ANALYSIS: The Low RoadBy Jim
Jacobs and Linda Ewing
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Like a good venture capitalist, John Engler has parlayed a slim victory margin of 19,000 votes into a risky new investment. He's wagering Michigan's future on an economic development strategy that is a drastic departure from the recent past. But not only is his strategy unworkable, it also carries disturbing implications for living standards in our state -- particularly in urban areas. The governor's strategy, as spelled out in his budget, replaces industrial policy with recycled Reaganism. The former Blanchard administration, whatever its shortcomings, recognized the importance of manufacturing to Michigan's economy, and developed innovative programs that delivered training and technical assistance to smaller manufacturers. In a welcome departure from traditional smokestack chasing, the Blanchard administration stepped up efforts to make the state's existing manufacturing base more competitive in a global economy. The state's new emphasis, in contrast, is on cutting the cost of doing business by reducing property taxes and slashing the "social wage" -- those state programs that provide a safety net for workers who are injured or lose their jobs. Make these cuts, the story goes, and growth will follow. Even if Engler's strategy works (by his standards, not ours), the result would be disastrous. First of all, there's no evidence that cutting taxes will spur economic growth. Numerous studies have shown that tax rates have relatively little bearing on business location, expansion and performance. This is especially true for small- and medium-sized businesses that have shown the greatest manufacturing employment growth. Wages and productivity in this sector remain disturbingly low, for some very basic reasons. The competitive pressures that small manufacturers face mean that needed investments in modern equipment and workers' skills often go unmade. An economic policy based on property tax cuts and empty celebrations of entrepreneurialism won't change this. But what if, by some miracle, Engler's strategy does work? The real problem is that it can only "work" if industry takes what's been labeled the "low road": low wages, low skill and low productivity. Abolishing job training and other human resource development programs, and eliminating technical assistance programs targeted at smaller manufacturers, are both good ways to start off on this low road. If wages fall far enough, it's just possible that an economic development strategy based on lowering the cost of doing business in Michigan -- rather than on upgrading workers' skills and modernizing the state's manufacturing base -- could lead to growth. Not likely -- but possible. What is certain is that living standards for Michigan's working men and women will suffer. So will industrial centers -- Detroit, Flint, Battle Creek and the downriver cities. Already buffeted by plant closings, these cities stand to lose the most from a laissez-faire approach to economic development. They face a future of low-wage employment in fast-food franchises and increasingly backward manufacturing plants. There is a sad irony in all of this. The Engler administration's pursuit of the low road goes against a growing national consensus that the choice confronting the country is, as one recent study puts it, "high skills or low wages." This consensus was at least partially inspired by the success of state-level initiatives like Michigan's -- the very initiatives that the new administration is setting out to dismantle.
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