Blooming Diversity in Michigan's Economy

We’ve been here before. At the turn of the last century, with Michigan’s virgin timber fully harvested and national bank panics choking economic growth, Michigan’s prospects were foggy. Yet, out of the fear and uncertainty rose some of the greatest names in 20th Century American business…

Ford… Dow… Kellogg…

Today, the tide is turning anew.

“The perceived risk in joining a small company or starting your own business is rapidly shrinking in Michigan as many large corporations — where job security was long assumed — are laying off workers in the thousands,” writes Nathan Bomey in the latest Ann Arbor Business Review. “The shift appears to be closing the gap between the uncertainty of starting a company and loss of stability in corporate positions. As a result, today’s economic climate could boost Michigan’s entrepreneurial ambitions even as the unemployment rate ticks up to 10.6 percent.”

And Governor Jennifer Granholm set a fantastic entrepreneurial tone in her state of the state address this week.

“The fact that our auto companies have faced the real threat of bankruptcy only confirms that there no other long-term course for Michigan in the 21st Century than to diversify.”

Granholm detailed a number of economic achievements for which she and the state’s official economic development team deserve a good deal of credit, including:

But for each trendy development strategy there are questions. The gracious incentives that have attracted such moviemakers as the producers of box office hit Gran Torino come at considerable cost. State budget experts estimated a net loss in tax revenues from the incentives at roughly $100 million last year. And a bipartisan group of legislators is beginning to question whether there’s sustainable growth behind the glitz.

Similar questions exist around alternative energy, especially the wind energy business around which the governor has created much hoopla. A team of University of Michigan MBA students (including an engineer, a global strategist for a major bio-products company, and me) recently questioned the long-term viability of wind power. Our concerns included the cost of wind production, the current inability to store wind energy, the inherent inconsistency of wind (and the costly need for back-up power generation systems when the wind doesn’t blow), the need — for years to come — for government subsidies to make wind power generation affordable, and chronic transmission system bottlenecks.

“Different ideas are being investigated to mitigate the concerns of wind, but the future remains unclear and very risky,” the students concluded. “Even if the technical challenges can be overcome, the integration of wind power will still be a significant economic and political issue. And electricity customers’ key criteria are reliability and cost — even if the reliability issues can be overcome, will the customers be willing to swallow additional cost? We conclude the long-term answer is no.”

Does that mean Granholm and Michigan are wrong to push for wind power manufacturing? No. It’s just another caution against magic-bullet thinking. The name of the game in the early 21st Century is diversification.

So, it’s heartening to place renewable energy development next to the recent news out of East Lansing that IBM will build a one-of-a-kind global applications delivery center at Michigan State University. It’s a fantastic example of how Michigan can leverage its competitive advantages. IBM suddenly sees a need to reverse course, and return to on-shoring after a decade or more of moving jobs and talent and economic development overseas. Michigan is simply a quiet, stable place, relatively free of terrorism threats and mass political upheaval. From an infrastructure and real estate perspective, we’re also much cheaper than the coasts. The IBM deal could bring 1,500 jobs or many more through spin-off operations.

Michigan’s diversification doesn’t begin and end with turbines and IBM. Here’s a list of 150 fast-growing Michigan companies — literally from soup to nuts and bolts. Check out the list, especially if you’re one of those recent college grads who thinks you must flee Michigan to feed yourselves.

So, while the national media continues to laugh at Michigan, our state is transforming in quiet ways, moving toward a more diverse economy, moving toward new kinds of prosperity. We’ve been here before…

“By the end of the nineteenth century a highly diversified manufacturing economy, centered in the southern part of the Lower Peninsula, had become well established in Michigan,” authors Willis Dunbar and George May wrote in “Michigan: A History of the Wolverine State.” “As yet, however, manufacturing had not replaced in the public’s mind the image that the earlier agricultural, lumbering, and mining operations had created.”

We’ve been here before.