Michigan

MICHIGAN

(See p. 92-95 for update to Chap 4 or 9 auto agglomeration)

Michigan was not Massachusetts, as the below case study will show. Michigan, however, displayed several issues or patterns found in Massachusetts. If deindustrialization hit the textile industry to the point it was nearly destroyed, it also hit the core Michigan agglomerations very hard. Two factors contrast the two states. First, the Massachusetts foundational textile industry had declined—to the point of collapse– for quite some time. Michigan’s core agglomerations (auto-making and auto parts) were the platform agglomeration for the American national economy. A secondary Michigan agglomeration, the furniture industry, had already been picked over by southern attraction programs.

 

Secondly, the Massachusetts economic base was more diversified, and importantly, Route 128 included a vibrant, robust new gazelle military-related, and later consumer-driven technology industry. Much of Massachusetts’s textile industry started decline in the 1890’s and by the 1950’s was on the threshold of extinction—Stage 5. This reveals a serious flaw with deindustrialization as a prescription for an economic development strategy: it is a broad-stroke description more than a precise, rifled strategy-focusing concept. Massachusetts had to contend with a strongly Progressive business elite culture, reinforced by judicial precedents that inhibited aggressive ED policy-making and limited ED counter-strategies. The question of whether Michigan’s Progressive business elites would be so constrained by its ED political culture will be dealt with in the case study. Michigan, diversified to an extent, lacked a gazelle. Michigan was America’s industrial manufacturing, heavy industry behemoth. In any case, the industry/sector profit cycle was a key factor, in 1975.

 

The age of the automobile was no less an age for Michigan and the Great Lakes industrial manufacturers (and parts-makers) that produced them. Disrupted, dislocated but artificially sustained and modernized by WWII war production, Michigan remained locked into heavy industry manufacturing. Its auto/ durable goods sectors, however, had amassed considerable scale, enjoyed significant entry barriers, and enjoyed access to diverse global markets. All offered some protection in the short term, and reason for optimism in the longer term. Still, during the 1970’s the automotive industry, new to decline, competed against (until the FDI-financed auto alley built up its head of steam through the 1980’s) foreign-built, imported cars.

 

The two case studies overlap temporally; both involved two gubernatorial administrations, and some commonality n actors and policy reactions could be observed. There were distinctions among the declining industry, the general manufacturing business community, unions, and between criticisms of specific state-level regulatory programs (in particular, unemployment insurance and workers compensation—which were in evidence in Massachusetts as early as 1920. These two programs were alleged to be the principal cause for an adverse state business climate; high rates of taxation, unionized wage rates, and heavy-duty regulation were concerns articulated by the general business community and taxpayer. Lacking a growing and powerful gazelle business elite which led Prop 2 ½ and seized leadership of its industry from the state, the focus remained entirely on the automotive industry and unions. One does suspect that whatever deficiencies automotive corporate elites possessed, their scale, economic dominance, and their global footprint  fostered a different world view than textile elites—and offered recourse to more resources and whatever else money can buy.

 

Solidly Democratic through 1854, out of 31 Michigan governors between 1855 and 1950, however, only 6 were Democrats, half of which were post-New Deal. Post 1950 to 1970 was fairly bimodal with Democrats in office from 1950 to 1963, and Republicans in control of the office after 1946 (Kim Sigler and George Romney) and in 1969, Republican James Milliken who held office when our case study commences. After Milliken’s each governor, (after serving two terms) has been replaced by a governor of the opposing party—to the present day. Interestingly, Massachusetts after Dukakis (1991), there has only been one Democratic governor (Deval Patrick) to the time of writing (five Republicans each serving a single term). Legislatures, however, tell another story. Romney initially enjoyed Republican dominance in both House and Senate but lost control of both in LBJ’s 1964 landslide. Although Republicans regained control of both in 1967, the legislature during the case study was very competitive—the Senate literally tied for a two year period. Milliken labored against Democratic controlled House and Senate (1970-1983) and Democrat Blanchard labored against a Republican controlled Senate during is administration. The Senate has been Republican since 1983 to this day—the House while largely controlled by Dems is competitive. The Congressional delegation predominately Democratic and has been the Presidential voting.

Michigan State entered into modern economic development after WWII. Its roots were firmly planted in FDR/New Deal state and regional planning mandates—mandates that compelled each state to form a state planning agency (Michigan Planning Commission created in 1937) to house and coordinate planning initiatives. When the FDR initiative was reversed by Congress in 1944, states across the nation redefined their purposes. Michigan did not redefine its Planning Commission until Republican Governor Kim Sigler in 1947 (Public Act 302) converted it to a pure economic development agency (Department of Economic Development) with a “huge” $75,000 appropriation. Its initial objectives included collecting and studying information pertinent to employment, production, and the use of resources intended to promote “growth and diversification of agriculture, industry and commerce in Michigan. These tasks followed two themes: consolidate the state’s diverse research and information dispersal bureaus into one place and “create a coordinated advertising program to let businesses in other states know that Michigan was a good state in which to locate their facilities”[i]. Appointed (1947) to the Department’s Board of Directors was the CEO of American Motors, George Romney Sr.

 

The immediate inspiration for Sigler’s establishment of a formal state ED program/agency was not a concern regarding its auto agglomerations, but rather its furniture industry. In his defense of Public Act 302, Sigler commented that “many of our furniture factories have left Michigan; Grand Rapids and other cities are well aware of this fact. One of our greatest corporations is building fourteen new plants—seven of them will be in Ohio but none in Michigan. Western and Southern states particularly are doing their utmost to lure industry from Michigan”[ii]. The latter was no doubt pressure felt from the reauthorization of BAWI (and right to work) by several southern states and the start of the IRB shadow war. Interestingly, the prime concern was expansion of the state’s furniture industry into neighboring states by a resident Michigan firm—hinting that business climate might have been a factor.

 

In 1963, George Romney Sr. was elected governor (two terms until 1969 when he became Nixon’s Secretary of Transportation after his presidential run). He secured quick passage of the 1963 Public Act 116 for the second major state-level ED initiative. Renaming the old department, the Department of Economic Expansion, he augmented the twin tasks of the previous department: coordination of initiatives and promotion of the state—“carrying out an economic expansion program … create new job opportunities … encourage expansion, development, and diversification of industry, commerce and agriculture”[iii]. At this point, with the election of Republican Governor William Milliken, our case study formally begins.

 

In 1969 Michigan’s economic base was auto and heavy durable manufacturing personified. Even if one excluded automobile manufacturing, Michigan’s durable manufacturing still exceeded the 1982 national average by 1%. Durable manufacturing is a highly cyclical sector, and the 1979-1982 recession, the state’s unemployment rate was over 17%, its highest level in fifty years[iv]. For four consecutive years Michigan had the highest unemployment rate of any state. Between 1980 and 1984, the state’s population shrank by 187,000 and per capita income declined below the national average[v]. Of course, Michigan had done well previous to the Recession, and in the late seventies/early eighties many argued that when the cycle returned so would Michigan’s economy. But confidence in the American auto industry’s ability to compete with foreign carmakers combined with a widespread belief that the state’s business climate discouraged doing business in the state and limited greatly its attraction to non-resident firms which many perceived located in neighboring states like Indiana. The rise of auto-related FDI during this period only sharpened that concern.

 

Shift/share sector analysis confirmed Michigan manufacturing growth over the past decade was declining. Yet business startup rates were growing, and between 1978 and 1984 manufacturing jobs actually increased by 137,000 jobs. Losses were in the largest auto-related firms, not throughout manufacturing. The problem was with specific firms, not manufacturing or Michigan’s economy in general. Consider Michigan’s machine tool industry: overall during that period it lost 2900 jobs, but 53% of existing firms grew in size and added 10,000 jobs[vi]. How that data squared with Bluestone & Harrison’s “Deindustrialization” and runaway firms (published in 1982) is not convincingly evident. So-called producer services created 83,000 new jobs during the recession period (p. 99). In essence, despite today’s hindsight, Michigan’s decline at that point certainly merited, indeed unemployment rates compelled action, but was not so pronounced or clear-cut its policy-makers needed to assume it was in terminal crisis/decline. Economic development policy outputs are made without benefit of hindsight, and need to be assessed in light of real time fog of war. With that observation, the case study commences.

 

Milliken’s Response

Milliken’s administration overlapped the recession: during the downturn, the state got caught up in the all too typical politics of decline as it responded by reacting to the agendas of the concerns generated by Michigan’s existing economic base and actors associated with industrial decline. The dominant issues on the agenda were business regulation (unemployment insurance rates and worker’s compensation) and an adverse state business climate (which included wage rates, high taxes and energy costs, high rates of unionization) which ranked among the nation’s worst (Alexander Grant ratings). Up to this point Michigan was firmly anchored to a mostly municipal-driven classic mainstream ED’s cost minimization/business assistance, promotion as core principles.

 

Perhaps the best sense of Michigan’s pre-recession cost minimization strategy was its1974 Plant Rehabilitation and Industrial Development Districts Law The Act authorized any city, township or village to exempt an industrial firm from all property taxes for up to twelve years in return for new construction/rehabilitation, paying instead an Industrial Facility Tax, the lesser of the facility’s pre-construction tax or half of the tax assessed after construction. Between 1974 and 1984 approximately $13.7 billion of industrial construction participated in the program—by that point (1984) the Michigan annual subsidy was $350 million[vii]. In 1978, the Commercial Revitalization Act extended Industrial Act’s abatements to commercial properties .By that point Michigan had embraced tax increment financing (TIF) (see below).At this critical juncture, when the state under pressure would  develop its own ED strategy, the locals were firmly committed to a strategy congruent with mainstream, business assistance/cost minimization strategies.

 

The State policy system, however, was responsible for regulations and programs associated with the industrial business climate. Two programs were key: unemployment insurance rates and worker compensation Michigan’s worker compensation costs, for example, were 40% higher than its Great Lakes neighbors (p.113). Without benefit of the data citied previously, the perception was Michigan’s policy-makers perceived the State as losing jobs and firms to its more competitive neighbors; growing new jobs/firms seemed the impossible dream. The solution focused on the cost structure that supposedly drove these firms from the state. Milliken, previous to the horrific recession of 1968-71, signed Public Act 301 in 1975—the third major restricting of Michigan’s state ED agency. Patterned after similar legislation in New York and Connecticut[viii], intended to alleviate increasing unemployment, it created the Michigan Job Development Authority empowered to sell bonds to raise funds for use in Michigan’s new IRB initiative designed to finance private firms—and also empowered to finance air/water pollution control and solid waste facilities “which offer adequate job development potential”. As such, while adding a new arrow to Michigan’s quiver, Milliken’s early efforts largely continued the now-traditional postwar ED state priorities. When the recession hit, however, that changed. In 1982 Milliken unleashed the fourth major state-level ED legislation (Public Act 326)—all of which were Republic gubernatorial initiatives.

 

 

Before discussing Milliken’s recessionary response to manufacturing firm woes, a comparison to how unemployment insurance had entered into the 1920’s Massachusetts textile policy debate. The problem then and for Michigan in 1980 was those firms in declining sectors whose workers collected unemployment paid higher rates incurring higher annual payments into the state fund—creating a double-whammy (however deserved from a social justice perspective) and an incentive not to downsize, but to close, and certainly not to locate new investment in the state. In real life that meant the Big Three auto makers (which sheds insight to later data confirming they were the principal source of lost jobs.

 

As in 1920’s Massachusetts, manufacturing firms in sectors under pressure desired “reform” and cost reductions, which were intensely resisted by unions whose membership was increasingly composed of unemployed. That may be the single greatest flaw in a cost-minimization strategy—it creates a zero-sum, union—industry political/policy struggle. Less remembered, however, was that firms that had not created unemployment were resistant to paying for those firms that increased unemployment costs. Pressure was applied to unions to reduce wages in labor negotiations and Big Three to introduce profit-sharing (which they did). The Congressional Delegation and the Governor pressured the Reagan administration to provide subsidies to the auto industry and levy import restrictions on foreign competitors (which it did).

 

The policy actors, aside from governor and state legislature, were the usual industrial hegemonic state actors: unions, specific firms, trade (manufacturing) associations, the business community (chambers and non-manufacturing firms)—and unemployed and the jurisdictions/school systems in which they lived. Milliken engineered a compromise on unemployment between a divided business community and intense union opposition. The compromise reduced costs and improved the state’s business climate—but did nothing to address fundamental issues. A key player was the newly-formed (1982) “Economic Alliance” a private industry/labor group that hammered out the Milliken compromise—opposed by General Motors. Workers compensation and health care costs, however, defied compromise as too zero-sum. Identifying potential plant-closing suspects, and linking them to state and local assistance was successfully negotiated.

 

Milliken, realizing that this “coping” ED strategy was not an adequate long-term solution, proposed in his 1981 State of the State Address a completely new set of ED strategies: promote innovation and attraction technology gazelles. Milliken proposed expanding “high-growth technology-based industry through a joint effort of Michigan universities, industries and state government [with] … a special group to help develop an accelerated action plan … establishment of a technology-based innovation fund, and an Innovation and New Product Center[ix]”—none of which deviated radically from strategies that were developing in Massachusetts and Connecticut. The inspiration in Michigan came from the former chair of Dow Chemical and then head of Michigan’s largest venture capital provider (Ted Doan) and the President of University of Michigan (Herbert Shapiro). They urged Milliken to form a task force and to establish a network of applied research centers to develop, facilitate and promote the “creation” of targeted technology-based firms in Michigan. Milliken accordingly created the “Governor’s High Technology Task Force”—whose membership did not include auto manufacturers.

 

In September, 1981 Milliken followed up with appropriation requests to fund initiatives to develop technologies, specifically in robotics and molecular biology. This took the form of the earlier-mentioned fourth major reform, Public Law 326 (1982). That law created the Michigan Economic Development Authority (MEDA) which was specifically empowered to extend loans to firms in targeted industries and sectors. Funding would also draw on private sources and investment, but public funding through the Michigan Economic Development Authority ($25 million from oil and gas revenues apart not included in the state budget—which Massachusetts Governor King also did) to set up the applied research centers. Operating funds for these centers came from a series of private business foundations (Kellogg, Dow and Mott). The largest of these institutes was the Ann Arbor’s Industrial Technology Institute (focusing on CAD and robotics). Smaller centers in microbiology and “urban development” were located in East Lansing and Detroit respectively. Each center was linked to a major university.

 

Milliken also secured legislative approval for (in 1982) financing from state pension funds ($400 million) to invest in growth firms and attract out-of-state venture capital firms. In 1982 a Venture Capital Division was set up in Dept. of Treasury; the Michigan Capital Venture Program followed. Eisinger reports that only Michigan and nearby Ohio were the first two states to earmark by legislation a portion of their public employee retirement funds for investment in local venture capital[x]. By 1986, the Fund had invested $172 million in 31 “high growth” firms and partnered with 16 Michigan venture capital firms—attracting several California-based VC firms into the State[xi].

 

When Milliken left office at the end of the following year, he took the High Technology Task Force with him (leaving behind the strategic fund was a dissipated in the following years), incorporated it as a private EDO, secured the appointment of Blanchard’s new lieutenant governor as vice-chair, and during the next Governor’s administration provided support, private financing, and some direction to the network of applied research centers—helping its expansion to a fourth center. The Centers were self-funded through foundations and state/national grants, government contracts and programs. The most successful in this period was the old Willow Run, University of Michigan center, renamed to Environmental Research in the 1970’s. While the Institute fussed with Ann Arbor over property taxes and PILOTs, its incubator did foster new small business creation during these years.

 

Milliken had clearly broken from the traditional “coping” cost-reduction disinvestment strategy and the politics of declining by calling for and set the foundation of a “creation” ED strategy—creating new processes, technologies and even new firms and a support system for their sustained development. He was proposing nothing less than a long-term, public-private strategy to develop a new, more dynamic jurisdictional economic base through a plan for targeted gazelle-like sectors. The term “innovation” was freely used. Milliken’s initiatives, while not precluding a recruitment-attraction effort, was more intended to focus on existing Michigan firms. But having served fourteen years as governor (Michigan’s longest-serving), Milliken did not stand for election that November, 1982. The election was won by a Democrat, James Blanchard who ran on a platform “that stressed three priorities: “Jobs, Jobs, Jobs”[xii].

 

The Blanchard Administration

The recession had left Michigan’s fiscal condition in tatters and Blanchard inherited a severe budget crisis (a deficit of $1.7 B) that affected his ability to finance new initiatives—as did King and Dukakis in Massachusetts. His first two years were troublesome and controversial and in the next election he lost control over the Senate, and his tax increases intensified Republican opposition. Blanchard, like Dukakis and Pennsylvania’s Thornburgh, created a cabinet council for “Jobs and Economic Development” to create an action plan/strategy and coordinate (implement) his administration’s ED activities. Working with Washington D.C.-based consultants, the council’s executive director developed initiatives that could address Blanchard’s campaign priorities. Indeed, his first two executive orders made economic recovery and job creation his critical administration priorities.

 

Blanchard’s first administration, despite the radical departures discussed below, confronting a huge fiscal crisis and high unemployment—and Reagan—followed fairly convention cost minimization mainstream ED strategies (cut small business taxes, lowered unemployment rates for new hires, deregulated IPOs and franchise formation, supported small business incubators and cut red tape in general[xiii].  Industries were targeted (forestry, food products, and automobile suppliers—traditional Michigan sectors). Projects and initiatives generated much heat and media coverage, but led to few changes. The council was disbanded in 1985. More helpful were two other commissions, also established in his first administration” the Governor’s Commission on Jobs and Economic Development” and the “Entrepreneurial and Small Business Commission”.

 

Headed by Lee Iacocca (president of Chrysler) and Douglas Fraser (UAW chief), the Commission of Jobs and its subcommittees tacked business climate problems, and in particular focused on auto manufacturing and related auto parts/supplier industries. This stress was congruent with concerns that dominated the Great Reindustrialization Debate at that time—issues that focused on Japanese competition, union-management issues, productivity, and some corporate strategy. Cost reduction and well as productivity innovation were core themes. The Commission on “Entrepreneurism” also privately led, attempted to improve the state’s small business climate—less paperwork, deregulation, and the establishment of a ”strategic fund” for a (SBA) Small Business Lending Corporation which set up small business incubation centers. As such Blanchard’s first term ED focus was effectively well within the parameters of “mainstream economic development”, and was delegated to a private EDOs—using private funds whenever possible.

 

To handle these strategies, Blanchard required a new lead EDO. When he arrived in office Blanchard inherited a practically broke budget, “an old industrial development bond agency, Milliken’s new loan fund (Michigan ED Authority). He merged them into a single Michigan Strategic Fund, added his programs, and transferred MEDA’s funding base (oil and gas leases from state land) to the new fund (today lodged in the Michigan ED Corporation).This was the fifth major  restructuring since 1947 (Public Law 270) Empowered to issue bonds, foster public/private initiatives, and make investments and grants in private (and nonprofit) firms it developed new programs to assist small business, including a bank “loan loss reserve fund” to push them into riskier loans (borrowed from Jerry Brown’s California through Hansen), and Pennsylvania’s capitalization of new seed capital early state financing funds. Further the Strategic Fund capitalized a state-level Business and Industrial Development Corporation (BIDCO) also based on the California model that could spin off SBA SBIC funds. It also copied (Massachusetts and Connecticut’s” Product Development Fund.[xiv]

 

In Blanchard’s administration, it was “what you don’t see” that turned out to have the most important legacy. Secretly formed (1983) as a task force within his office, headed by a former legislator who in 1984 was appointed Blanchard’s secretary of Commerce, and primarily composed of academic researchers, developed over the next year a long-term ED strategy for the State—and Blanchard’s next election.. Its job was to figure out what was going wrong with Michigan’s economic base, and to figure out how to change that base to produce growth in jobs and prosperity. The group’s final report (1984), entitled “the Path to Prosperity”, publically released in 1984 stressed strategies that:

 

• fostered within its manufacturing base new processes, products, and production technologies; led and financed by private firms and money;
• but supplemented by state initiatives/finding in education, applied research, and training for workers that were “displaced” by such innovation and productivity enhancements.

 

The first set of initiatives were mostly a continuation of Milliken’s centers of applied research which, as previously described, were ongoing during the Blanchard administration. The second set, however marked a fundamental departure from conventional mainstream ED and strongly hint at the beginning of a more Progressive state-level CD/ED approach.

 

In particular, the Plan for Prosperity shifted Michigan State ED (a) away from external recruitment/attraction financed by state incentives and from assistance to failing (4^th or 5^th phase profit life cycle) resident firms, and a noticeable (b) de-emphasis on a business climate cost reduction strategy which, it believed would yield little benefit in the short-term, and (c) into a new policy strategy—direction which called for “innovation” in the form of new products/processes which state programs could assist in creating. “The Plan argued that (Michigan’s) future lay in the development of advanced, automated manufacturing … [using] new technologies to [“Get Smart} and position {Michigan]” as manufacturing’s cutting edge. The Plan legitimized the State’s embrace of “innovation” (automation, robots, machine-vision systems, laser instruments, computerized machining and flexible manufacturing systems[xv]) because “products and processes produced through innovation tend to be commercialized near the place they are invented. Existing firms in the region where an innovation occurs, generally learn about it before distant competitors …. That means more jobs for Michigan”[xvi].

 

The report characterized industrial innovation as a five-stage process that began with basic research, moved into industry-specific applied research, to actual product development, then commercialization, and finally marketing and market share acquisition. Each stage called for a different set of public (and private) initiatives/financing. Government involvement was substantial in the initial stages and tapered off considerably in the later stages. Blanchard proposed a $25 million “basic” research excellence fund to the four universities identified with the centers for applied research. University fiscal restraints caused by budget cutbacks and reluctance to raise in-state tuition meant the fund, minimally controlled, was often diverted into other uses.

 

Since the centers for applied research were second stage initiatives, and since they were firmly launched and largely on their own, Blanchard moved onto third and fourth stage public investment. The Michigan Industrial Technology Deployment Service began operations in 1985 supporting CAD and manufacturing-related technology.[xvii] A five university consortium set up a state-level “Technology Transfer Network”, with a bit of Dept. of Commerce funding. The final state initiative in marketing was headed by Paula Blanchard, the governor’s wife, to market the state’s products (Made in Michigan).

 

An interesting, and controversial derivative from the Plan for Prosperity was its external “non-recruitment” dimension. Here one can plainly see different reactions from mainstream and community development-oriented professionals. The Blanchard administration applied a “cost-benefit” analysis as the first step in determining whether or not to participate in, or make, an incentive-laden deal with private firms threatening relocation or external firms considering a site in Michigan. The University of Michigan was hired to construct an input-output model of Michigan’s economy. The decision to extend incentives was apparently heavily impacted by the governor himself. Michigan’s subsequent “hit or miss” involvement in highly-publicized mobile firms deal-making captured national notice at the time. Michigan did “land” Mazda’s Flat Rock Michigan’s facility, but lost GM’s Saturn plant to Spring Hill Tennessee (GM did locate its Saturn HQ and R&D facility in Troy)[xviii]. A Mitsubishi facility incentive package was not issued as the facility did not justify, as determined by the cost-benefit model, incentives. The plant went to Illinois.

 

To the Great Recession

 

When Blanchard left office in 1991, he was succeeded by Republican John Engler, a former state senate majority leader. He too would serve for two terms. Engler had led the opposition to Blanchard’s 1984 Strategic Fund, decrying the aggressive role envisioned for government into economic development. His specific concern was that Blanchard’s new state role was “to venture into the marketplace to find those companies which some people… deemed to be worthy companies of state investment but unable to attract any private capital …One of the fatal flaws in that reasoning, though, and in the faith placed in government, is that they assume that government might somehow possess the judgement, and the insight and the skill and the financial expertise unavailable in Michigan’s financial community … Well that works fine if you are a friend of [the current] government  … if you know somebody … or any other number of keys [that unlocks] the magic door that controls these funds”[xix]. His clear preference at the time was to attack the negative elements (high taxes) of Michigan’s business climate.

 

In 1995, Engler launched sixth major restructuring of Michigan’s state ED effort by affording full department status to Michigan’s Job Commission. Up to that time, the Commission had informally gathered under its wing over fifty different federal and state programs. Included in the new department was yet another new program, the Michigan Economic Growth Authority (MEGA, PA 24 1995). MEGA launched the state into the business of providing tax credits to private firms and a host of specific business incentives (through 2008 it approved an estimated $5.2 Billion if 455 tax abatement deals job training, and tax credits)[xx]. Over the next twenty years, MEGA in the eyes of many evolved into the state’s principal ED program provider—and a very controversial one indeed. In 1999, new legislation broke the Commission into two parts: Department of Career Development (job training and labor statistics) and quasit-independent Michigan Economic Development Corporation (job creation and retention). MEGA was housed in the MEDC. One could have counted this yet another restructuring, but that impulse has been resisted.

 

Upon Engler’s retirement in 2003, Democrat Jennifer Granholm assumed the Governorship. In the seventh restructuring, she combined MEDC and the Dept. of Career Development under one super-agency, the Department of Labor and Economic Growth (DLEG) to permit centralizing and streamlining the states job, workforce, and economic development functions into one department. MEDC, however, retained its quasi-public semi-independent structure. She picked up on Milliken/Blanchard’s earlier “creation” themes in research in conjunction with state universities and targeted investment in selected industries such as automotive and life sciences. Entitled “the 21^st Century Jobs Initiative” she stressed diversifying the economy through facilitation of advanced technology commercialization based on Michigan university research. She also implemented a previously approved $800mm Engler public works/infrastructure/affordable housing program funded by state private activity bonds. That mirrored a past Blanchard initiative[xxi].

 

In conclusion, Michigan’s definition of innovation and creation strategy, while rhyming with that developed in Massachusetts, clearly tread down a somewhat different path. Massachusetts did not focus on manufacturing as did Michigan, choosing instead to created new technology-based industries. By this time Massachusetts was placing its bets on future agglomerations (clusters—which are not yet an ED strategy); Michigan, quite logically, a mature industrial economy focused its innovation on manufacturing. Private involvement during these years in both states was substantial, but while Massachusetts targeted its state-level initiatives formally to distressed areas, targeting in Michigan was more informal and driven by private location preferences than public sector criteria.

 

The formal rational cost-benefit-driven recruitment strategy was the first this researcher encountered. Michigan’s (and Massachusetts as well as the other states) were making policy coming out of a severe recession, had witnessed the implosion of their Big City hegemony, were followers of the Great Reindustrialization Debate, and by the 1980’s were confronting regional change and the rise of the South—and, of course deindustrialization. Yet, it seems the politics associated with policies discussed in this section, with the exception of external attraction, resulted principally from domestic Michigan dynamics and politics. The entry into “creation” or “demand” economics resulted less from economic theory than from the almost natural impulse to work with the existing state economic base and develop its innovative potential. Where technology was strongest (California and Massachusetts), innovation and creation assumed early cluster-building forms; in a mature industrial state economy, innovation and creation was applied to assist its troubled existing economic base. In both cases, universities and higher education played a major role in policy formulation and implementation.

 

A New State Strategy alongside a New Local Strategy

 

Identifying which jurisdiction level is doing what and why during this period is not easy.  In these early years states did not press a button and substitute itself for local economic development. The State entry  in-state-level ED, required not only supporting locally-driven ED strategies but, as we have seen, developing its own strategies that reflected its larger scope and multiple jurisdictional economic bases, disparate geographies and industries/sectors. The entry of states as major players in ED was additive in these years, not substitutive. In Michigan’s case, Milliken and Blanchard developed from Michigan roots, a “creation” or “Eisinger-demand” strategy that emphasized universities, industry/sector/firm creation and development through innovation and the conscious and targeted use of government where it could play a role—while doing its part to clean up its business climate through traditional cost reforms but also by setting up a state-wide system of applied centers of research and agencies tasked with improving firm products, markets, and processes that implemented a new ED strategy based around a “plan”, in Michigan’s case, its gubernatorial/university driven 1984 Path to Prosperity.

 

Apart from the goings on at the state level, It seems abundantly clear local governments and private EDOS were facing their own disruption: fiscal distress, Big City implosion, deindustrialization, political disorder and system change—and the final ending of federal urban renewal. Nixon’s cutbacks and the 1974 abrogation of federal urban renewal funding formally ended the Age of Urban Renewal—but in no way did it end local government/policy system abandonment of physical redevelopment as an ED strategy. Jurisdictions turned instead to tax increment financing and an intensive use of BIDs and downtown redevelopment districts of some type. In 1970 only six states had adopted TIF, and California its creator only had authorized 76 jurisdictions. With the demise of urban renewal TIF entered into its most prolific diffusion.

 

Localities turned to the State to authorize TIF and empower municipalities to set up EDOs, TIF districts, tax abatements, bond issues and a variety of accompanying authorizations. State involvement in TIF implementation varied by state with some states carving out a role for themselves—others decentralizing it to local priorities and administration. In California for example, TIFs and redevelopment agencies became a dominant feature of the state’s sub-state economic development landscape, with the state periodically responding to one or another abused constituency through regulation. Michigan was another aggressive TIF user.

 

Michigan wasted little time, its initial entry into TIF was the 1975 Downtown Development Authority Act. The act empowered cities, villages and townships with a downtown business zone to form a Downtown Development Authority (DDA) to conduct a tax increment strategy within its boundaries, subject to the conditions and stipulations set forth in the legislation. The act enjoyed a hearty local reception as many jurisdictions set up their DDA. The 1978 Commercial Redevelopment Act permitted private tax incentives/abatement for redevelopment of commercial property up to twelve years as specified by the jurisdiction; the act set conditions and parameters for eligibility and issuance, but approval was made by the local government. A series of state enactments over the next thirty years[xxii]

 

Michigan, for example, beginning in 1975 entered into what proved to be a long-standing locally-driven TIF-Downtown, Commercial Redevelopment strategy that led to the creation of a considerable number of local EDOs (often nested in larger EDOs) and expanded the use of TIF for historic districts, brownfields, corridor improvement, water infrastructure and even into neighborhoods and neighborhood infrastructure as well as commercial revitalization. TIF was subsequently used to demolish porn shops, public improvements, build convention centers, and build a ballpark for the Lansing Lugnuts. By the second decade of the 21^st century, there were literally hundreds of jurisdictional development authorities (634 in 2013[xxiii]) and god knows how many TIF districts in place (an estimated 1300 by 2011). In 2011 Battle Creek, Detroit, Lansing and Pontiac alone were carrying almost $179 million in debt. Some districts were in trouble; others running annual deficits[xxiv]. Still TIF continues in use and remains a dominant Michigan local government/policy system redevelopment strategy.

 

The take away, lesson intended from this section, is the reader should not assume that as states expanded their role into economic development, becoming not only major but perhaps the predominant player in state and local government, it did not necessarily, inevitably or even “usually” mean that it replaced local government as an economic development player. Instead, each level “carved out” its division of ED labor, with the two levels responding to demands from their respective policy systems—often producing policy outputs from quite different strategies and following their own definitions of goals and desired outcomes. One of the findings from this period, is that states did not substitute for local economic development activities and responsibilities but set for themselves new tasks and purposes congruent with their policy systems and multiple and diverse jurisdictional policy systems and economic bases.

[i] Michael LaFaive, “A brief history of state economic development”, Mackinac Center for Public Policy, 7375, p. 3, Oct 6, 2005. Direct quote from Kim Sigler’s 1947 State of the State address, in Gleaves Whitney and William Cron (Ed) Messages of the Governors of Michigan, Vol. 6

[ii] Gleaves Whitney and William Cron , op. cit., p. 248

[iii] James M. Hare, Public and Local Acts of the State of Michigan (Lansing Michigan, Thomas Inc., p. 159-60.

[iv] Jackson “Michigan”, R. Scott Fosler, State, p. 96-7.

[v] David Osborne, Laboratories of Democracy (Boston, Harvard Business School Press, 1988), p. 149.

[vi] Jackson “Michigan”, R. Scott Fosler, State, p. 97-8.

[vii] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., p.150.

[viii] Michael LaFaive, “A brief history of state economic development”, Mackinac Center for Public Policy, 7375, p. 5, Oct 6, 2005.

[ix] Governor Milliken, quoted in Jackson, “Michigan”, R. Scott Fosler, State, p.115.

[x] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., p.256-7. Washington State Investment Board in 1981 had, sans public statute, authorized participation in equity investment for computer-related firms.

[xi] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., p.257.

[xii] Jackson “Michigan”, R. Scott Fosler, State, p. 117.

[xiii] David Osborne, Laboratories of Democracy (Boston, Harvard Business School Press, 1988), p. 151.

[xiv] David Osborne, Laboratories of Democracy (Boston, Harvard Business School Press, 1988), pp. 160-1.

[xv] David Osborne, Laboratories of Democracy (Boston, Harvard Business School Press, 1988), pp. 152-3.

[xvi] Plan for Prosperity (p. 77) quoted in Peter Eisinger, Rise of the Entrepreneurial State (op. cit.), p. 232

[xvii] The Service came from a Michigan automotive industry study by Department of Commerce and Dan Lurea’s ITI. Jackson “Michigan”, R. Scott Fosler, State, p. 130; see also Osborne, op. cit., pp. 166-7.

[xviii] See David Osborne, Laboratories of Democracy (Boston, Harvard Business School Press, 1988), pp. 167-70.for detailed composition of the incentive packages.

[xix] Michael LaFaive, “A brief history of state economic development”, Mackinac Center for Public Policy, 7375, p. 4 Aug 31, 2095.

[xx] Michael LaFaive and James Hohman, the Michigan Economic Growth Authority, Mackinac Center for Public Policy, 7375, pp 7-8, Oct 6, 2005.

[xxi] Michael LaFaive, “A brief history of state economic development”, Mackinac Center for Public Policy, 7375, pp. -8-9, Oct 6, 2005.

[xxii] 1980 Tax Increment Financing Act, 1986 Local Development Financing Act, 1996 Brownfield Financing Act, 2004 Historical Neighborhood Tax Increment Finance Authority Act, 2005 Corridor Improvement Authority Act, 2007 Neighborhood Improvement Authority Act 2008 Water Resource Improvement Tax Increment Authority Financing Act, 2008 Non Profit Street Railway Act, and 2010 Private Investment Infrastructure Funding Act,

[xxiii] Drew Krogulecki, State Notes, Topics of Legislative Interest, Winter 2016.

[xxiv] Rick Haglund, “Tax Increment Financing Authorities”, August 16, 2012; www.mlive.com/politics