years. That's partly the result of off-shoring of low-skill jobs to low-wage countries like China, but also the consequence of astonishing productivity gains.

So, does that mean that manufacturing has no future in Michigan's economy? Not at all. Frank Fountain, senior vice president of DaimlerChrysler AG's Chrysler Group, characterized the future of the sector as "lean, smart, moving forward."

How is that possible, with Michigan hemorrhaging jobs and the economy the raging political issue?

A little dose of history might help us understand, especially when we consider the evolution of farming, once the mainstay of the American economy. In 1900, 40 percent of U.S. jobs were on the farm. Today, less than 1 percent toil in agriculture.

But that group number of farmers now produces enough food of high enough quality to feed the entire world thanks to fantastic increases in productivity.

Manufacturing accounted for around 40 percent of all U.S. jobs in 1950. That had fallen to 14 percent by 2000. Many economists estimate that will fall further to less than 10 percent by 2025. Once again, that's mainly the consequence of enormous increases in productivity.

So what does this mean for us in Michigan? According to my panelists, it's all about autos. The special problems of manufacturing in our state are in very large part the result of particular problems of the domestic auto industry. That's because their business model is now out of sync with the globalizing world economy.

Restrictive work rules imposed by labor contracts hinder productivity growth. "Legacy costs" such as fat pensions and gold-plated health programs, add thousands to the cost of each car.

Yet once these problems get worked out, the future looks pretty bright. Peter Alvarado, vice president of U.S. Steel International, offered some interesting comparisons. The steel industry in the 1990s, he explained, went through much the same kind of transition the auto industry is experiencing today.

High wages and restrictive work rules made the industry's cost structure uncompetitive. Plants were closed, workers laid off. Companies went broke or consolidated. But a smaller and healthier steel industry arose from the wreckage; an industry that was more productive, competitive and profitable.

Look for the domestic auto industry to go much the same way. Already, factories like the Chrysler engine plant in Monroe County are showing that a skilled labor force (community college degree or better required), sane work rules and flexible labor contracts can result in productivity gains that make the plant cost competitive  even paying United Auto Workers' wages.

Nobody wants to talk about it, but plants like that will set the pattern for the national labor contracts that will be renegotiated in 2007. Already, the auto industry is closing plants, laying off employees, and shedding costly pension and health-care practices.

Everybody hopes that the result will be a healthier, if smaller, industry. And a lot of it will be happily located right here in Michigan.

Toward the end of our discussion, talk turned to what, if anything, the state government can to do help. In a series of straw votes, the manufacturing CEOs present produced some surprising conclusions. Making sure we have a quality educational system, both K-12 and higher education, was deemed the most important factor in the survival of manufacturers. Education was ranked ahead even of labor relations, restrictive union contracts and state tax policy.

Those who claim that cutting taxes alone is the recipe for a healthy Michigan economy ought to sit up and take notice.

Speaking of which ... at lunch, former Gov. John Engler advocated a "no skills, no sports" policy for high schools and urged that schools develop a specific skills plan for every student.

His remarks hammered home the message that in the game of economic survival, skills, talent and knowledge trump everything else.

Gov. Jennifer Granholm, GOP challenger Dick DeVos and all the rest of us would do well to pay close attention.