2500 jobs

A few news outlets have picked up the story that GM will re-open two plants in Michigan, making small cars:

http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSN2632793120090626

...and GE is creating an "Advanced Manufacturing and Software Technology Center" near Detroit. Check out Granholm starting to reach around and pat herself on the back:

http://www.nytimes.com/2009/06/27/business/27electric.html?ref=business

This is a Good Thing, right? Together they'll create an estimated 2500 jobs Michigan didn't have before. Isn't that a win for Michigan?

Here's why not:

• Making cars in Michigan is not sustainable long-term, especially when you're competing with small (less revenue) Indian car makers. Once GM figures out if it can sell the cars it's making in Michigan, it will then offshore the work to workers not making $60K.
• GE's research center will inevitably focus on manufacturing, not software. (Like how they tacked that on at the end of the name to make it sound "techy" and less rust-belt-ish?) If Michigan is going to get away from a manufacturing-based economy, what good is a manufacturing research center? They should have named it "Advanced Buggywhip Manufacturing Research Center".
• Michigan's unemployement rate is 14.1%. When taking 2400 unemployed off the streets, the unemployment rate drops to 14.0%. Giving huge incentives to these two dinosaurs doesn't scale. How far could those millions of dollars have gone in venture capital? Or tax reductions for small businesses?
• The overall business attraction of Michigan hasn't changed. Small businesses are still taxed at some of the highest rates in the country. Of course, the fat cats GM and GE, both of whom pulled thousands of jobs out of the state, get the tax break.

These deals tell me the state is desperate. They're throwing money at anyone with any jobs, regardless of how long those jobs will stick around, how much they'll benefit the state, or whether anyone even wants those jobs.

Way to go, Granholm. Anyone can buy jobs. Why don't you try creating some?

Pure Michigan

Oh, Michigan. You make me laugh.

Recently, a series of "Pure Michigan" commercials started playing in prime time on channels I usually watch; they depict tourists golfing, boating, enjoying Michigan's more idyllic scenery and Detroit(?!!) They must have found the one day out of the year to film that it's not covered in ice or raining. But I digress.

It's not uncommon for states to advertise, as I see commercials for California tourism all the time ("When cahn you staht?" ~ Arnold). But there are other commercials showing folks like Jeff Daniels touting Michigan's economic development. And when I picked up a recent Inc. magazine, inside was a full-page ad for the "Michigan Advantage". It's pretty clear that someone thinks Michigan's road to recovery leads through advertising to small businesses. It makes total sense -- small businesses create jobs, and jobs create stability and prosperity.

But marketing isn't the problem here. People know Michigan is still there. They know its economy is in shambles. Why wouldn't businesses zoom in to take advantage of low rents, cheap labor, and the venture capital / loans Michigan is offering? Not to mention the very tasty cherries?

The real problem is the Michigan Business Tax, and its predecessor, the Single Business Tax, which was so bad that voters repealed it. It's common knowledge that these taxes are...significant. Businesses that are at all successful don't want to move to (or start in) a location with taxes that are higher than other states' -- this shouldn't be a surprise. Michigan, your taxes are too high compared to other states' to attract entrepreneurs.

But what about the economic venture funds and loans they advertise? Here's a news flash: other states have more extensive and accessible venture capital markets. If I were starting an alternative energy company, why wouldn't I locate where there is significantly more VC (and more sun/wind), like Silicon Valley? And typically, businesses don't take their venture funding to pay taxes either.

It's not an easy position to be in: the state has to balance taxing small businesses and large automakers. But either you're moving forward or you're not. Here's a crazy idea: increase taxes on sacred-cow automakers (who are laying off and on their way out of the state anyway), and lower/eliminate taxes on small businesses. Is that too naive?

Tourism is great and brings money to the state, but it's seasonal and is only likely to appeal to staycationers from nearby. Instead of running commercials to come and play golf in Michigan, perhaps the state should save the money and lower taxes on small businesses to be competitive with more business-friendly states like Nevada or North Dakota.

Michigan, I will still enjoy your tourism commercials with a good laugh. Let's hope hunting licenses make up for all of the small businesses starting elsewhere instead.