You don't have to be from Michigan to know how bad the Michigan economy has become. There is little positive news emanating from Detroit outside of sports as 2/3 of U.S. auto companies have essentially become nationalized. The state unemployment rate is at 12.9% and climbing. There is a net outflow of people to other states in hopes of finding better prospects for themselves and/or their families. Taxes and union favoritism have tainted the State as unfriendly to businesses, leading the Governor of Michigan to heavily subsidize the businesses that do locate to the State. A recent article in the Detroit News says that the State owes the Department of Labor $2.2 billion in borrowed money for unemployment benefits:
"...during the second half 2008, the state started running behind and the debt ballooned.
""We have about 470,000 people who are claiming unemployment benefits," Isotalo said. At the 2008 average, that's a total of about $141 million in unemployment checks every week. "There's a lot of money going out in benefits right now."
"Michigan paid 4.8 percent interest on its debt to the U.S. labor department last year, and was ready to collect a state "solvency tax" from employers this year, until the Obama administration waived interest on the loans for this year and next. That spared employers a $40 million tax hit, but only for the moment. Under federal law, the borrowed money will have to be repaid through the Federal Unemployment Tax, state officials said, starting in 2010.
"That will cost employers about $21 per worker per year, in addition to regular state unemployment taxes that increase when companies lay off workers who collect more in benefits than employers have paid in to the state system.
"The effect, however, could be to dampen the recovery or deepen the losses to businesses still struggling to rebound, and could mean more layoffs, delayed hiring or other cutbacks for business, said Wendy Block, director of health policy and human resources for the Michigan Chamber of Commerce."
"That extra $21 is going to have to come from somewhere," she said. "The only other alternative would be to increase taxes in some other way through the system. There's really no good alternative to the future tax increase."
In business, we call this a "death spiral." Governor Granholm's administration, in the face of challenges at the U.S. auto companies and in Detroit in general, has only hastened this death spiral by not demanding transformative innovation and new practices in governorship and economic leadership. She constantly overplays her successes and underplays her failures to the point of blaming them on everyone but her own administration. By any measure, Governor Granholm has been at best mediocre and mostly an obvious failure.
So what needs to be done? The Granholm Administration will be gone after 2010, so everything is currently be prepped for hand-off to her assistants in this failure. It is obvious Michigan needs a change in governorship, but will the majority of the electorate realize this or continue this masochistic dive to the bottom of the U.S. barrel? A recent article, titled Piecing Michigan back together, offers some ideas around three areas: leadership, entrepreneurism, and leveraging key assets.
On leadership, I agree with the authors that Detroit's new mayor offers a ray of hope:
"Until there is a decision to put Michigan on a sound fiscal footing, there will be no structural integrity to the state budget. Businesses will be reluctant to invest in Michigan because they fear more taxation will be required to support the state government's spending levels.
"There also are new leaders arriving on the scene and with such change there is always an opportunity to do great things.
"Detroit's new leadership presents such an opportunity. The region and state must rally around Mayor Dave Bing, and Detroiters need to seize the moment to tackle the tough reforms necessary for the city's revival."
On entrepreneurism, the authors write of common sense absent in Lansing:
"Michigan must be attractive to individuals willing to open new businesses and to create new jobs, not driving them away by making it more expensive to live and work here. The way to grow the state is to restructure Michigan's tax system to be more competitive with the states we most often compete with for jobs. Being an "average tax" state is not good when the states we compete with have "below average" costs. When you add in wage, benefit, energy and regulatory costs, Michigan becomes an "above average" cost state.'
They also smartly mention logistics:
"Logistics is another industry that will allow Michigan to diversify its business base, attract new investment and grow additional jobs. The Detroit region is ideally suited to capitalize on the way global commerce is conducted in today's fast-paced world. We have the transportation infrastructure -- the roads, railways, water routes, international border crossings and airports -- to become a major center of international trade. These are all great assets that we can build on to continue economic diversification of the region."
In leveraging key assets, the authors mention an exceptionally high concentration of highly skilled engineers, the excellent, world class universities and colleges, and an international border ripe for expanded trade. These are of course excellent assets to leverage and build a stronger foundation for the future upon.
The Granholm Administration has presented its vision and we have seen it play out, falling flat year after year. I believe the longer you let a bad thing go on, the more dramatic an action is required to turnaround. In my opinion, we are fast reaching such a dramatic turn of events.
Our governor may be likeable as person in the eyes of many, but her performance speaks for itself. If Governor Granholm were taking her governorship of Michigan on the show The Apprentice, Donald Trump would have booted her out with an emphatic "you're fired!" I hope the Michigan electorate realizes over the next year the need for a dramatic change in state leadership.
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