SPECIAL REPORT: Inside Michigan's economic growth zones

By John Foren

The positive economic numbers for Michigan are eye-popping and jolting.

One economist says they “did shock me.” Others say they are the untold story of a state whose national reputation is being fashioned as an industrial graveyard and cautionary tale.

You may have thought this decade has brought us only nation-leading unemployment statistics and auto industry blues. In fact, though, there have been a surprising number of economic success stories in Michigan communities in the 2000s, according to figures buried deep in U.S. Bureau of Economic Analysis statistics released this fall.

“It’s the most optimistic stuff I’ve seen in a while,” said Don Grimes, a prominent researcher at the University of Michigan’s Institute for Research on Labor, Employment and the Economy.

How optimistic? How about 45 percent manufacturing growth in Battle Creek? Or a 59 percent rise in the finance and insurance industries in Flint? Or a substantial increase in the manufacturing and real estate markets in Benton Harbor?

The figures, while more complex than they may appear, offer a glimpse into the economic promised land for Michigan. They provide a good indicator of what’s working in economic strategy:

1) Playing to an area’s established strengths instead of trying to do what’s hip and new

2) Promoting knowledge-based industry, such as engineering and the health sciences.

Regional Success

The federal statistics cover gross domestic product for dozens of industries statewide and by metropolitan areas from 2001-2008. GDP is a basic economic tool that measures the market value of goods and services in an industry.

Click here to see industry and market-by market summaries across Michigan.

Among the pockets of prosperity (adjusting for inflation):

Kalamazoo: A 44 percent increase in real estate and rental and leasing, along with a 42 percent jump in professional and technical services.

Lansing: A 32 percent rise in the finance and insurance industry.

Grand Rapids: A 21 percent growth in the information economy.

Statewide: Double-digit increases in arts, entertainment and leisure spending, and health care throughout the state.

What the stats show is that while jobs are falling by the wayside, productivity is going up in notable industries, which can lead to more wealth, Grimes said.

Charles Ballard, an economics professor at Michigan State University, says the numbers belie the state’s reputation as a monolithic poster child for the Great Recession.

“We need to think of Michigan as a mosaic with many pieces, some of which are doing relatively well,” he said.

While Michigan has lost more than 800,000 jobs this decade, employment in the health care sector is up, and other industries are relatively constant, he says.

“The problems in manufacturing make it seem like everything is the same shade of dark gray when there are some bright colors out there,” Ballard says.

He says the growth reflects how Michigan’s future is dependent on a highly skilled, highly educated workforce. That’s evidenced in the Lansing area by IBM’s decision to open a software development facility on the Michigan State University campus and the federal Facility for Rare Isotope Beams also being developed at MSU.

Growth in Grand Rapids

That kind of tech growth is part of the economic optimism in the Grand Rapids area. The region’s information economy – which includes Web development, among other areas – grew from an inflation-adjusted $638 million in 2001 to $771 million in 2008, according to the Bureau of Economic Analysis.

“We are going through a complete redrawing of the map of what business we have in the state,” said Birgit M. Klohs, president of The Right Place Inc., the lead economic development agency in Grand Rapids, and a board member of the Michigan Economic Development Corp.

Klohs says the area has seen a growth in small entrepreneurial tech companies, the three, five, and 10-person shops. Plus, health and life sciences and manufacturing are on the rise in a region that’s fared better than most in Michigan.

“There are sectors that continue to do well, despite it all,” Klohs said. “It’s a story that never gets told. … It gets all sort of subsumed by every doom and gloom story.”

It comes down to analyzing your “core competencies,” Klohs says.

“For me, 15 years ago to say I would build the life sciences industry would have been folly,” she says. Now, though, with the world-class Van Andel Institute – which just opened a huge, new medical research addition – it’s easy for Grand Rapids to market itself for health care business.

Expanding Opportunities

Part of a Michigan success story is aiding existing businesses in branching out instead of just relying on luring new industry to town.

Global Forex Trading, an online currency trading service, is expanding its headquarters and increasing jobs with a move from Ada to Grand Rapids Township. And Holland’s S2 Yachts Inc. is diversifying by creating a new company, Energetx Composites, to begin manufacturing wind turbine and related parts.

“That’s what communities have to do,” Klohs says.

Battle Creek has undertaken the same strategy to a large degree, and with surprising success, says Carl Dean, president and CEO of Battle Creek Unlimited, the region’s economic development arm.

The area’s inflation-adjusted economy grew 12 percent from 2001-2008, the largest overall rise among Michigan’s metro regions. That was fueled by a manufacturing rise from $1.2 billion to nearly $1.8 billion.

“We’ve seen communities in states go after fads,” Dean says. “If life sciences is the popular thing, they say they want to be the life sciences capital.”

Instead, like Grand Rapids, Battle Creek examined its economic assets and they weren’t hard to find. As the home of Kellogg, food services was a natural.

Battle Creek Unlimited helped spur the new National Center for Food Protection, after identifying a need for food inspectors and safety. Covance Inc., a New Jersey-based drug development and food testing company, just announced a $14 million nutritional and food safety lab in Battle Creek. The project will be affiliated with the national center.
Battle Creek also is working to build and maintain its aviation ties, which includes an Air National Guard base, a Duncan Aviation facility – which makes aircraft parts – and serving as home to Western Michigan University’s College of Aviation.

Brain Power in Kalamazoo

Relying on the tried and true is part of the equation, and so is promoting brain power. Communities such as Kalamazoo are at the forefront of efforts to capture businesses whose forte is knowledge, such as software, engineering, and design of medical devices.
That’s one reason the area’s professional and technical services – defined as requiring a high degree of expertise – grew from $384 million to $546 million between 2001 and 2008.

“It’s going to be all about talent in the long term,” said Jerome Kisscorni, executive director of the Kalamazoo Economic Development Corp. “We have talent here and we nurture the talent.”

The Kalamazoo area has turned its tech heritage as home to the old Upjohn Corp. and Pfizer Inc. to its lasting advantage, even as the firms disappeared or cut their workforce there.

As Pfizer staff reductions loomed, Kalamazoo’s regional economic development leaders encouraged scientists and other entrepreneurs to start their own companies in a business incubator called the Southwest Michigan Innovation Center.

Leaders also started a multi-million dollar venture capital fund through private investors to help support life sciences companies. And Western Michigan University formed a Biosciences Research and Commercialization Center to help fund startups.

That has helped the region create life sciences jobs by the thousands, including at Kalamazoo-based Stryker Corp., which manufactures medical devices and equipment.

The efforts – involving a broad coalition of private industry, the state, WMU, and others – are also aimed at countering the brain drain of young people to other states.

“That’s our biggest fear. We’ve got these students out of Western who can’t wait to get out of town. How do you retain them?” Kisscorni said.

The highly touted Kalamazoo Promise can’t hurt. Officials say it’s hard to say whether the program — in which anonymous donors agreed to fund college tuition for Kalamazoo Public School graduates – is responsible for the area’s economic growth.

Increased housing at WMU may be more responsible, Kisscorni said.

But besides great publicity for the community, the Promise has helped shield Kalamazoo from some of the residential housing woes felt in other Michigan regions, he said.
Kalamazoo’s overall efforts, especially its venture capital funding and business alliance with WMU, are cited as an example for the rest of the state by John Austin, director of the Great Lakes Economic Initiative at the Brookings Institution and a lecturer at the University of Michigan.

“We’re not going to bend metal in Michigan in the future,” Austin said. “We’re going to design the new hip that’s going to be engineered and carefully evaluated for old people that need a hip replacement.

“The thing we don’t appreciate is that our transition to a high-end smart knowledge service industry is well under way in Michigan.”

Signs of Hope in Benton Harbor, Flint

Two old-line manufacturing communities, Benton Harbor and Flint, are trying to make the transition.

Benton Harbor;s location on the rosier west side of the state has helped its economy grow at a higher rate than most other areas. Officials there are heartened by the Bureau of Economic Analysis figures, which show an inflation-adjusted 11 percent growth in manufacturing since 2001.

“We’re a little bit taken aback by them,” said Greg Vaughn, senior vice president and chief operating officer of Cornerstone Alliance, the economic development arm in Benton Harbor.
Whirlpool Corp.’s continued presence there helps, as does the community’s proximity (about 100 miles) to Chicago. The latter may have contributed to the 19 percent rise in real estate GDP, officials said.

“That definitely plays a role,” Vaughn said. “You can probably live here and drive to Chicago for work as quick as you can if you live in one of its suburbs.”

While overall GDP numbers have been a downer for Flint this decade – fueled by a huge drop in manufacturing – the finance and insurance sector is one bright spot. The large increase in that area reflects a housing boom the Flint area continued to enjoy until 2006, thanks to some remaining high-paying General Motors jobs, said Stuart Forsyth, community bank president for Citizens Bank in Flint.

“There were some really good years in there from an economic growth standpoint,” Forsyth said. “Now I think we’ve bottomed out and we’re in a sustainable, slower-growth environment.”

Part of the community’s strategy harkens back to Austin’s smart-knowledge industries.
Flint-area leaders have set their sights on defense, aerospace, and alternative energy businesses, among others.

“We’re a resilient community,” said Tim Herman, CEO of the Genesee Regional Chamber of Commerce and a board member of the Michigan Economic Growth Authority. “We have put specific programs in place and we’ve made significant progress in spurring economic growth and, quite frankly, we’ve been working on diversification for a number of years.”