w w w w w w w ~ w ~ w
m M - m m I
v w v
w W
w
.W
qw w IRW
lqw mr
i _ MW
1 8 Th ihia Diy- enedy .Nvm erg.00
WenedyNoe be 1 006 Te- ichga Dily 7
a PHOTOS BY RODRIGO GAYA, FOR EST CASEY AND BIL L COUCH /Dail
Factories are closing. The Big Three are posting record losses. You will probably leave the
state after graduation. A look at what DeVos and Granholm want to do to change that.
By Andrew Grossman Daily Staff Reporter
How much can a governor do?
New forests don't grow up overnight.
Governors' ability to affect the economy in the short
term is limited, public policy Prof. Paul Courant said.
"We're talkingthings that take five or 10 years to materi-
alize," he said. "Not three or four."
Courant, a former University provost said attracting
businesses has more to do with creating a culture shift than
a series of government initiatives.
If you listen to the candidates, though, you might think
differer.tly. In DeVos's response to the questionnaire print-
ed on page 4 of this magazine, he said he will make more
change in 48 days of being inaugurated than Granholm did
in four years.
Courant disagrees.
"Government is not the most important thing in eco-
nomic development," he said.
Single Business Tax in the crosshairs
One of the centerpieces of DeVos's economic plan is cut-
ting taxes and red tape.
The Single Business Tax, a tax on business profits and
payroll, is set to expire in 2009, but DeVos has said he
would push for an immediate repeal. He said he would
replace half of the $1.9 billion in lost revenue with a tax
on corporate profits or gross receipts. Granholm wants to
reduce the tax, which is levied on businesses even if they
don't turn a profit. She said she would also eliminate loop-
holes if re-elected.
But economics Prof. Joel Slemrod, a tax policy guru who
has advised finance ministries from South Africa to Cana-
da, doesn't think the SBT is necessarily such a bad idea.
Because the SBT taxes payroll, not just profits, it's a
steadier source of revenue than the candidates' proposed
corporate profit tax, Slemrod said. Payroll doesn't rise and
fall with the economy like profits do. And a tax on corpo-
rate profits might be even worse.
"To replace the revenue that the Single Business Tax
is now producing would require a rate of 14 or 15 percent
- that is higher than any other state," Slemrod said.
The problem isn't the SBT itself, he said, but the loop-
holes the Legislature has carved into the tax since it was
passed in 1975.
"Over the years it has become encrusted with all sorts of
special provisions," Slemrod said. "My own view is that it
would be better to clean it up rather than try and convince
yourself that there's an alternative tax out there that would
be better for the Michigan economy."
Most professors interviewed last week said too many tax
cuts would be risky.
"Ifbeinga low-tax state was the keyto economicgrowth,
then Mississippi and Alabama would have the highest eco-
nomic growth in the country, but they don't," Slemrod said.
"There's no clear answer on how to make that tradeoff."
When the Legislature cuts taxes to attract businesses, it
must cut spending as well. That can drive businesses away.
Michigan's taxes aren't as high as they used to be. Most
tax burden studies place Michigan near the national medi-
an.
Several University professors said they worry that fur-
ther tax cuts would hurt the quality of public services. This
isn't the way to improve an economy, they said.
"Places that tend to grow rapidly in the post-industrial
era are the nice places," Courant said.
Building the "nice places"
Remember the blue bridge on I-94? The blue metal
that arcs above the highway doesn't hold the bridge up. It
doesn't keep it from swaying in the wind. It's only there
because donors gave the state $2 million to build it, and the
state took them up on the offer.
The idea was to get people flying into Metro Airport for
last winter's Super Bowl excited about coming to Detroit.
Maybe they did feel a small thrill as they drove under the
blue arches.
On the other side, though, they found a blighted city
with one of the nation's highest crime rates.
The bridge hasn't done anything to fix that.
Granholm has tried hard to attract human capital to
Michigan and stem the flow of college graduates out of the
state. One centerpiece of her plan is the Cool Cities Initia-
tive. The program's goal is to revitalize Michigan's cities,
making them places where the "creative class" - a mix of
so-called "knowledge workers" like computer program-
mers, writers, lawyers and architects - wants to live. It's
based on research by Richard Florida, a professor at George
Mason University. Similar programs have been implement-
ed around the country with mixed success.
If a city has an intelligent workforce, Florida's reason-
ing goes, companies will want to move there. Courant said
that's a fundamentally different approach than the more
traditional model that Michigan has tried in the past.
Either "you build the plant and people work there," he
said, "or you have the place where smart people want to live
and the capital follows them."
Critics, including DeVos and Prof. Jackson, say Cool Cit-
ies is a waste of money. Meant to create hip, walkable city
centers, most of itsgrants are spent on aesthetics. Ferndale
got money to repair the fronts of buildings downtown.
Kalamazoo got a grant to move a metalworking shop and
museum across town.
But after the metalworkers have moved, the fagades are
finished and the bridges are built, the problems in Fern-
dale, Kalamazoo and Detroit remain.
Ann Arbor: a reasonto hope
Most students who study, work and play in Ann Arbor
only hear about the state's economic troubles. Parents
might tell them of job losses and business closings at home,
but they see little evidence of recession around campus
because Ann Arbor is one of the few places in Michigan that
is thriving. University professors and students often create
businesses with ideas and research they conducted in labs
across campus. Many of them set up shop in Ann Arbor.
Other companies, like Google, have located here in part
because there is already a concentration of highly-skilled
workers, but also because Ann Arbor, as Courant said, is a
"place where smart people want to live."
Residents can walk to dinner, sit in a coffee shop to read
The New York Times and attend performances by world-
renowned groups like the Royal Shakespeare Company.
At a campaign stop at Sweetwaters Caf6 on West Wash-
ington Street yesterday, Granholm praised Ann Arbor's
flourishing economy. She drew applause from the over-
flow crowd when she mentioned the area's below-average
unemployment.
Industries like biotechnology are flourishing here, but
have yet to spread to the rest of the state.
In part, that's because the infrastructure isn't there.
One hundred-fifty years ago, when the U.S. economy
began to shift from agriculture to manufacturing, invest-
mentpoured into railroads to transportgoods. Now, it's not
so much goods that need transporting as ideas.
That's one area where Granholm gets it right, Jackson
said. She's proposed hooking up every corner of the state
to broadband Internet connections so information can flow
quickly from Marquette to Macomb.
Building better universities
Not surprisingly, the professors' most common recom-
mendation was to improve higher education, but not just at
the state's big research universities.
Jackson said community colleges and schools such as
Grand Valley State University and Ferris State University
are instrumental in training workers. Most jobs require
more education today than they did a quarter century ago.
Because they're more accessible than research institutions
like the University of Michigan or Wayne State University,
people can take classes at community colleges and improve
their position in the job market. Just like building a busi-
ness requires investment of money, staying competitive in
the job market requires investment of one's time, even in
middle of one's career.
"If that person is continuing to build and maintain their
human capital, then you've reduced their chances at (age)
45 or 50 ofnot being able to find a job in that new economy,"
Jackson said.
He said he was disappointed with Granholm's approach
to higher education in her first term.
"I don't think she really thought through the problem
four years ago," Jackson said. "It's not just the cuts in high-
er education. It's the way she went around the state bashing higher education."
Granholm's stump speech centers on educating workers, but her cuts in higher
education fundingcontradict her rhetoric.
"She wants a free lunch," he said.
Taking on trade
The Granholm campaign and the Michigan Democratic Party have aired com-
mercial after commercial blasting what they call the Bush Administration's failure
to enforce NAFTA. They say the agreement, which eases trade between the United
States, Canada and Mexico, hurts Michigan manufacturers.
The ads don't tell you that former President Clinton, who has campaigned for Gra-
nholm, negotiated the agreement with heavy input from the Big Three automakers
Trade specialist and public policy Prof. Alan Deardorff said Granholm's rhetoric
is misleading.
"As a trade economist, I find it very upsetting," he said. "They're portraying
trade as harmful in ways that it's not and has not been for Michigan."
He said it's not NAFTA that has hurt the auto industry, but the car manufactur-
ers themselves.
"It just looks tome that the automakers have just made stupid decisions," Dear-
dorff said.
Granholm has also attacked DeVos for decisions he made while chief executive of
Alticor, the parent company of direct-sales retailer Amway. She has accused him of out-
sourcing Michigan jobs by firing workers here and buildingfactories in China.
Courant, Deardorff and Jackson all said this is irrelevant to the race.
"That is absolutely a non-issue," Jackson said. "If Michigan companies are going
to be successful in the world market, they're going to need to create production
plants around the world."
If there's one thing everyone agrees on, it's that fixing Michigan's economy will
be neither quick nor easy.
There was also a consensus that neither candidate has all the answers and that
economic salvation won't come from a political ideology, but from thoughtful deci-
sion-making and a cold confrontation with the facts.
"There is no silver bullet in this enterprise," Jackson said. "It's a whole accumu-
'-"I - ^ -" " -~- ' ^^ ^ ^-' -" " ^ 2- ^ - - ^ ^ " ^-^ ^^r
ou know that
stretch of
highway. It's
42 miles of I-
94, west from
Detroit to Ann
Arbor. You've
driven it com-
ing back from
break, a concert at the Fox Theatre or
a weekend of debauchery in Windsor.
Unless you live there, you probably
didn't stop in Dearborn. But you know
its story - it'sjust like the rest of Mich-
igan's.
Dearborn is home to the struggling
Ford Motor Company. It was once
home to the American Dream. That
was a long time ago, when men like
Henry Ford, Ransom Olds and the
Dodge brothers transformed Mich-
igan's mostly agricultural economy
with the automobile.
That pride still reverberates here as
you drive past row after row of build-
ings stamped with the iconic blue Ford
oval, past giant American and Ford
flags, flyingside by side.
Then reality sets in. You remember
the headlines. $5.8 billion lost in the
third quarter - Ford's biggest loss ever.
The death of innovation. Once-popular
cars like the Explorer and Taurus sit-
ting on lots or discontinued. Skyrock-
eting gas prices pushing consumers to
buy fuel-efficient small cars, driving
the behemoths built by Ford and Gen-
eral Motors into extinction. The Amer-
ican auto industry is going through
a painful restructuring, and taking
Michigan with it.
You walk the grounds of the Henry
Ford Estate on the University's Dear-
born campus, built on land donated
by the Ford family, and stare into the
garage at the antique cars behind its
dusty glass doors. You wonder if Ford,
GM and the state of Michigan may soon
join those relics.
Leaving, you get on the highway
and drive to Ann Arbor, one of the few
parts of the state that aren't hurting.
You drive past the giant Uniroyal tire
and over the $2-million electric blue
overpass meant to be a "gateway to
Detroit."
You get back and turn on your televi-
sion; it's flooded with ads for Gov. Jen-
nifer Granholm and her Republican
challenger, businessman Dick DeVos.
They say they have answers. Repeal
the Single Business Tax, DeVos's ads
say, and make Michigan a better place
for business. Granholm's ads say it's
the Bush Administration and treaties
like the North American Free Trade
Agreement that are to blame. She says
the state should give every Michigan
high school student a $4,000 scholar-
ship to increase the number of college
graduates and attract businesses.
But experts at the University said it's
not that simple as they tried to parse
the candidates' plans last week.
Political science Prof. John Jackson,
who studies transitioning economies
like Michigan's, said it's a problem of
trees.
In a healthy forest, new trees are
always growing up to replace the old
ones as they die. Sometimes, though,
the old trees get so big that they hog all
the nutrients and sunlight, crowding
out new growth.
That's what happened in Michigan,
Jackson said. The Big Three automak-
ers dominated the economy for most of
the last century, leaving little room for
entrepreneurship in other sectors.
"People residing in areas dominated
by large enterprises did not have the
same attitudes as people living in other
areas," Jackson said of other econo-
mies in transition. They get used to
hegemony and don't try to build other
industries.
Now, as the automakers struggle,
there aren't enough new companies to
employ Michiganders, and young peo-
ple are leaving the state in droves.