The power of place: How Michigan's assets fit into the next economy

When it comes to thinking about the next economy and how to move cities and regions forward, Bruce Katz is one of the smartest guys in the room. As a vice president at the Brookings Institution and founding Director of the Brookings Metropolitan Policy Program, he is usually busy advising local and national leaders on what cities and metro regions need to do to succeed. He was in Lansing recently and talked to news editor Natalie Burg of Capital Gains.

: What message do you have to share with Michigan?

Katz: I'll be talking about the need to move to a different economic growth model in the aftermath of the recession. So, I think the economy that preceded the recession was characterized primarily by consumption and debt and, frankly, innovating in the wrong things. And so for the country as a whole, we need to shift to an economy that is driven by exports and powered by low carbon and fueled by innovation. And cities are really the vehicles for getting us to that next economy because they really concentrate all the assets that matter.

Q: In a video on the Brookings Institution website you talk about the concept of production over consumption being important to the new economy. How does that apply to Michigan?

Katz: I find Michigan to be a state and an economy that actually is more situated in the next economy than most other parts of the county. It's a big exporter. It's still a manufacturing hub. Because of (Michigan State University) and the University of Michigan and its presence in the production area, it's an innovation hub.

In some ways the prior economy that was so focused on real estate and consumption penalized Michigan. There are so many--particularly federal--subsidies that have tilted the economy toward consumption, it sort of bypassed Michigan. If the U.S. is going to shift to a different growth model, frankly, the industrial heartland is well-prepared to be at the vanguard of that shift. You can see Canada from Detroit. Unlike other parts of the world.

And so I think, in some respects, the nation and our national policymakers have diminished the kind of assets that Michigan has had. The other thing Michigan has is a very high quality of place because of its natural treasures. I mean, it's a peninsula. It's a really unique, distinctive place in the world. And so it really marries up this agriculture tradition, manufacturing, innovation and the environment. That's a pretty powerful mix. Very few states in the country and very few places in the world can match up to it.

If the nation can move toward the right kind of growth model, Michigan can succeed, and Michigan's success will be, frankly, dependent on cities and metro areas and building on their assets.

Q: Can you talk about your emphasis on the importance of these metro areas as opposed to "small town America?" Does that mean, for Michigan, just Detroit or also mid-sized cities like Lansing and Ann Arbor?

Katz: I think all of the above. I think Michigan has 15 metropolitan areas. They're about 80 percent of the population and about 85 to 86 percent of your economy. Every one of these places has sort of a distinct set of assets and attributes.

Frankly, they relate to each other more than people think. Because of the auto supply chain, because of life sciences or because of food to market. This is a very integrated state in some respects, compared to other states where the western part of the state has nothing to do with the eastern side of the state. This state is actually more of a holistic economy.

So, I think the challenge for Michigan is really the challenge for the country: to understand that as you move to this different kind of economy, what you want do and what you want to build on are the distinct assets of different places.

The U.S .has been through 30 years of what I would call cookie-cutter growth. It never differentiated between Detroit and Denver, or Charlotte and Cleveland. Because the growth was consumption-led, it just focused on retail and housing. Well, there isn't that much difference between a Wal-Mart in suburban Detroit and a Wal-Mart in suburban Denver.

There's a huge difference in between what Detroit exports and Denver exports. Or what Grand Rapids innovates on and what another metro in the country innovates on. So differences actually matter and they should be exploited and leveraged. I think that's a very powerful message for the country. I generally feel that the U.S. has been through a shock and we need to recognize it's not enough just to recover from the recession, we need to retool and restructure. It's a different kind of challenge we have before us.

Q: So, what you're saying is that Michigan, because of our manufacturing base and integrated economy, is in a good position on that road to retooling?

Katz: I think manufacturing, innovation a global orientation, frankly, a receptivity to immigration. You already have a strong level of foreign investment from Japan and Germany. You're very open to this, unlike other parts of the country.

You, potentially, are well aligned with this different kind of growth model. I mean, in other parts of the country all they've had for 15 or 20 years is housing growth. You don't build a national economy based on housing. You build it based on manufacturing and innovation and exports.

Q: One thing you've mentioned as a priority for the new economy where Michigan may have room to grow is your emphasis on low carbon and mass transportation. We don't have a lot of high-speed rail here. Should that play into our retooling?

Katz: We all need to recognize that the transition to the low carbon economy is very real. This is not an environmental imperative only; it's a market proposition. And other parts of the world, particularly China and Germany, are trying to out-compete us on alternative energy and clean energy. It covers a broad swath of issues.

I think what Michigan needs to reckon with is which part of the low-carbon economy can you be best at in the world--not just domestically, but in the world. I do think that because of your manufacturing heritage you might be the production center for the low carbon economy. We need to manufacture solar, wind turbines, sustainable infrastructure, sustainable products.

I think there are so many investments that have to be made around transportation, around energy, around university innovation, around manufacturing, that, for me. it's not clear to me that high-speed rail would be my first priority. I might be more focused on investments in advanced manufacturing or some of the purposeful clean energy engagements.

I don't really think about transportation as separate from these other things. I regard it all as critical to move to a low carbon economy. What the state needs to do is to make smart bets on things that really can propel the state forward over the next, not two years, but 20, 30 years.

Q: And what might some of those bets look like?

Katz: Between MSU and U of M you could become a clean energy R&D hub. Or because of your agricultural portion of the economy, the whole level of innovation around food and the natural environment could be a niche for you.

So you should be generating the ideas here, you should be financing them, attracting more resources, particularly from outside the state and also inside the state, and you should be manufacturing more of the products you invent as opposed to having it outsourced somewhere else.

In some ways it might make more sense for Michigan to be manufacturing some of the high-speed rail components than to actually build them. Michigan doesn't have mature short transit systems in its major metropolitan areas. I might make an argument that high-speed bus might make more sense for Michigan than high-speed rail.

Q: And that is because, if you made high-speed rail stations, how would people get to them?

Katz: Well, you want ask yourself the question, and it might be a different answer in Michigan than, let's say, Ohio, because your metros really do relate to each other. So there might be a rationale to build high-speed rail, not just within your metros but up to Montreal and on through to Chicago. But if the question is economic growth there's probably a lot other investments that would have a much higher return, particularly for low- and moderate-income people than high-speed rail.

I'm worried that given the sprawl in Michigan that a lot of low-income people can barely access jobs, because jobs have decentralized so radically. That's why I'm more focused on high-speed bus, which is something that Latin America has perfected, as opposed to high-speed rail. I think it's a question of your place and what your specialized needs are.

Q: What about all the hype about Detroit shrinking and sprawling? Does that mean Michigan should be pushing against that, and how would we go about it?

Katz: I think the broader question for Michigan is, when you're competing for talent, not just domestically, but globally, the younger generation in the world is looking for quality places. A lot of those quality places would be traditional cities with their downtowns and their waterfronts and their cultural institutions, and that sort of magic mix of street life. If you don't have cities that have that, it's hard to imagine how you can compete for the talent of the world.

So, Detroit's challenge is really Michigan's challenge; it's not their problem, it's the state's problem. The state does have some incredible places, obviously. There are a whole host of places that are pockets of urbanity and density. It needs more of that, or you'll see this drift out of the state.

Q: Are there any final thoughts that you have on Michigan's transition to this new economy, and how we can better prepare ourselves?

Katz: Be focused and disciplined. It's a brutal world out there.

This Q&A first appeared in Model D's sister publication, Lansing-based Capital Gains.

Bruce Katz photograph copyright Jim Harrison.

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