The latest Forbes ranking of the "Best States for Business" lower Michigan from 46th worst last year to 47th worst this year. We ranked #39 on business costs, #44 in labor climate, #46 in economic climate and a terrible #49 in growth prospects. We only scored well on regulatory environment (#4), but this ranking factors in a state's incentive offerings (of which Michigan has plenty) and tort climate (which was dramatically improved in the 1990's). The only states that scored worse on the overall rankings were Alaska, Louisiana and West Virginia.

But the pain we are experiencing today might help us in a few years. The historic union agreements with the auto companies are going to make our cost structure more competitive. Our companies are getting leaner and more competitive to create jobs a few years down the road. Our cost of living is getting even more affordable. We're increasing our number of college graduates and increasing our level of venture capital.

Yet the actions that would likely have the biggest impact still aren't getting enough attention: lowering the cost of doing business through state tax, structural and energy reforms. Until these are dealt with, we should fear what our ranking will look like in 2009.

Just wondering...

Michigan has the highest unemployment rate in the nation, the state budget is projected to have at least a $500 million shortfall next year, and our state leaders find the time to enact legislation to divest state investments in companies that do business in Sudan?

Let's be clear, no one is supporting Sudan in any way, shape or form. But, how is it that our state leaders find the time to dabble in international policy rather than their official role as managers of the state's business?

As a good friend of mine put it, "Michigan is burning and this is what our elected leaders are focusing on....says it all..."

- Doug

Tom Watkins makes a great case in the Detroit News for state government reform. Read his column which reflects much of our thinking at Detroit Renaissance that state government needs to adopt a strategic principles and actions to achieve a sustainable fiscal structure. One of those principles is to enact meaningful structural reforms to minimize the need for new sources of revenue such as bringing state employee health care benefits in line with the private sector and bringing local government and public school health care benefits in line with those of state employees. The private sector is making drastic adjustments to its healthcare plans.

As Watkins government should follow their lead by making "...the tough and necessary structural changes in prisons, consolidate school districts, and local units of governments, and address the runaway state employee health and pension benefits that were once modeled after the auto industry and that are no longer sustainable."

Read more about our recommendations to immediately improve the health of our state's economy and improve our overall economic competitiveness on
our website at: http://www.detroitrenaissance.com/agenda/improving-competitiveness

Over the past several months, Detroit Renaissance has been analyzing why some economies grow and others don't to better understand how we move our region forward. It's an on-going process that will lead to the development of "Road to Renaissance 2.0" - our second generation regional economic transformation strategy - in the next year.

But suffice it to say, the findings we're reaching aren't rocket science. Here's a few nuggets to get started:

• According to CEO Magazine, 9 of the 10 best states for business are in the sun belt and 7 of the 10 worst states (yes, Michigan is one of them) are in the "rust belt."

• Not coincidentally, according to the Miliken Institute, 46 of the top 50 high growth cities are in the sun belt and 48 of the 50 worst performing cities (yes, Detroit is one of them) are in the "rust belt."

To add more fuel to the fire, consider this:

• Accrding to Forbes Magazine, the top 10 states for private sector job growth over the past decade were ranked, on average, as having business cost environments that were more than twice as good than the ten worst performing states (yes, Michigan was among the bottom ten). 

• Unfortunately, Michigan's relative state & local tax burden, according to the Tax Foundation, has actually increased since 1970.  In addition, Michigan ranked 40th and 41st respectively in the Forbes and Beacon Hill rankings on business costs and competitiveness.

Simply put, unless we fix the economic competitiveness of our state, we aren't going to see the pay-off we should from many of the innovative economic development initiatives underway throughout the state.

 - Doug 

There are lots of theories being talked about today as to why Michigan's unemployment rate is so high - now at 8.5%! This is intended as a fact-based reality check on the "reasons" we sometimes hear being voiced for our economic woes:

• We have lousy weather

DON'T BUY IT: Minneapolis, San Francisco, Portland, Seattle and Chicago are doing just fine in cold or cloudy weather!

• We need Detroit to be as vibrant as Chicago

WELL SURE, BUT NOT AN EXCUSE: A thriving big city helps any state economy and there are lots of us working to redevelop Detroit. But there aren't many strong big cities in the whole nation. Detroit has actually measured up pretty well in the current economic downturn and was leading the state in new housing starts until last year! But a big city isn't a pre-requisite for state growth. Think North Carolina, Arizona, Texas and Georgia. None have a city nearly as authentic and "cool" as Detroit.

• We need to "diversify" the economy

SORT-OF: A diverse economy alone isn't the answer. For example, if Michigan's economy mirrored the nation, we'd be doing better than we have the past few years, but only "average" in overall performance relative to other states. What we need is an economy that is disproportionately weighted in high-growth sectors to beat the national average in creating per capita income growth.

• We need to stop going after auto jobs

WHY??!!: Auto jobs pay consistently above the national average and have some of the highest spin-off impacts of any industry. It's also a global growth industry - see above. Ok, we can't just focus on manufacturing jobs. But wesure should be going after r & d investments from the global auto companies. Think India, China, etc.

• We need a competitive business environment
  

TRUE: The ten states with the fastest per capita income growth are ranked on average twice as competitive as the ten slowest growing states according to Forbes. We don't have to be the cheapest place to do business to thrive, but we do need to offer good value for the dollar.

• We need more college graduates

YES & MORE EDUCATED WORKERS PERIOD: Not only are more jobs requiring college degrees, but just about all the best paying jobs are requiring more education than what many believe is necessary to compete. Skilled trades, health care workers, IT professionals and many others that don't require a college degree for all their positons, still pay far higher than average wages. But they require considerable technical education beyond high school.

- Doug Rothwell

Photo courtesy of Downtown Detroit Partnership 

Most of us know that to get Michigan back on track economically we need to accelerate job growth in high-wage sectors and improve our talent base. But having a competitive business climate matters too. That means not just competitive taxes, but an overall competitive cost structure to do business.

Michigan ranks 40th among the states on Forbes most recent ranking of the total cost of doing business. Detroit ranked 162 out of 195 top metros. The Forbes measure is a good one because it considers not just the cost of taxes, but also the cost of labor, energy and office space.

The top states for job growth over the past ten years score consistently higher in the Forbes business cost rankings than the low job growth states. The other interesting finding is that the highest rates of personal income growth tend to be in states Forbes identifies as having lower business costs.

Taxes do matter, especially when you're Michigan and rank 49th out of 50 states on the Tax Foundation's latest corporate tax index. But it's really the total cost of doing business in Michigan that needs to be addressed as one prong of a three prong strategy to revive our economy.

Question: How can we retain talent, grow jobs and re-brand the image of our region?

Answer: By developing Woodward Avenue into a Creative Corridor.

The "creative sectors" of the economy (e.g.: advertising, design, media, etc.) are growing at twice the rate of the rest of the service sector and pay 50% more than average US wages. Detroit already has one of the top ten concentrations of creative workforces in the US. But we haven't been recognized as a creative community because our creative businesses are scattered throughout the region, whereas in most other creative hot spots creative businesses are concentrated in the central city.

The development of Woodward Avenue into a Creative Corridor is designed to increase the density of our creative workforce in downtown Detroit through the establishment of a business incubator, physical improvements to the Woodward streetscape, new business incentives and the development of creative "districts" along the Corridor.

This week we launched the Creative Corridor initiative through the creation of a new web site to connect the creative community with resources and services. Check out: detroitmakeithere.com to see the depth and breadth of our creative business community. We also unveiled a strategy to market Detroit as a creative hot spot with the theme Detroit Make It Here.

The initiative will cost about $50 million over 5 years to implement, but we're off to a great start. Check out more about the entire Creative Corridor initative at: detroitrenaissance.com/agenda/transforming-the-region

Just eight years ago, Michigan was on the verge of turning its economic development strategy upside down to concentrate on attracting talent rather than jobs. Why? Because back in 2000, Michigan's unemployment rate was just 3.7 percent. There were worker shortages everywhere and the Michigan Economic Development Corporation, which I led at the time, was seriously contemplating shifting the bulk of our resources to talent attraction.

But then along came 9/11 and a dramatic up-tick in global competition. Michigan no longer could create new jobs faster than we were losing them from the manufacturing sector. Oil price increases, the credit crunch and questionable state tax policies made matters worse through this decade. Today we face job shortages much as we did in the early 1990's.

Unfortunately, I hear the same stories now that I heard when I first arrived in Michigan back in 1993. Parents worried there kids won't find jobs here. Graduates moving to places like Chicago, the coasts or the south. Studies citing a growing "brain drain." Deja vu all over again!

What turned around the situation in the 1990's was the creation of large numbers of good paying jobs in perceived growth sectors of the economy. It was the growth of IT, auto r & d and engineering jobs that led Michigan to be a hot market for college grads back then. In fact it was the only time in over 20 years when Michigan had a net in-migration of college educated workers!

What's the lesson? Create jobs that will sustain long-term growth. How? Nurture entrepreneurs - they create new products and services. Revamp state tax policy to cultivate the growth of the service sector - the sector where the growth is. Grow the "creative economy" and innovation in all its forms - it creates what's next. Invest in infrastructure that will support our future growth - a new border crossing, expanded airport, an aerotropolis, etc.

I've said in the past that Michigan's economic goal should be to have "cool cities in a hot economy." You can't just focus on growing good jobs, it takes more than that to drive economic growth. So, we need to continue rebuilding Detroit and all our cities and increasing our talent base. But let's not forget: having a bunch of good jobs sure helps!

- Doug

Can you think of a time when Michigan and the Detroit Region have faced more economic challenges? In the past week alone the headlines have screamed "crisis."

• Nineteen thousand GM workers accept buy-outs!
• Ford announces 12,000 white collar lay-offs!
• American Axle announces thousands of job cuts!
• Greektown Casino goes into bankruptcy!
• The Detroit Auto Dealers Association threatens to sell the Detroit International Auto Show to Chicago!

It's enough to make you addicted to antacids!

So how is our leadership responding to these challenges? They are trying and making incremental headway, just not with the same sense of urgency felt in the business community. It doesn't have to be this way.

For example, we've been fighting over a plan to renovate Cobo for four years in a row. Why not put politics aside, focus on a plan the community can afford during these tough economic times and set a deadline to close the deal?

State leaders are spending valuable time talking about smoking bans, film incentives and plans to turn landfills into bio-fuels. Why not focus on the one thing that matters most: Serious strategies for restructuring government to get spending in line with revenues so we don't face a budget crisis every year (which we are again this year!)?

Academic and civic leaders are spending lots of time taking about retaining and attracting talent. That's important. But, why not spend an equal amount of energy on what we need to do to retain and attract jobs people can work in? Add to that redesigning the state's tax structure to attract the jobs and workers we need to drive the economy.

We in the business community are doing all we can right now to run our businesses in a tough economy and get behind a handful of projects that can make a difference to jump start the region. We at Detroit Renaissance, for example, are going to keep helping Wayne and Washtenaw Counties build an Aerotropolis, develop Woodward Avenue into a "Creative Corridor" in downtown Detroit and launch a media relations bureau to improve our image. But unless the overall business climate improves, the business community's efforts can only take us so far.

We need to act regionally to solve problems, make structural reforms and restructure tax policies if we hope to turn Michigan around.

~Doug