Rural Michigan in the Global Economy

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Rural Michigan in the Global Economy

• George Erickcek
• W.E. Upjohn Institute for Employment Research
• April 25, 2007

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Agenda

• Economic Outlook
• Global The U.S. is expected to lag the world.
• National Slower growth in the next two years.
• State Dont go there.

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Agenda

• Performance of Small Cities in Michigan
• What matters for population and income growth.
• Finding Stickiness in a Slippery World
• Spatial consequences of product cycle.
• Old fashioned economic thinking.

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Findings

• The major factor determining the growth potential
  of small towns is their proximity to metro areas.
• Industrial structure does not influence growth.
• Educational achievement of residents is highly
  correlated with income.

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Conclusions

• Small rural cities compete directly with
  developing nations for manufacturing activity.
• Small rural cities do not have the agglomerative
  services related to product development.

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Conclusions

• Strong argument for looking internally for
  growth
• Economic gardening
• Social capital
• Asset-based community development
• However, the standard economic model suggests
  that internal growth potential may be limited.

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The U.S is expected to lag the world in rate of
growth.
Source Global Insight Inc. and the U.S. Energy
Information Administration.
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So what?

• Often, it is best to produce where you sell.
• Cultural factors
• Cost factors Is it even economically feasible
  to build a car for the China market in the U.S.?

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So what?

• The U.S. no longer produces goods for the
  consumer market except for some big ticket
  items.
• If you can turn it over, it is made somewhere
  else.
• U.S. manufacturers are still successful in making
  hard-to-ship and high-technology products.

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So what?

• U.S. role in the world economy has become
• One of the Global Command and Control Centers
• Professional and Financial Services
• Agriculture
• International Consumer Marketplacesupported by a
  growing foreign debt

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Forecasters are expecting the national economy to
slow down next year.
U of M revised its 2007 forecast downward from
2.9 to 2.4 at the end of March.
Source Philadelphia Federal Reserve, Q3 2006
forecast U of M, U.S. Economic Outlook Executive
Summary, March 31, 2007.
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For the nations manufacturing states, employment
trends are worrisome.
Thousands of jobs
Manufacturers eliminated 16,000 more workers in
March.
Source BLS.
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Production Index and U.S. Manufacturing
Employment Manufacturing is doing great!
A new study co-authored by Susan Houseman of the
Upjohn Institute, suggests that when temp workers
are included, employment is up and productivity
is lower.
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The Big Threes North American market share
dropped from 57 to 52 percent in 12 months.
GMs sales fell 16.6 Fords sales plunged 20.0
In the first quarter, Toyota grabbed the number
one spot for world production.
Source Wards AutoWorld.
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Outlook for Michigan and the Big Three

• Big Threes market share to drop from 55 in 2006
  to 49 in 2011. For every 1 drop in share, we
  estimate a loss of 5,700 jobs in Michigan.
• Wards AutoWorld predicts production capacity in
  the state will decline by 2.9 from 2006 to 2010,
  with Ontario becoming the top producer.

Source Wards AutoWorld.
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Michigans Economy

• It is ok to close your eyes.

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Michigan lost 351,500 jobs from February 2000 to
February 2006. We have never been here before.
55,000 jobs lost in the past 12 months
University of Michigan is forecasting that
employers will cut another 27,000 jobs in 2007
and 13,000 in 2008
Source BLS.
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Michigans employment conditions are very
different from the rest of the nations as a
whole.
Source Upjohn Institute. Based on seasonally
adjusted BLS CES data.
19
Employment levels in other states throughout the
region have struggled, though not as badly as in
Michigan.
Only Wisconsin has seen its employment levels
grow above the average levels seen in 2000.
20
Statewide, non-metro areas did better than metro
areas, from 2001 to 2004.
Source BEAREIS.
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Performance of Small Cities in Michigan

• What are growth factors?
• What is its role in the product cycle?
• Does the old standard economic development model
  still apply?

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Performance of Small Cities in Michigan-
Population growth 00-05

• What matters, statistically
• Manufacturing employment NO.
• Educational achievement NO. (???)
• Professional services employment YES for rural
• Past growth YES.
• Percent of population gt65 YES. (negative)
• In a MSA YES.
• Not surprisingly, those located in a MSA do
  better than those outside a MSA.
• Bedroom communities supported by income earned
  outside the city
• Agglomerative effects

A small city is defined in 2005 as one having
fewer than 20,000.
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What about per capita or household income growth?

• One factor stands clear
• Educational achievement of residents who work in
  the area or commute.

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Can you detect a pattern? I cannot.
Population Growth 00-05, Working in
Manufacturing 2000.
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Percent of residents who are knowledge-based
workers makes a difference in rural areas.
Pop growth
Population Growth 00-05 in Rural Areas, Working
in Professional Services 2000.
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All of the states 20 fastest growing small towns
are in metro areas.
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17 of the states 20 most declining small towns
are in rural counties.
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Spatial Consequences of Product Cycle
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Regional Aspects of a Product Life Cycle
Stage 1 BirthAn environment of entrepreneurship
Stage 2 Product development and wealth
creationAn encouraging environment for success
Stage 3 Product standardization Low cost,
competitive environment
Stage 4 DeathAn environment of abandonment
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Stage 1 BirthAn environment of entrepreneurship

• For knowledge-based industries a metro
  environment is more conducive.
• Universities
• Strong industrial clusters
• Face-to-face contacts
• The importance of the internet and
  telecommunications overrated at this stage

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Stage 2 Product development and wealth
creationAn encouraging environment for success.

• For knowledge-based industries a metro
  environment is more conducive.
• Venture capital linkages
• Strong business and professional services
• Face-to-face contacts
• Quality of life

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Stage 3 Product standardization Low cost,
competitive environment

• Rural areas become attractive
• Low costs
• Good work ethics
• Low unionization rates
• Major barrier
• Little research and development activities,
  meaning that there is little chance for new
  product development

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Spatial Pattern by Type of Industry
National and regional market centers
Crowded out of Metro Core by land prices
Final product easier to move
Face-to-face, clusters, university focus
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Regional Aspects of a Product Life Cycle Perhaps
the best route for Michigan
Stage 2 Product development and wealth
creationAn encouraging environment for success
Stage 3 Product standardization Low cost,
competitive environment
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Conclusion

• Rural cities are turning to the inside game due
  to the harsh global environment.
• These actions are warranted, however expectations
  must be controlled.

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Conclusion

• Economies grow by selling or attracting income
  from the outside
• Old fashioned exporting dominated by
  manufacturing
• Tourism
• Commuters

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Basic Economic Model
Non-export activity Indirect Induced
Export activity
Manufacturing goods Tourism Regional shopping
malls Social Security
Small convenience retail Restaurants Outpatient
medical Personal services Copy shops
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If focus is on non-export based activities

• A new coffee shop a better restaurant new
  farmers markets more sustainable business
  practices have limited potential if they
• Do not attract new dollars visitors and new
  residents.
• Do not reduce the existing flow of dollars out of
  the area.
• What about internet sales of home-grown products?

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Stopping the Leakage

• Stopping the flow of dollars out of the
  neighborhood.
• Getting neighbors to decide to retire here and
  not there.

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Closing Worries

• The fight against Big Boxes
• The reality of the importance of price,
  especially for individuals with low income.
• Workforce Issues
• Thin labor markets for professional workers
• Troubling trends for 16 to 19 year-olds.

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Population
Source 2000 Census.
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Rural Michigan in the Global Economy

• George Erickcek
• W.E. Upjohn Institute for Employment Research
• April 25, 2007