A new economic age and playing field part 1

Kurt Schindler, Michigan State University Extension - January 19, 2017

A very fundamental structural shift has occurred with economic development. In this new economic age, how one conducts business, governs and promotes economic development has changed.

Dr. Adesoji “Soji” Obafemi Adelaja, Hannah Distinguished Professor in Land Policy, Agricultural and Food Resource Economics, MSU, and former director of the Land Policy Institute.

It is not news to most that Michigan was hit hard in the 2009-2014 recession. We lost the most manufacturing jobs of any state, had the highest unemployment and falling median income, and lost more population than any state.

What might be even more difficult news is that we have recovered. However, our recovery did not provide a return of all the lost manufacturing jobs and has not brought median income back up to past levels. In the past, Michigan’s economy was tied to the cycles of the automotive industry. We had economic downturns but, when automobile sales picked back up, Michigan’s economy rebounded.

With this recession, Michigan’s economy has undergone a fundamental change. With that change, the rebound will not be the same as in the past, and the automotive dominance will not be as significant.

A number of economists and Michigan State University President Lou Anna K. Simon recognized there was a fundamental economic shift some years ago. Recognizing this shift led to a cooperative effort of several Michigan universities. They took a close look at Michigan’s economy and provided research as to what has happened and what would be the most effective strategies for economic recovery.

Dr. Adesoji “Soji” Adelaja, the John A. Hannah Distinguished Professor in Land Policy and former director of the MSU Land Policy Institute, led the multi-faceted research effort. Dr. Adelaja came to Michigan State University from Rutgers University and agreed to work on at the Land Policy Institute and economic research for five to seven years.

Actually, the change in the world economy occurred in the 1990s and 2000s for most of the western world and many other states too. In Michigan, the shift did not occur as soon, largely due to the dominance and continued success of the automotive industry. The start of the 2009 recession brought the economic shift to a head in Michigan very abruptly.

The fact that the majority of the western world already experienced this shift can be seen as good news for Michigan. The research could then focus on learning what happened elsewhere, since many parts of the world were more familiar with the economic shifts, so to speak. The applied research could identify economically prosperous and successful regions and backward-engineer what those communities did to achieve their success and economic recovery. In short, we could learn from others what worked in other western nations and states. That was the major focus of research done by Michigan universities and trainings brought to communities by MSU Extension, MSU Land Policy Institute, the Michigan Municipal League and other organizations.

Future articles in this series will review the content of that training.

During the recession, the United States’ share of economic growth in the world fell from 19 percent to 10 percent (Business Week, 2008). That means other nations did much better than us. The bottom line is successful prosperous regions adopted a new approach to attracting growth, recognizing the characteristics of the new economy. It is not a choice as to whether we want to be in the new economy or not. It has already happened.

This kind of economic change, any kind of economic change, is not new, and such change always happens. The employment in the agricultural sector peaked in 1900s. Agriculture is still important today, but now employees from this industry represent about three percent of the workforce. Traditional manufacturing employment peaked in the 1960s. That sector, in the United States, is now following the transition that agriculture underwent.

The new economy is world-wide competition. Every other town, city and region in the world is now competing with Michigan for prosperity. Many nations have some significant advantages over the United States:

They have flexible infrastructure, a more flexible decision-making framework and better partnership between government and business.
They do not have our legacy costs (pensions, health insurance, etc.).
They can take more risk.
They have nothing to lose and prosperity to gain.

Not only are they our competitors, it is also important to remember they do not care about us.

So, we have to change the way we think, act and do business at every level in the public, private and nonprofit sectors in order to compete globally in the new economy. From research, we know that a transition from manufacturing to service and manufacturing to advanced manufacturing has occurred. In the 2000s, most U.S. growth is attributable to the service, knowledge and advanced manufacturing sectors. Firms with the highest quality of knowledge tended to be the fastest-growing and most profitable. For example:

Information-communications-technology industries were best in 2008.
Service industries that were most integrated with global demand accounted for more than 75 percent of job gains in 2008, many of which were created by exports.

However, there is more to it than just knowledge assets. It is unrealistic to try to grow a local economy based on economic sectors past their peak. To be prosperous, we need to be increasing employment in those industries that are growing.

Those in Michigan State University Extension that focus on land use provide various training programs on planning and zoning, which are available to be presented in your county. Contact your local land use educator for more information.