Lakefront Fixer-Upper

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That
is how a real estate listing for the nation’s 26th state might read
today. Michigan, once an industrial and economic giant, is among
the fastest failing states in the country. A look at how this happened
is revealing and instructive.

Michigan’s
economic destiny has traditionally been tied to the City of Detroit.
Although it is not the state capital, Detroit and automobiles are
what most people associate with Michigan. Certainly that was true
of the thousands who migrated to Michigan during the first 50 years
of the 20th century to work in the automobile plants
and related industries from which fortunes and empires were built.

From
1920 to 1940 that migration made Detroit the nation’s 4th
largest city. By 1950, Detroit’s population had peaked at nearly
2 million. However, since the 1970′s Detroit has seen its population
plummet by almost one million. Studies predict that the trend will
continue with Detroit’s population falling to 700,000 by 2035.
Some of that population drop can be explained by migration into
Detroit’s suburbs which are home to a population in excess of four
million people.

Yet, the general trend for the state has been net
population loss
since 1965. Similar trends are present for Michigan
businesses and jobs. Michigan has experienced six straight years
of job loss, losing an estimated 370,000 jobs through 2008.
Michigan ranks first among all states in the percentage of unemployed
and one of every eight state residents is currently receiving food
stamps
. Detroit’s foreclosure rate is almost five times the
national average with one in every eighty homes in foreclosure,
making the city first in foreclosure rates.
As of 2005 Michigan ranked 47th
in personal income growth. Numbers like this have not been seen
in Michigan since the Great Depression.

Why
are people and businesses deserting Michigan in droves? The answers
are not complex. Neither are the solutions.

FORECAST:
COLD AND CLOUDY?

Some
argue that Michigan is a victim of a younger generation shift to
Sun Belt locations. Clearly, Michigan is not a state for those who
despise winter. Heck, even our state bird — the robin — flies south
to avoid it. Yet, Chicago, with much tougher winters, continues
to thrive and attract large numbers of college graduates just across
Lake Michigan.

STATE
OF THE UNIONS

It
is economic climate more than physical climate which is driving
people away from Michigan. Michigan is a state mired in a union
past. UAW, AFSCME, AFL-CIO and the Teamsters continue to dominate
state politics and plague the private sector despite their growing
irrelevance and impediment to business development. Those who benefited
from union sway in decades past are now in denial about the changing
environment in which they and their children must survive.

LIVE
BY THE BUMPER, DIE BY THE BUMPER

Primary
among Michigan’s problems is the role of the auto industry. For
decades it was Michigan’s buffet where everyone could feed and get
fat. Fat salaries and wages, fat prices on fat cars with fat appetites
for fossil fuel. The Big Three viewed themselves as immune from
good business practice. Management never seriously challenged union
demands, opting instead to simply give in and pass the increased
costs on to consumers.

They
demanded customer loyalty by labeling any state resident who would
dare purchase a foreign car as unpatriotic. This rule was not applied
to those who bought expensive German imports, only Asian manufacturers
were considered the enemy. This despite the fact that while the
Big Three were laying off auto workers in droves and opening newer,
more competitive plants abroad, Honda and Toyota were building manufacturing
facilities in the U.S. and hiring American workers.

The
Big Three have long ignored the wave of foreign competition and
the effect of rising fuel costs. The result has been a precipitous
plunge in their sales and stock prices to the point that they are
flirting with bankruptcy.

ADRIFT
IN LANSING

Then
there is the crux of Michigan’s problems, state government. Seated
in Lansing is perhaps one of the most expensive and inept state
governments in the nation. The state budget is a disaster. Its credit
rating continues to drop.
The governor and legislature continue to entertain the delusion
that they can tax their way out of the problem while businesses
and residents continue to leave the state precisely to avoid the
current taxes. Lansing finally eliminated the despised Single Business
Tax, but instead of making a commensurate reduction in state spending
they chose to selectively impose a new sales tax on such economic
stalwarts as carpet cleaners, tanning salons and manicurists. There
was immediate opposition and the measure died a quiet death in the
state legislature. It was not unlike the outrageous grab of 2004
when the state tried to force residents to pay county real property
taxes six
months before they were due
. With many owing their jobs to union
support, Lansing politicians continue to thwart legislation which
could make Michigan a competitive right-to-work state.

Exasperated state residents are now circulating petitions to take
the long overdue step of reducing
the size of Michigan government
, including the state supreme
court and legislature.

So
why would anyone want to live in Michigan? There are several reasons
why Michigan’s future is bright if the political and business climates
are reformed.

Known
as "the mitten" because of its unique geographic profile,
Michigan is surrounded by the largest collection of fresh water
in the United States — the Great Lakes — and has almost one hundred
inland lakes of 1,000 acres or more dotting the state. Unlike the
increasingly popular southwest, Michigan rarely sees water rationing.
Whether it is for personal or commercial use there is always enough
fresh water to go around in Michigan. The need
for fresh water sources
will continue to be a growing concern
for businesses and individuals well into the future.

The flat expanses of Michigan may be boring to pass on the interstate,
but they could be a key in the rising global demand for food and
livestock. Michigan has an immense agricultural capacity of 10
million acres producing over 200 commercial commodities, second
only to California
. As the global demand for food continues
to outstrip production this capacity bodes well for Michigan.

Michigan
continues to have one of the largest pools of skilled labor in the
nation. This is a clear advantage for companies in need of a ready
work force. Skilled labor is one area where foreign competition
has not made significant inroads. However, that pool will remain
idle or disperse to other states if Lansing fails to adopt policies
which will attract employers such as transforming Michigan into
a right-to-work state.

Location
and transportation also recommend Michigan. Michigan is readily
accessible by plane, rail, interstate and ship. It shares borders
with Canada, Wisconsin, Ohio and Indiana. It boasts some of the
most renowned universities and research facilities.

Michigan
is a state of incredible natural beauty, with strong tourism and
recreation traditions. Michigan has more private boat registrations
than California or Florida. Many even consider Michigan’s climate
to be a plus with four seasons, including a warm summer and a beautiful
fall. Michigan has winter, but it is devoid of the hurricanes, floods,
runaway forest fires, mud slides or earthquakes suffered by perpetually
warmer destinations. The only real disasters in Michigan have been
man-made.

The
issue is not whether Michigan has anything to offer, but rather,
how much more it could offer if state government would get out of
the way and let the market work.

August
5, 2008

John
M. Peters [send him mail]
is a practicing attorney in Michigan.

John
M. Peters Archives

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