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Lakefront Fixer-Upper

DIGG THIS

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