A knowledge-based economic development strategy

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A year ago, Rivian, which often is described as the Tesla of trucks, announced it was moving its headquarters from suburban Detroit to Irvine, California. The announcement received hardly any Michigan press coverage. And, even more concerning, it garnered no reaction from Michigan’s political and business elites.

Two years earlier, Amazon announced that despite big subsidy offers from Detroit and Grand Rapids, no community in Michigan made the final 20 for its Amazon HQ2 and resulting 50,000 high-paid jobs. That received lots of Michigan press attention for a week or so. And statements of concern by Michigan’s political and business elites. But that, too, lasted for a short while and then everyone went back to business as usual.

Contrast that to the reaction to Ford’s announcement that it was locating three battery plants and an electric vehicle assembly plant in Tennessee and Kentucky. That announcement generated wall-to-wall statewide news coverage. And there were alarm bells sounding from Michigan political and business elites.

The fact that losing Rivian HQ and Amazon HQ2 generated little or no attention and losing the Ford battery plants generated calls from across the political spectrum for the state to spend oodles more in subsidies for auto companies should not be a surprise. For decades, the Michigan economic development playbook has been first and foremost about being competitive with southern states for auto-related factories.

There’s one big problem: That factory-based playbook is decades out of date. Michigan’s factory-based economic development strategy leads to Michigan permanently being a low-prosperity state.

The reality is that production jobs (blue-collar factory workers) are a declining proportion of the labor market, and those jobs now have median wages below the median for all workers. That is true not just in metro Grand Rapids and all of Michigan, but also in states like Tennessee, which we are told is the model Michigan needs to pattern itself after.

The high-growth, high-wage segment of today’s American economy is represented by the Rivian headquarters and Amazon HQ2. The American middle class is now dominated by professionals and managers, not by factory workers. Michigan can only return to being a high-prosperity state, a status it enjoyed for most of the 20th century, if it adopts a knowledge-based economic development strategy. 

The factory-based economic development playbook is dominated by low taxes, particularly low business taxes, and big subsidies to companies for each factory located or expanded in your state. The knowledge-based economic development playbook is anchored by public investments in education from birth through college and creating places where mobile talent wants to live and work.

Minnesota, the Great Lakes region’s most prosperous state, for decades has been at the leading edge of developing and deploying a knowledge-based economic development playbook. When you look at the economic well-being of workers in Tennessee and Minnesota, you see clearly that the path to prosperity is in retaining and attracting enterprises like Amazon HQ2 and Rivian HQ.

Minnesota has a much higher median hourly wage than Tennessee: $22.41 vs. $18. That goes with a substantially higher employment-to-population ratio: 65% of Minnesotans 16 and older worked in 2020 compared to 56% of Tennesseans. So, Minnesotans work more and earn more than Tennesseans. That results in employment earnings per capita of $38,133 in Minnesota compared to $31,751 in Tennessee. That differential is the major contributor to Minnesota being 12th in per capita income while Tennessee is 38th.

Production jobs in both Minnesota and Tennessee have median wages below the statewide median: In Minnesota, it’s $19.30 compared to $22.41; in Tennessee, it’s $17.17 compared to $18. Production jobs in both states are a declining share of the workforce. It’s down from 13% in 2001 to 8.6% in 2020 in Tennessee, and down from 9.6% in 2001 to 7.6% in 2020 in Minnesota.

The exact opposite is true for the core occupations at enterprises like Amazon HQ2 and Rivian HQ: management, computers and math, architects and engineers, and scientists all are valued. Median hourly wages in those occupations in Minnesota range from $53.61 in management to $34.77 for scientists, and from $42.79 in management to $29.89 for scientists in Tennessee. And the share of jobs in those occupation groups combined have been growing in both states: Up from 9.5% in 2001 to 10.7% in 2020 in Tennessee, and up from 9.8% in 2001 to 11.9% in 2020 in Minnesota.

The path to prosperity for Michigan is to become more like Minnesota, not Tennessee. To do that requires preparing, retaining and attracting talent as the foremost economic development priority. The path to a high prosperity is anchored by Michigan shifting from an emphasis on being a low-cost/high business subsidy state to a state that develops, retains and attracts human capital as its core strategy for economic success.

Lou Glazer is president of Michigan Future Inc.

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