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It’s Not all Negative in Michigan. Allen C. Goodman Sales and Marketing Council October 24, 2007. Introduction . I was asked to talk about succeeding in the Michigan Economy I was urged not to be negative. This could be a short talk …. Let’s Be Candid. Non-Farm Employment. Loss of
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It’s Not all Negative in Michigan Allen C. Goodman Sales and Marketing Council October 24, 2007
Introduction • I was asked to talk about succeeding in the Michigan Economy • I was urged not to be negative. • This could be a short talk …
Let’s Be Candid Non-Farm Employment Loss of over 350,000 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMS2600000000000001&data_tool=%2522EaG%2522
Let’s Be Candid http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LASST26000003&data_tool=%2522EaG%2522
Labor Force Size is Stable http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LASST26000006&data_tool=%2522EaG%2522
How to Succeed? • Wealth is created by Capital and Technology. • Industrial Revolution (England was not awash in natural resources) … but they had Capital & Technology • Silicon Valley is not awash in natural resources … • Contrast this to West Virginia depended on coal a half century depression.
How to Succeed? • Michigan has had capital and technology! • There are some recent studies that point to the first 20 years of twentieth century Detroit as a unique era. • The auto industry could have centered elsewhere … it centered here!
In our lifetime … • Cities like Detroit, Flint, Pontiac, and Saginaw were wealthy places. • High capital/labor high wages. • The environment has changed – it’s not fair, but it’s changed.
Manufacturing? • Not necessarily. Manufacturing is declining EVERYWHERE as a share of the economy. • We are increasingly a service economy. We must provide services more efficiently. • We must avoid gimmicks. • What kinds of value-added do casinos bring? • Protectionism won’t work. • Others WILL retaliate. • These days the Canadians are propping up the retail sector in SE Michigan.
Infrastructure • Goods provided by the public sector, including education, roads, fire protection, police protection, and amenities, are intrinsically no less desirable than private goods. • The price of public goods is taxes. Although we all seek efficiencies in production, reduced taxes reduced public goods.
State Government • Economic movers and shakers can’t do business in a place where the state government behaves like characters from a Marx Brothers movie. • Taxes are not “bad” in and of themselves. Most of the “business climate” studies aren’t worth reading. • If higher taxes buy productive things, there is no reason to oppose them.
Our New Taxes • The Single Business Tax (SBT) wasn’t awful but it was different from what businesses saw elsewhere. Replacing it with something else is OK. Not replacing it would be a bad idea. • The increased income tax is OK, but a second (higher) level would be better. • Service taxes will be difficult to phase in, although, in fact, many states have them.
Housing and Real Estate • In perspective, Michigan isn’t much worse off than elsewhere, and may in fact be a little better off, because prices did not run up as fast as they did elsewhere. • There were “little bubbles” in places like Huntington Woods, Birmingham. • You are NOT seeing the seismic readjustments here like they are seeing in Florida or California
Housing and Real Estate • Foreclosures are a problem here … as they are, elsewhere. • It was unconscionable to put some people into the mortgages that they sold. • About 3 years ago, I told my wife, “in a couple of years, we’ll see some real problems” … regrettably, I was right.
When will real estate turn upward around here? • Well, it depends! • In places that are built up, I think you’ll see a turn in spring 2008 – it will be about 8 quarters since we “hit the wall” in Spring 2006. • In places with lots of unsold inventory, like northern Oakland and Macomb counties, it could be a couple of quarters longer, and … possibly into spring 2009.
1 – Mortgages • Mortgages • There is nothing intrinsically wrong with adjustment payment mortgages … but the wrong people were getting them. • There will have to be some negotiated resolution. • People need homes. • Financial investors don’t want to have to hold vacant properties.
2 – Property Taxes • Michigan’s property tax is a tax on mobility (and, as a colleague keeps telling me, a tax on divorce). • It stands in the way of people’s abilities to move to better homes, and builders’ abilities to build them. • It stands in the away of appropriately permitted home improvements. • It is fundamentally unjust, unwise, and unprofitable, to have identical houses on a block with property tax burdens varying by 100% or more, depending on how long the resident has lived there.
Ironically • Those who fought government control ceded control to Lansing. • This is not unique – it has happened just about everywhere that property tax controls have tried to undo the laws of supply and demand.
3 – Development • Local regional authorities (at whatever level) must get “out of the way. • Simplify parcel assembly and permitting. • Successful urban economic development is a “bottom up” rather than a “top down” undertaking. • Local regulations have their purposes (no one wants a slaughterhouse next door), but they cannot be punitive.
SO … • In perspective … much of the Michigan problem is related to regional issues. • These issues have affected our neighboring states as well. • We can grow out of our current problems … but we must concentrate on fundamentals … not tricks!
