the future of michigan

At the University of Michigan on Monday, February 9, the Center for Local, State, and Urban Policy (CLOSUP) will be hosting a panel discussion on “Michigan’s Economy in 2009 and Beyond.” The event will feature John Austin, the Director of the New Economy Initiative for Southeast Michigan, Charles Ballard, Michigan State economics professor and author of the book “Michigan’s Economic Future,” Christopher Hayter, of the National Governors Association, and Kim Hill, from the Center for Automotive Research’s Automotive Communities Program. The event is scheduled to run from 4:00 to 5:30 at the Gerald R. Ford School of Public Policy. The following comes from the official event abstract:

A consensus has emerged in the last few years regarding Michigan’s economic future. In order to return prosperity to the state most analysts agree that Michigan must develop a diversified knowledge economy featuring robust entrepreneurial activity and a highly educated, innovative labor force.

However, today Michigan is confronted with a severe economic recession and a meltdown of the economy’s core automotive sector. There has been much less discussion, and certainly no consensus, regarding how Michigan should respond to the current economic recession and yet stay on the path of transition toward a knowledge economy…

Coincidentally, a friend of mine, an inventor and entrepreneur by the name of Michael McCorquodale, is blogging on this very subject this week for Metromode. Here’s a sample:

…So where does that leave Michigan?

Michigan doesn’t have a model.

What I’m really saying is that Michigan has most of the ingredients and yet they have not been synthesized into an executable model. First, Michigan has well-differentiated technology. My work, among that of many other world-class researchers, at the University of Michigan and all of the Michigan institutions is proof positive that we do. 

Second, Michigan has the passion. Of all of the places I have lived, nowhere in my life have I known people more passionate than those in Metro Detroit. 

Third, Michigan has the capital, but it is not making its way into the irrational investments. Put simply, there is a terrible lack of risk capital. From Q1/02 to Q4/07, all of which is post-bubble, California invested $49.5B in companies while Michigan invested a measly $363M. In less time, Mobius has raised over $20M as a single company.

This is where it gets complicated.

There is also a lack of deal-flow. Related to my previous blog entry, there is a lack of “doers” in Michigan. Yet, it is not that simple. There is also a lack of experienced management. Start-ups are a cottage industry in the Valley where thousands of executives have had experience in one. They are an anomaly in the industrial Midwest so it is terribly difficult to build an experienced management team worthy of investment. 

Further, our leadership in Michigan focuses on maintaining the status quo and has failed to diversify the economy with a focus on emerging business. Thus, there is little justification for the capital; yet, when someone like me shows up, I’m demanding capital and forced to relocate to California without it. Meanwhile, Michigan is sixth in the nation for new patents issued; yet most of those revolutionary innovations sit in laboratories, never to see the light of day.

So where do we go from here? Michigan is stuck between the chicken and the egg in developing its model….

As Michael mentioned above, his company, Mobius Microsystems, ultimately left Michigan for California, where they’ve been able to attract quite a bit of venture capital. They still have a research and development facility here in the state, but, in spite of his efforts, they weren’t able to keep the entire company here. And Michael is taking a lot of shit on Metromode right now because of it. People apparently don’t like hearing that their state is broken, and that’s essentially Michael’s message… The interesting thing — the thing that the folks leaving nasty comments don’t know — is that Michael really loves Detroit. When I first met him, he was living downtown and seriously contemplating a run for City Council (while earning his PhD). Sure, some of what he has to say might rub people the wrong way, but it’s not because he hates Michigan. If he hated Michigan, he would have gone to California and never looked back. Instead, he’s made an effort to keep some part of the business here, and he’s taking every opportunity possible to advocate for change. And, given the situation we now find ourselves in, I think maybe we should hear him out.

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  1. haunted-chicken-coop
    Posted January 30, 2009 at 11:56 pm | Permalink

    Hear him – loud and clear. The MI chicken & egg debate is, in part, being incubated in the hands of legislators in Lansing who can’t decide for all meaningful purposes if their intent is to invest as venture capitalists in ground breaking, job-creating tech or to shuffle as administrators of grant-style funding.

    There are also those that would argue that to cultivate “doers” & “experienced management” simultaneously – you need to open doors for a mix of investment, training, and expertise. Michigan can do a lot with its people and should “lift the veil” of tried & true, role-specific change….open innovation models with cross-functional leadership are key…i.e., let’s get those auto workers at the table for the CLOSUP-style discussions

  2. mark
    Posted January 31, 2009 at 8:00 pm | Permalink

    I’m not sure what solutions Mike has in mind. Maybe, if we’re lucky, he’ll leave a comment and let us know.

  3. John on Forest
    Posted February 1, 2009 at 4:23 pm | Permalink

    I agree with haunted re: MI legislators not knowing what to do next. Obama’s stimulus package promises $5.6B to the state of Michigan, yet the Ann Arbor News front page article today implies that our government doesn’t have any clear idea how to use the money to stimulate Michigan’s economy.

    Someone needs to put together a long list of industries/business that might be invested in that would create and keep creating jobs in Michigan. Then, that list should be analyzed to determine which industries would create the most jobs per dollar invested.

    I don’t know for sure, but I suspect Renewable Energy/Sustainability industries would be near the top of that list.

    Just as importantly, detailed analysis should be made of how best to invest in those industries. For example, what does Renewable Energy really need in the state of MI to get off the ground? Electric Distribution Infrastructure? Direct investment in companies? More RPS (than 10%). PTS? Business tax rebates?

    Frankly, I think Obama needs to do more of this kind of analysis too. I don’t think the Federal stimulus package is very well crafted to really get our economy going again and to sustain that economic growth into the future.

  4. Posted February 2, 2009 at 10:46 am | Permalink

    Michigan does not have a strong entrepreneurial tradition. As a child and sibling of Ford workers, I used to think that it was our blue-collar focus/mindset that kept Michigan low on the entrepreneurship/start-up list. In recent years, I’ve realized it is our state government’s outdated economic development mindset that is holding back innovation, despite Governor Granholm’s speeches to the contrary.

    Governor Engler’s economic development team was focused on manufacturing. Governor Granholm has said that she wants to diversify, but the state tax structure punishes small businesses, and the economic incentives (except for the movie industry giveaways) remain focused on manufacturing, warehousing, etc.

    As the Hollywood tax rebates show, the best way to revive Michigan’s economy, encourage innovative small business development, and change the state from a business repeller to a business attractor is to LOWER STATE BUSINESS TAXES AND PERSONAL INCOME TAXES. Nothing else works better or faster.

  5. Sue
    Posted February 2, 2009 at 5:05 pm | Permalink

    Hate to rain on the lower taxes = better business parade, but there’s good research that says otherwise. Simple examples: MN has far higher taxes than MS and about the same unemployment rate on average, but far higher educational attainment, and much higher incomes. Similarly, Michigan experimented with Ren. Zones where ALL taxes were eliminated. Logic would have said that business would flock to those areas, but it didn’t. All those pesky things like public safety, utilities, streets, educated employees that are necessary to sustain a business (and a community) cost money. Unfortunately, we can’t cheap our way out of this one.

  6. Posted February 2, 2009 at 7:41 pm | Permalink

    The trouble is that everybody is unemployed and on welfare. Where’s the money going to come from DR if everybody gets a lower tax rate? It’s a catch 22. Lower taxes to a REASONABLE level and attract people and busniess to the state, or put half of Michigan on the street so that they all have to leave, driving customers away and land prices into the shitter. I agree that Mich’s taxes are too high, but I don’t think that the solutions are that simple.

    Face it. We’re screwed.

  7. Posted February 2, 2009 at 9:00 pm | Permalink

    For those of you still following this, in today’s post, Mike makes some suggestions.

  8. Posted February 3, 2009 at 5:49 pm | Permalink

    “As the Hollywood tax rebates show, the best way to revive Michigan’s economy, encourage innovative small business development, and change the state from a business repeller to a business attractor is to LOWER STATE BUSINESS TAXES AND PERSONAL INCOME TAXES. Nothing else works better or faster.”

    I have been thinking about this statement for a while the past couple of days. I looked up states and how they ranked by taxation and the states that had the highest taxes also appeared to be the most economically prosperous whereas states with low taxes appeared to be among the worst (think Alaska) and also states who depend in large part on handouts from the federal government to get by (again, think Alaska).

    Republicans and Libertarians often tout this “the solution to all our problems is just to get rid of government and taxation”. I would like to see a place where this has been tried and would like to know if it has EVER been successful. It seems to me, that business thrives in areas with a strong and healthy government which provides infrastructure and support that business needs to exist. For example, if there are no public schools, then people are uneducated and cannot work to make money to spend. If there are no roads, shipping becomes impossible and people cannot get to places to buy things. If there is no health spending, people are either too sick, or too busy caring for sick people to participate in the economy. If there is a problem with teen or early pregnancy (Repubs have called a move to spend 200 mil on reproductive resources and education “pork” in the recent stimulus pack), women (and men) are taken out of the educational loop and cannot move out of their social class.

    I challenge someone to show me an area where an extreme reduction in all taxes has been tried (in the extreme ways that people seem to call for) and where it has lead to long term economic growth and success.

  9. Brackache
    Posted February 3, 2009 at 6:02 pm | Permalink

    Do you really think taxation policy is the most significant factor in why New York is more economically prosperous than Alaska? I’m sure the planet Neptune has pretty low taxes too, proving that low taxes make a place a shitty place to live.

  10. Posted February 3, 2009 at 6:21 pm | Permalink

    I don’t think it’s the only factor, but it’s certainly a factor or at least available infrastructure is. Yet, Alaska is a Republican’s dream. Low taxes and guns, yet I don’t see it as a success story.

    Also, I don’t think that the Hollywood Tax Break can be called a success in 4 months.

  11. Brackache
    Posted February 3, 2009 at 6:44 pm | Permalink

    I’m not backing up DR’s claims here, more like interjecting some thoughts.

    I agree with dude regarding us just being screwed. I think no policy at this point will stop the screwing. I suppose lower taxes might lubricate it a bit, though.

    Personally, I think freedom and taxation morality are their own goals, not some experimental means to financial success, better roads, or bigger shinier pyramids.

    I’d rather live in Alaska than New York any day, because I prefer freedom to an overabundance of laws, taxes, and public works.

  12. Posted February 3, 2009 at 7:33 pm | Permalink

    As for the film industry, I hear there was an announcement today about a studio setting up shop in Detroit, in the building that the MGM Grand was originally in. I believe I also heard mention of 500 jobs. I still don’t know that it was a good decision, but at least the industry seems to be investing some in putting down roots and building infrastructure. That’s more than I thought would happen.

  13. Posted February 3, 2009 at 7:54 pm | Permalink

    OK, I found the story in the Detroit News and the job number being thrown around is 4,000.

  14. Posted February 4, 2009 at 9:30 am | Permalink

    “I’d rather live in Alaska than New York any day, because I prefer freedom to an overabundance of laws, taxes, and public works.”

    Obviously that’s a personal preference and an individual choice and you are right to feel so. However, I would argue that freedom is relative. I don’t find that living in the boonies has any great level of freedom relative to anywhere else. There is little freedom of movement given that you are bound to the good graces of Exxon. There is little freedom to change your social status since there is little work and even less money. There are a lot of incidental costs of living in the country that actually make the cost of living just as high as living in areas with public works, but your wage is so low that it’s actually more expensive. There is little freedom of expression and even less if you aren’t white. I won’t even start with the subject of health care. You can’t be free is you’re sick.

    This is not to defend the other side. Living in urban areas or places that have strong government also comes with it’s compromises. Just a thought.

  15. Posted February 10, 2009 at 2:13 am | Permalink

    I’m pleased to see that this discussion was picked up in a much more intellectual and data-driven manner than on Metromode.

    The blog I posted was intended to show the facts on the ground through the lens of my specific experiences (which are frankly the same experiences as everyone else who has done what I did in MI). As Mark indicated, I used to be a very strong proponent of building high-tech businesses in MI (my company was actually in downtown Detroit for 3 years) until I learned that it simply can’t be done without capital and management. Then, staying true to my commitment in MI (and even after I left for CA), I’ve shared this story with Granholm and legislators such that change could be affected. However, I ran into much of what is discussed here in these comments. MI simply does not have a strong entrepreneurial culture and its politicians are beholden to constituents with an entitlement psychology based on manufacturing. The reaction to the blog is testament to that. One commenter claims that the lack of capital is “patently false,” yet I clearly show that over 5 years, MI invested less than $400M in new businesses while CA invested almost $50B (i.e. over 100x more than MI). My company has raised over $20M in just a few years and typical funding requirements for a semiconductor company, like mine, can be up to $100M. I also broke down all of the numbers from MI’s legislation and showed how these funds were insufficient to finance high-tech business; yet comments like the one I refer to were posted. It’s frankly rather defeating because I’m merely trying to clearly show what is broken such that it can be fixed and most refuse to accept that anything is broken, thus confirming this pathetic psychology that has recently been brought into focus for me.

    My wife and I discussed this over the weekend and actually considered something rather extreme, yet potentially interesting. The fact is, the people simply must be a factor. Every region in the world depends on its people. Of course, resources, taxes and other factors are very important, but people can do more than anything. The second largest economy in the world is an island that got flattened after the WWII. Consider that in relationship to the hardship “white flight” in Detroit.

    So my wife and I considered the US on the whole and regional psychologies. Look at TX, which has a psychology of essentially being its own country. It also has a thriving tech and VC community and I can tell you first hand, that it doesn’t like playing with CA. It believes it can do everything on its own. After all, don’t mess with TX! And CA has a psychology of risk-taking dating back to the gold rush. The state has always embodied a psychology of freedom from provincial New England where some elements or aristocracy from Europe persist.

    So is the problem in MI really that there aren’t enough people with a psychology of diversifying the economy and developing an entrepreneurial culture? I don’t know that answer to that question, but the more I think about it, I think it might be true. Like I said, how can it really be anything other than the people? Be them leaders, constituents or whomever, people are what make a region.

    So what I’m trying to figure out is how can we make MI people better at entrepreneurship?

    The interesting thing is, I’m from TX. And I have lived in IL and CA. Did that affect my psychology to be entrepreneurial? I’m not sure.

  16. Paw
    Posted February 10, 2009 at 3:23 pm | Permalink

    Well, the first step is to fire them from their jobs, and we’re doing that in record numbers. Now it’s time to sink or swim. The entrepreneurs will start companies. Those who aren’t, will leave or die. Michigan is a laboratory for nation.

  17. Wan-Thai Hsu
    Posted February 10, 2009 at 5:43 pm | Permalink

    My professor and I started a company in Ann Arbor in 2001. This company has created a new segment in electronic devices and posed huge game-changing impacts on a 50-year old industry. We have raised $40M+ and are doing fine so far… well, I am not so proud of that since we are not break even yet.

    Mike’s company is in the same category as mine. So I have gone through Mike’s pain in raising capital in Michigan, even whole mid-west. In 2003, except those brilliant entrepreneurs in Ardesta, no one in Michigan invest money on us. So we had to move our headquarters to California after a couple of Californian investors put money on this technology.

    However, our whole R&D team decided to stay. The reason is simple: We believed Ann Arbor is one of the best places to raise kids.

    Like many silicon valley companies, we outsource most of our manufacturing in Asia, and we have most of our business there as well. After many years, my colleagues in California end up with flying everywhere in the world with me. But at least when I am flying, I know my kids are safe and are happy with their lives in Michigan.

    I believe true entrepreneurs do not need any model in any case. They create new models for people to follow. Also I believe true entrepreneurs should be able to run business independent of location and independent of industry. I have seen many successful cases in this flatten world. With this belief, I stay at a better place for the kids, at the same time I do my best contributions in hiring, promoting the state, and planning for the economic future of the area.

  18. Posted February 11, 2009 at 1:40 am | Permalink

    Wan-Thai – great to see you here. How did you like the Metromode blog?

    I agree with you about the idealism that true leaders and entrepreneurs create opportunities no matter where they are. I used to believe that in spades. However, I have learned two things. First, both my company and yours required management and capital outside of MI. Second, if you really know the business that you are trying to build, why encumber yourself with unnecessary challenges? This thing is hard enough to do as it is.

    Be that said, I know we are living the same lives split between CA and MI. I have tried to advocate a model of making the most of both regions, but I’m not sure that works either. Honestly, you and I will prove whether it does or doesn’t. Hopefully we both will. It’s a big market after all. We can each take half.

    And all the while I know that my wife is doing well in Ann Arbor. Someday, we’ll have kids.

  19. Wan-Thai Hsu
    Posted February 12, 2009 at 3:51 pm | Permalink

    You are exactly right. We had to hire management outside of MI. But we ended up with firing two CEO’s. There are certainly more managers and more successful stories in California, but the percentages of lousy managers probably remain the same across the country (New York or London is not better in any degree… we all suffer from that). Unfortunately fixing the damages caused by lousy managers have been the biggest unnecessary challenge for me.
    Hard to find a CEO in MI? Then become one, and become a good one.
    One thing I am pretty sure is after we occupy this big market, I will start another totally different business. Life is no fun without challenges, isn’t it? :-)

  20. Posted February 13, 2009 at 12:20 am | Permalink

    I couldn’t agree more on the challenges in recruiting good management (anywhere) and the terrible destruction that bad management can wreak on an early-stage organization. Part of the problem is that high-tech entrepreneurship has become institutionalized with the high capital requirements. Thus, one is forced by investors to recruit management which has little allegiance to the company that was founded by someone else’s blood, sweat and tears. I’m trying to conceive of a business in high-tech, with significant differentiation, and low capital requirements such that the founders can continue to feed it with their blood, sweat and tears and not give it up to an institutionalized leader. Essentially, I am advocating to get back to the good old days of the Valley. With the changing dynamic in innovation and some decentralization of capital, could a place like Ann Arbor become more like what the Valley used to be? Because the Valley will never again be what it was.

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