Brookings: Topics - Great Lakes Region

Republican Candidates Don't Get Michigan (and Manufacturing)

Jennifer Bradley and Bruce Katz — Sat, 25 Feb 2012 00:00:00 -0500

Politics and economic policy are intersecting right now in Michigan, with important lessons for the rest of the country. Against the backdrop of the federal government’s rescue of the auto industry, presidential candidates are campaigning in a state that took a huge hit in the recession but has since rallied to post one of the strongest recoveries of any place in the nation.

Michigan is ground zero for the ferment in U.S. manufacturing, the sector that has done so much to power the recovery and a surge in overseas demand for American products. The resilience of the auto industry has played a significant role. American vehicle sales rose to 12.8 million in 2011. The Big Three claimed 47 percent of market share, their best showing since 2008.

Ford earned $20 billion, its best earnings since 1998 and its second-biggest annual profit in the company’s 109-year history. GM regained its position as the world’s largest-volume automaker and notched a record profit of $7.6 billion. Chrysler rebounded from a $652 million loss in 2010 to post a $183 million profit last year, its first full year of positive earnings since 2005.

Even if manufacturing does not regain the outsized share of GDP and employment it once had, it remains powerful engine of innovation, a driver of exports that are taming our trade deficit, and a source of good-paying jobs. Successful manufacturers, from giant auto companies to small machine shops, are pivoting to new lines of business like clean energy, adapting to new technology, and embracing a culture of continuous learning.

In states like Michigan leaders are looking to the future, one driven by innovation. By contrast, our national politics is still stuck in the past. Michigan’s GOP primary contest makes this all too clear.

When the leading GOP candidates talk about manufacturing in Michigan, they are usually squabbling over the wisdom of the auto industry bailout. This argument over counterfactuals (would the industry have bounced back without the bailout? How fast?) misses the point - what will the candidates do to make sure that American manufacturing stays strong?

When they do get around to answering that question, Governor Romney and Senator Santorum put forward proposals that show they are only partly listening to what the makers and innovators really need now.

In a speech last week to the Detroit Economic Club, Senator Santorum pledged to eliminate taxes on manufacturers and allow companies to repatriate profits tax free if they invest that money in plants and equipment. He also promised a 20%, permanent R&D tax credit. Governor Romney followed essentially the same script at his own DEC speech this past Friday, although he alluded to the need for greater private-sector investment and the importance of our institutions of higher learning. But, fundamentally, the focus of both candidates’ announced plans is on lowering taxes.

Certainly, manufacturers are very happy to pay lower taxes and welcome more support for research. But 21^st century manufacturing needs a lot more to flourish - and some of that has to come from government.

At a forum on innovation in Washington earlier this month, the chief executives of GE, Dow Chemical and Boeing mentioned tax policy, but they also pointed out the importance of immigration, education (especially in science, technology, engineering and math), attracting foreign direct investment, and the cut-and-invest policies in the deficit commission report. They also stressed the importance of learning from Germany and its interplay of universities, research centers, firms, and workers.

The federal government should be asking the important questions: What do companies and workers need to flourish in an economy driven by production and exports? What are the market gaps in providing capital, or applied innovation, or worker training? How can federal policies galvanize the talents of states and metros where industries are located?

Manufacturers know you can’t get into overdrive if you’re stuck in reverse. As Governor Romney and Senator Santorum travel through Michigan and other states, they should focus on what matters to the people who are driving the recovery and explain how they will deliver. They should aspire to collect ideas, not just delegates.

Authors

Publication: Global Public Square, CNN.com

Image Source: © Sarah Conard / Reuters

Michigan's Urban and Metropolitan Strategy

Thu, 23 Feb 2012 00:00:00 -0500

This report was launched at a February 23, 2012 Detroit Economic Club and Business Leaders for Michigan event. View video from the event »

Editor’s Note: Jennifer Bradley, fellow and co-director of the Great Lakes Economic Initiative, and Bruce Katz, vice president and director, are the lead contributors from the Metropolitan Policy Program at Brookings.

Why has Michigan enjoyed the second-strongest post-recession recovery among the 50 states? Because the state and its metropolitan areas are rich in the assets that will drive the next economy in the U.S. and around the globe.

The recovery has been powered by manufacturing, and Michigan’s metropolitan areas are where innovation prowess meets manufacturing experience. Ninety percent of the state’s high-tech industry employment and 80 percent of its advanced manufacturing jobs are in metropolitan areas. Six Michigan metropolitan areas had a higher number of patents per 1,000 workers from 2001 to 2010 than the average U.S. metropolitan area.
Exports have moved the US economy forward, as our manufactured goods have met ready markets abroad. Michigan’s metropolitan areas are also exceptional at producing goods and providing services that are in demand abroad. Of the 100 largest metropolitan areas in the United States, Detroit is 12th in terms of export intensity (the share of its output that is exported), and Grand Rapids ranks 8th. Thirteen of Michigan’s 14 metro areas are more export-intense than the U.S. average.
U.S. manufactured goods and exports are competitive to the extent that they are innovative. Michigan’s metropolitan areas are home to strong and emerging industry clusters and powerful anchor institutions like universities, medical centers, and research institutes that invent and commercialize new technologies and services.

For the past year, Business Leaders for Michigan, Public Sector Consultants, and The Brookings Institution Metropolitan Policy Program have been analyzing Michigan’s metropolitan areas to determine how state policy can best prepare the state’s metros, its economic engines, for the next economy.

We recommend that Michigan leaders:

1. Strengthen the link between innovation and manufacturing to increase regional exports and attract global investments.

Reorient the 21st Century Jobs Fund to include manufacturing and innovation, particularly among small manufacturers.
Create a strong foreign direct investment (FDI) strategy to attract innovative firms that fill gaps in key manufacturing clusters.
Help small manufacturers and service businesses increase exports through robust export assistance, promotion, and financing.

2. Support strong regional systems to train existing workers and welcome new ones to fuel economic growth.

Use existing workforce dollars to drive regional workforce strategies that match cluster strengths.
Seize the opportunity to demand changes in federal workforce laws.
Help highly educated immigrants gain Michigan professional certifications.

3. Make targeted investments that leverage distinct assets in urban and metropolitan areas to transform regional economies.

Support a small number of urban and metropolitan industry clusters with grants tailored to the specific needs of emerging, existing, or advanced clusters.
Designate one to three new “urban innovation districts” that connect innovation-generating anchor institutions with infrastructure, housing, and amenities, and support them with a 21st Century Places Fund.

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Michigan Poised to Move Ahead in Next Economy

Publication: Metropolitan Policy Program at Brookings and Public Sector Consultants

Image Source: © Rebecca Cook / Reuters

Metropolitan Business Plans Bring Regional Industries Into the 21st Century

Bruce Katz and Judith Rodin — Fri, 20 Jan 2012 09:42:00 -0500

With the economy still reeling from the effects of the recession, metropolitan areas have become increasingly willing to explore new approaches to economic development. Moving away from traditional one-size-fits-all approaches that emphasized Starbucks, stadium-building, and stealing businesses, metro leaders are instead crafting metropolitan business plans that grow jobs from within, building on their distinct market advantages.

By partnering with private industry, nonprofit intermediaries, universities, civic leaders, research institutions, and other interested parties, regional public sector leaders are working to strengthen their economies by focusing on those industries with the greatest potential for future growth.

For some regions, these efforts have involved helping existing firms make the transition to emerging industries. Northeast Ohio’s long struggle with post-deindustrialization was made worse by the Great Recession and the collapse of the auto sector and the foreclosure crisis.

In response, regional leaders came together to launch PRISM, the Partnership for Regional Innovation Services to Manufacturers initiative. The goal of PRISM is to help small and medium-sized manufacturers in old commodities industries, like steel and automotive, reinvent their products and business models to take advantage of growth opportunities in emerging markets like bio-science, health care and clean energy.

Led by the Manufacturing Advocacy and Growth Network (MAGNET), a regional intermediary organization, PRISM brings together higher education institutions, regional economic development organizations, and Ohio’s Edison Technology Centers to provide market research and business consulting services, increase firms’ access to capital and talent, and foster stronger relationships within growing industry clusters. [Full disclosure: The Brookings-Rockefeller Project on State and Metropolitan Innovation provided initial advisory support to PRISM.]

“Through PRISM, we hope to demonstrate that a growing manufacturing sector is not only possible, but desirable for the region,” says MAGNET president and CEO Daniel Berry. “Reclaiming the legacy of manufacturing innovation in Northeast Ohio will enable the region’s companies to create more well-paying jobs.”

In other parts of the country, partnerships are linking up existing industry strengths to create new growth opportunities. To ensure the Seattle region continues to be a global hub of innovation, public and private sector leaders have formed the Building Energy-Efficiency Testing and Integration (BETI) Center and Demonstration Network to develop new products, services and technologies around energy efficiency for customers around the world. BETI capitalizes and integrates this region’s distinct, competitive advantages – unparalleled software and information technology, strong sustainability ethos, an emerging building energy efficiency sector, and strong post-secondary institutions and talent that can support future demand. This is not a cookie cutter idea but one that can best work with the market formula found in the Puget Sound region.

With financial support from a federal i6 Green Challenge grant and a state match, BETI will help local businesses commercialize innovations in building energy-efficient technologies, platforms, and materials by providing product validation and integration services. In addition, BETI will foster greater collaboration among industry stakeholders, including businesses, entrepreneurs, trade associations, local and state government agencies, state universities, research networks, venture capitalists, and regional utilities.

Both Northeast Ohio and the Puget Sound region arrived at these collaborative partnerships during the course of their efforts to develop metropolitan business plans. Like private sector business plans, these regional economic development plans are rooted in market dynamics and competitive assets. The metropolitan business planning process offers a framework for regional business, civic, and government leaders to assess their metro’s distinctive market position, identify pragmatic economic development strategies that capitalize on regional assets and set forth detailed implementation-ready plans for economic growth. Once established, these metropolitan business plans will act as roadmaps for metro economies as they drive the nation toward greater prosperity, increased job creation, and a leading position in the next economy.

Authors

Bruce Katz
Judith Rodin

Publication: The Atlantic Cities

Great Lakes Monitor: Tracking Economic Recession and Recovery in the 21 Largest Metropolitan Areas of the Great Lakes Region

Jennifer Bradley and Richard Shearer — Thu, 15 Sep 2011 15:09:00 -0400

Editor’s Note: This report reflects data from the second quarter of 2011. Please visit our updated MetroMonitor for the latest quarterly data and analysis.

Overall Performance: Recession and Recovery
Great Lakes metropolitan areas reliant on education and government have performed better than most large metropolitan areas in the United States over the course of recession and recovery. Five Great Lakes metropolitan areas were among the nation’s overall strongest performing metropolitan areas; two are educational centers (Pittsburgh and Syracuse), and one is a state capital (Madison, also home to a large university). These three metropolitan areas have also gained government jobs since their prior total employment peaks.

The Great Lakes metropolitan areas in general are enjoying a strong recovery – but auto producing metropolitan areas still have not made up the ground they lost in the Great Recession. Akron, Grand Rapids, Toledo, and Youngstown are among the 20 best-performing metropolitan areas in terms of recovery performance; Detroit’s recovery has been stronger than that of most other U.S. metropolitan areas.

The Recent Pace of Recovery
The second quarter presents a mixed recovery picture in the Great Lakes region. While auto-producing metropolitan areas in the Great Lakes region are, as noted above, generally enjoying a strong recovery, in the second quarter of 2011, Cleveland, Columbus, Dayton, Detroit and Toledo saw both output and employment decline. This was not necessarily due to a loss in manufacturing jobs in this quarter; Columbus and Dayton lost manufacturing jobs during this time, but Cleveland, Detroit, and Toledo gained them. Both employment and output grew in the second quarter in Buffalo, Grand Rapids, Louisville, Milwaukee, Minneapolis, Pittsburgh, Rochester and Syracuse.

Employment
Every Great Lakes metropolitan area but one has added jobs since their recession employment trough, but none has made a complete jobs recovery. Des Moines is the only large Great Lakes metro that hadn’t begun its employment recovery by the second quarter of 2011. (Des Moines hit its lowest employment in this quarter, so has seen no increase).Madison and Rochester are within one percent of their pre-recession employment peaks. Milwaukee, Grand Rapids, Youngstown and Rochester were among the strongest metros in terms of employment gains since their recession troughs. Grand Rapids has seen employment rise 4.3 percent since its low point in the third quarter of 2009. Within the region, Des Moines and Indianapolis have seen the smallest percentage increases in employment since their trough quarters.

Unemployment
The average unemployment rate among large Great Lakes metropolitan areas in June 2011 was 9.1 percent, lower than the seasonally unadjusted national rate that month of 9.3 percent. Unemployment was above the June 2011 national average in six Great Lakes metropolitan areas, Chicago, Dayton, Detroit, Louisville, Toledo, and Youngstown. The lowest unemployment rates in the region were found in Des Moines, Madison, Minneapolis, Pittsburgh, and Rochester.

Output
Output growth in the Great Lakes metropolitan areas lagged other large metropolitan areas and the nation as a whole during the second quarter. Only nine Great Lakes metropolitan areas saw gains in output in the second quarter of 2011: Buffalo, Des Moines, Grand Rapids, Indianapolis, Louisville, Milwaukee, Minneapolis, Rochester, and Syracuse.

Housing
House prices fell for the third consecutive quarter in all Great Lakes metropolitan areas, and fell at a faster rate in the second quarter than the previous two quarters. House prices hit new lows in all of the 100 largest metropolitan areas of the United States in the second quarter, including those in the Great Lakes region. Home prices fell fastest in Minneapolis, Cleveland, and Chicago from the first quarter to the second, declining by at least 4.7 percent in each. In all, house prices dropped more than the national average of 4.1 percent in five Great Lakes metropolitan areas. House prices in Buffalo, Pittsburgh and Rochester dropped less than 3 percent. Nationwide, housing prices were down 26.7 percent since their peak. Six Great Lakes metropolitan areas have had larger declines: Chicago, Cleveland, Detroit, Grand Rapids, Minneapolis, and Toledo.

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Authors

Jennifer Bradley
Richard Shearer

Image Source: © Rebecca Cook / Reuters

The Government as a Spark Plug for Innovation

Jennifer Bradley — Thu, 11 Aug 2011 00:00:00 -0400

When he visits a battery plant in Holland, Michigan, today, President Obama will talk about the connection between innovation, advanced manufacturing, and economic growth. But he has an opportunity to make an even more important connection: between government action and innovation.

At a time when the federal government seems unable to manage anything well, and state governments are still grappling with budget shortfalls and crippling layoffs, it is easy to forget that the public sector is a critical driver of innovation, particularly in the energy sector. As James Duderstadt, Mark Muro, and others have pointed out, there are several market failures that cause private energy companies to systematically underinvest in innovation. One in particular stands out:

“Social benefits accrue from the knowledge created by innovative activity, which is added to the public domain once created and is hard for firms to control. Other firms may make use of this knowledge and reap the rewards, encouraging free-riding behavior where firms fail to invest and wait for other firms to finance the knowledge base.”

Venture capital, which is often a source of funding for emerging technologies, also is riddled with its own kinds of market failures. This analysis of venture capital investing in the Great Lakes region (which I’ve written about before) explains it’s not efficient for venture capitalists to track down every possible good opportunity in their sector. Instead, they maximize their chances of finding good investments by focusing on where they’ve been successful in the past, where most deals come from, and, honestly, where they can get to easily. That helps explain why California and Massachusetts get such a huge amount of VC investment, and why places like Holland, Michigan, often get overlooked.

One of the reasons governments exist is to overcome these kinds of market failures. Like roads, weapons systems, and public education, innovation is a public good, something that the public sector has to provide at an optimal level.

Thus, the Recovery Act allocated $2 billion to advanced battery technologies. Under Governor Jennifer Granholm, the state of Michigan also poured $1.38 billion into advanced battery research, as part of its efforts to help the auto industry in the state re-orient itself after decades of crushing job losses.

As the state and federal governments are looking for more and deeper cuts, the public seems to understand that some things are worth investing in. Last year, Ohio voters approved a $700 million bond issue to preserve the Third Frontier, the state’s program to invest in new technologies and their commercialization. This is an encouraging piece of evidence that voters understand the difference between debt or spending that lays the foundation for future growth, and that which does not make sense during a fiscal crisis.

Of course, having just agreed to cut $2.4 trillion from the federal budget over the next 10 years, Obama isn’t likely to call for the kind of federal spending on innovation that’s actually needed. And even if he did, there’s little chance Congress would agree. While Obama’s budget submissions for the last two years have proposed increasing key energy innovation spending, Congress has responded with cuts. In FY 2011, the federal energy innovation budget dropped 10 percent compared to the previous year. The House appropriations committee proposed $491 million in additional cuts from the Office of Energy Efficiency and Renewable Energy, which is almost $2 billion below the president’s budget request.

But Obama still can and should make a clear and explicit argument about the value of government spending. Government money can be intelligently applied to do good –good that would not happen otherwise. In the current political environment that’s a radical and counterintuitive statement, but that doesn’t make it any less true.

Authors

Jennifer Bradley

Publication: The Avenue, The New Republic

Image Source: Â© Kevin Lamarque / Reuters

Boosting the Great Lakes International Economy

John C. Austin — Tue, 19 Jul 2011 11:39:00 -0400

The regions on both sides of the Great Lakes international border need to team up to strengthen their highly integrated economies.

That was the conclusion of over 250 public and private leaders from both the United States and Canada recently brought together by Brookings and the University of Toronto Mowat Centre in Detroit-Windsor.

The tone was set by Bruce Katz’s keynote--where he pressed for international metro action to expand exports and encouraged the industrial Great Lakes to seize and lead the low-carbon, clean-tech economy.

Overall, two topics dominated discussion by delegates as ripe for international teamwork.

One was building the 21^st century transportation infrastructure the region needs as a platform for enhanced exports--and in particular building a state-of-the-art span connecting Detroit and Windsor, the world’s highest dollar international trade crossing point. Michigan Senate Majority Leader Randy Richardville, and Canada’s Consul General Roy Norton were pitching hard for the Michigan Legislature to follow Governor Rick Snyder’s call, and vote final approval for the new bridge.

The New International Trade Crossing has been 10 years in the planning, and is strongly backed by business leaders and governments on both sides of the border. It seemed a done-deal when Gov. Snyder announced that Ontario would pay cash-strapped Michigan’s share of the project, and in turn the U.S. Department of Transportation would let the Canadian dollars stand-in as Michigan’s match for federally-funded highway projects across Michigan.

The project keeps being sabotaged by the aging billionaire Mattie Maroun (born 1927), owner of the equally aging Ambassador Bridge (built 1929), fighting hard to keep a monopoly on toll traffic.

Maroun has contributed hundreds of thousands of dollars to Michigan State legislators, and bankrolled groups that are behind dirty tricks that would make Donald Segretti blush, including fake eviction notices at the doors of homeowners near the proposed bridge and patently false TV spots claiming Michigan taxpayers will foot the bill.

Meanwhile the whole $250 billion economic relationship with Canada is at risk, as the tightly wound manufacturing, agricultural, and commerce supply chains are bottlenecked--just at a moment they are poised to grow.

Another area for Great Lakes international teamwork is converting the region’s prodigious innovation, technology-base, and manufacturing talent to support new jobs and leadership in the clean-technology market. Recent Brookings research shows Michigan already 12^th in the nation in share of clean-tech jobs and confirmed the jobs potential of clean-tech growth.

Grand Rapids Mayor George Heartwell made the point, “I can think of nothing more important than a more robust, and better harmonized Great Lakes renewable energy portfolio standard to drive job creation in the clean energy sector.”

Heartwell was articulating the market opportunities seen by business leaders in West Michigan, who feel well positioned to grow product lines and new jobs developing and manufacturing clean-energy and clean water solutions. When Gov. Snyder showed up in West Michigan to give his first “Reinvent Michigan Award” to Energetx, a wind turbine and electric vehicle parts supplier, the former venture capitalist was also petitioned by a 40-member delegation of clean energy business buddies, asking him to better support these emerging markets with more aggressive public policy.

As the Brookings study shows, clean-tech is one emerging arena in which to repurpose the engineering and manufacturing competencies of the Great Lakes to replace jobs lost in auto and other sectors--if state and metro leaders provide the supportive policy platform.

Authors

John C. Austin

Publication: The Avenue, The New Republic

Building Metropolitan Economies in the Great Lakes Region

Josh Hjartarson and Bruce Katz — Fri, 17 Jun 2011 00:00:00 -0400

The Great Recession ended two years ago this month, but many countries around the world are still reeling from its economic devastation. Moving forward, every country must fundamentally re-examine its economic growth model, and build a different kind of economy.

For the United States and Canada, this means transitioning to a "next economy" that is driven by exports, powered by low carbon energy sources and fueled by innovation. The Great Lakes region has everything it needs to be the engine of the next economy of the U.S. and Canada.

The two Canadian provinces and eight U.S. states in this region are home to over 105 million people. As a whole, the region generated $4.6 trillion in economic output in 2009, making it one of the largest economies in the world. More than $2 billion worth of goods and services cross the U.S.-Canada border every day, with $356 million traversing the Windsor-Detroit crossing alone. Despite the decline in North American manufacturing, the Great Lakes region produces nearly 75% of total Canadian manufacturing and 33% of total U.S. manufacturing.

The Great Lakes also possess significant innovation assets. Twenty of the top 100 research universities in the world are located in the region. Paired with corporate research labs located throughout the region, the Great Lakes could lead new technology development in emerging sectors.

The Great Lakes themselves provide a huge advantage, given the world's insatiable demand for innovation in the supply and delivery of clean water.

So what must happen for this cross-border zone to realize its potential in the next economy?

Metropolitan leaders must be purposeful about their economies. Business, political and civic leaders in northeast Ohio are coming together to craft a smart business plan for their region with ideas to retool manufacturing firms and retrain industrial workers. All cities need to develop such plans.

Cities also need to be collaborative. As they develop plans, they should look to neighboring cities to see whether there are ways to seize common opportunities with potential partners on the other side of the border.

Federal, state and provincial leaders must also orient their investments and policies toward metropolitan area visions. Toronto and Chicago are transitioning to a green economy with robust, market-shaping renewable energy and sustainability policies and incentives. Milwaukee, Grand Rapids and Windsor have targeted water and clean energy technology sectors for investment and growth. Provincial, state and federal governments need to get behind the innovation strategies of their cities. Both countries need to support this kind of bottom-up federalism in a fiercely competitive world.

Finally, federal leaders must rebalance security and economic concerns. The U.S. and Canadian governments have to maintain a secure border, while also harmonizing regulations and investing in 21st-century infrastructure at the border.

The next economy could be a bright one for the communities in the Great Lakes region, but it will not just happen on its own. Both countries need to act with purpose. Creating the next economy will begin at home, in the metropolitan areas that drive our prosperity.

Authors

Josh Hjartarson
Bruce Katz

Publication: National Post

For a Richer State, Add Investments Into Budget

John C. Austin — Sat, 26 Feb 2011 00:00:00 -0500

Gov. Rick Snyder's budget seeks to find the bottom of Michigan's fiscal freefall by creating a simpler, fairer tax system, forcing action on long-standing legacy cost structures, and signaling that Michigan has a good business climate. He also proposes to tax retirement income like other income, rightly noting that a robust Michigan economy is more about making sure our children and grandchildren have a state in which they want to live, work and make their entrepreneurial careers than whether Michigan is a Cayman Island for retirees.

Yes, there is much to admire in Gov. Snyder's budget. But a good business climate and low taxes do not necessarily a richer state make.

Evidence is overwhelming that the richest states, with growing per capita income, are the ones that are the best educated. Eight of the 10 highest per capita income states have the highest education attainment rates.

Michigan is not one of these states, ranking 37th in per capita income and 34th in education attainment. On balance, "winning states" also invest more in education, infrastructure, research and development, cities and their natural assets.

Austin, Texas, is today the nation's best-performing metro economy. Why? Texas has poured billions of its oil money into making the University of Texas a world-class institution -- with all the "spillovers" for new firms, and creating a dynamic, creative community vibe that attracts yet more talented people.

Look, too, at North Carolina and its Research Triangle. Public-private partnerships and shared investment in education and higher education brought North Carolina into the front ranks of new economy states.

Ditto Pittsburgh, where, like Detroit, a dominant industry, steel, was a middle class job generator. It tanked in the '70s and '80s. Incomes in Pittsburgh plummeted. Thousands, young and old, fled the region.

Today, Pittsburgh's incomes are soaring, and young people are returning. Why? They built out Carnegie-Mellon and the University of Pittsburgh with new medical, life sciences, clean energy and IT firms, and spruced up their special "river city" location.

Michigan has similar assets: World-leading universities. Historic cities and towns. A beautiful outdoors, water and the Great Lakes. And great, hard-working people.

These assets ultimately matter more to job creation than business climate.

What have we been doing to these assets in Michigan? In recent years, Michigan is last among the states in its support for higher education, pricing these great schools out of reach of working-class Michiganders. We've cut support for roads, bridges and infrastructure. Revenue sharing to cities and towns has been slashed. Capital expenditure on Michigan parks has plummeted.

The governor's 2012 budget proposal, while hinting at better things to come, continues these trends.

Low taxes alone do not make states prosper. Even before the governor's proposed changes take effect, the Tax Foundation 2011 Business Climate index rated Michigan 17th in the country in business climate. Minnesota -- the most prosperous Great Lakes state, with more job creation and higher incomes than Michigan -- is 43rd in the same ranking.

Reliable studies suggest that investments in early childhood education yield $2 in long-term economic impact for every dollar invested. Ditto for expenditurers on transportation infrastructure and Great Lakes cleanup. Every dollar dedicated to getting a higher education degree versus a high school diploma nearly doubles lifetime earnings -- and taxpaying.

How do we pay for these investments? Notably lacking from the governor's "fairer, more efficient tax system" is taxing the law firms, the doctor's partnerships, the insurance agencies and the consultants that constitute the bulk of today's knowledge services economy. Shouldn't they contribute, too?

We need a good business climate, for sure. We also need, even more, investment in the things that make Michigan's economy grow.

Authors

John C. Austin

Publication: Detroit Free Press

Will Full Employment Ever Return to Detroit?

Howard Wial — Thu, 20 Jan 2011 09:03:00 -0500

Just after the Labor Department announced that the national unemployment rate had fallen from 9.8 percent in November to 9.4 percent in December, Federal Reserve Chairman Ben Bernanke recently told the Senate Budget Committee that “[i]t could take four to five more years for the job market to normalize fully.”

For the nation as a whole, that seems reasonable. Suppose the labor force grows at the same rate it has over the last decade, an average of 0.07 percent per month. Suppose that the number of employed people (as measured in the Labor Department’s household survey, which is what’s used to figure the unemployment rate) increases by 297,000 every month, as it did in December. Then the nation’s unemployment rate will be just below 4 percent—a rate last achieved in 2000 and one that federal law sets as a target for full employment—in September 2014. Of course, if employment grows more slowly, then it will take longer for the nation to reach full employment.

But what will happen in metropolitan areas with unemployment rates far above the national average? Metropolitan Detroit, for example, had an unemployment rate of 13.5 percent in November (the most recent month for which metro unemployment rates are available). To many people in Detroit, full employment seems like a distant, perhaps unattainable dream. Even if Detroit’s unemployment rate falls as rapidly as the national rate, it will take until at least mid-2016 for its unemployment rate to reach 4 percent.

Surprisingly, though, Detroit’s unemployment rate will probably fall faster than that. The reason is that, faced with continued poor job prospects, many people will leave. That will reduce the size of Detroit’s labor force and lower its unemployment rate, even if job creation remains sluggish. In contrast, relatively few people leave the United States even during the worst economic times, and not very many drop out of the labor force because they can’t find work. (Since the beginning of the Great Recession in December 2007, the U.S. labor force fell by an average of only 0.008 percent per month.)

What’s likely to happen in Detroit? The metro area’s labor force has fallen by an average of 0.07 percent per month since the beginning of 2000, largely because the metro area’s population has declined. (The labor force fell at a slightly slower rate since the beginning of the Great Recession, perhaps because people who would otherwise have left the region couldn’t sell their houses.) Suppose that rate of labor force decline continues, and that the metro area’s employment rises by 2,164 every month, as it did in November. (That’s a slower job growth rate than the one I assumed for the nation as a whole.) Then the metro area’s unemployment rate will be just under 4 percent in July 2015--about a year sooner than it would reach that target if it fell in proportion to the national rate.

Even if employment grows more slowly than I’ve assumed (so that full employment takes longer to achieve), the moral of the story is clear. As economists Olivier Blanchard and Larry Katz pointed out almost 20 years ago, unemployment rates even out more quickly at the regional level than at the national level. People leave economically depressed regions and move to ones that are adding jobs rapidly. That lowers the unemployment rate in the depressed regions and raises it in the more vibrant ones. So it could take metro Detroit less than a year longer than the nation as a whole to return to something like full employment, even though its unemployment rate is now much higher than the nation’s.

Authors

Howard Wial

Publication: The Avenue, The New Republic

Image Source: © Rebecca Cook / Reuters

For Car Country, Could the Mourning Become Electric?

Howard Wial — Wed, 24 Nov 2010 00:00:00 -0500

The New York Times recently reported that in Hamamatsu, the heart of Japan’s auto parts-making region, people are worried about what they call “electric vehicle shock.” Their concern is that if electric cars begin to replace gasoline-powered cars in large numbers, they could put the makers of such components as exhaust pipes and spark plugs out of business--and deliver a fatal shock to the region’s auto parts manufacturing economy.

No one has expressed similar worries about the future of America’s auto-based manufacturing regions, which specialize heavily in components that are tied to the internal combustion engine. But anyone who cares about the future of the Great Lakes region should start worrying about electric vehicle shock. The same problem that the far-sighted manufacturers and local governments in Hamamatsu have identified could loom large for a host of mostly small and medium-sized industrial metropolitan areas in Michigan, Ohio, Indiana, Illinois, and Wisconsin.

To see this, let’s look at the extent to which auto-based Great Lakes metropolitan areas specialize in mechanical technologies--the core technologies of conventional cars and trucks--versus electrical technologies. We can measure a metro area’s specialization in mechanical technologies by whether mechanical engineers make up a large proportion of its employment. Likewise, we can measure its electrical technology specialization by whether electrical engineers are a large share of its employment. Let’s call a metro area mechanically specialized if mechanical engineers make up at least a 10 percent bigger share of its employment than they do of nationwide employment, and use a similar definition for electrically specialized metro areas.

Among the nation’s 50 metro areas that were most specialized in motor vehicle and parts manufacturing when the Great Recession began in the last quarter of 2007, 33 were in the Great Lakes region. (See the map below.) In 2008, seven of these metro areas specialized in both mechanical and electrical technologies: Ann Arbor, Dayton, Fort Wayne, Jackson (MI), Kokomo, Oshkosh, and Rockford. Detroit probably also belongs on this list, but the Bureau of Labor Statistics didn’t disclose the number of mechanical engineers there, maybe because so many of them work for Ford, GM, and Chrysler. As long as these metro areas can maintain their specializations in both technologies, they will probably remain auto hubs regardless of whether electric cars displace conventional ones.

But electric vehicle shock could be a problem for the 15 other auto-based Great Lakes metro areas that specialize in mechanical but not electrical technologies: Battle Creek, Bay City, Columbus (IN), Elkhart, Grand Rapids, Holland, Janesville, Lafayette, Mansfield (OH), Muncie, Niles, Sandusky, South Bend, Terre Haute, and Toledo. (Elkhart, the RV capital of North America, may not have to worry as much about this as the other 14 metro areas.) If electric cars become a big part of the car market, these places could lose their auto and auto parts specializations to the Great Lakes metro areas that have electrical as well as mechanical technology specializations. But they could also lose out to such electrical technology hubs as San Jose and Philadelphia.

This isn’t a far-fetched possibility. Already, startup Fisker Automotive is gearing up to build plug-in hybrids in a plant it bought from GM near Wilmington, DE (in the Philadelphia metro area), while Tesla Motors assembles electric cars and components in Silicon Valley. These are small operations but if the market for their products expands enough, other electric car and parts-makers could be attracted to these metro areas, which aren’t currently major auto production centers.

For the 10 Great Lakes auto- and parts-manufacturing centers that don’t specialize in either electrical or mechanical technologies, the impact of electric vehicle shock probably depends on what happens to car production in nearby metro areas with electrical or mechanical specializations. If nearby areas gain jobs from electric car and parts production, then those places probably will benefit, too. If nearby areas lose as a result of the move to electrification then those places probably will also lose.

Of course, electric vehicle shock isn’t inevitable for the Great Lakes region. Electric cars may never displace gasoline-powered ones, and if they ever do so, it won’t happen soon. (Hybrids could become more popular, but their blend of electrical and mechanical components makes it more likely that they and their components will continue to be made in the auto hubs of the Great Lakes and South.) Existing automakers and larger suppliers might decide to make electric cars and parts in the same places where they now make conventional cars and parts, bringing electrical engineering talent with them or recruiting it from elsewhere.

But if electric cars become a big part of America’s automotive future, and if startups get the edge over established companies in making them, then they could deliver a future shock to a large swath of the Great Lakes region. To prevent that shock from being fatal, state and local governments, educational institutions, Manufacturing Extension Partnership centers, and companies should work together, as they’re doing in Japan, to develop the electrical technology expertise that they’ll need to prosper in a more electrified auto market. They should also work to help existing suppliers that don’t want to or can’t move toward greater electrification diversify into other products that rely more on mechanical technologies, such as medical devices.

Consider this a wake-up jolt.

Authors

Howard Wial

Publication: The Avenue, The New Republic

Image Source: © Mark Blinch / Reuters

The Next Economy: Economic Recovery and Transformation in the Great Lakes Region

John C. Austin, Jennifer Bradley and Jennifer S. Vey — Mon, 27 Sep 2010 00:00:00 -0400

As the American economy works its way slowly out of the Great Recession, a consensus is developing among public and private-sector stakeholders that simply re-constructing our old economy, one based on highly-leveraged domestic consumption, would be a serious mistake. The nation must instead focus on building the next economy, one that is oriented towards greater exporting, powered by a low-carbon energy strategy, driven by innovation, and that creates opportunities for all.

The Great Lakes region, too long tagged with the misleading nickname, The Rust Belt, could show the rest of the country the way forward to the next economy. Although battered by decades of declining economic health, and particularly by the recession, the nation’s heartland still has many of the fundamental resources—top-ranked universities, companies with deep experience in global trade, and emerging centers of clean energy research to name just a few—necessary to create a better, more sustainable, economic model.

This is not to disregard the region’s challenges. Its major metros have neither the economic development strategies nor the transportation infrastructure in place to fully take advantage of their export generating capacity. Many have inefficient physical development patterns, hollowed out urban neighborhoods, and concentrations of energy-intensive industries, and thus remain the epicenters of the nation’s fossil fuel-reliant economy. They lack the early-stage capital and other supports needed to strengthen existing firms and encourage start-up enterprises. And many suffer from deep, entrenched poverty, and have low educational attainment levels compared with their peers nationwide.

With both the strengths and challenges clearly in mind, this report provides a roadmap to economic recovery and transformation in the Great Lakes region, powered by its metropolitan areas. It describes how federal, state, and local stakeholders can leverage the region’s substantial assets to create a more productive, sustainable, and inclusive economic future.

The report finds:

First—The Great Lakes region, particularly its metropolitan areas, has significant resources essential to creating the next economy:

Global Trade Networks —These networks, developed in large part by the auto industry, are critical to an export economy. Seven Great Lakes metros—Dayton, Detroit, Grand Rapids, Indianapolis, Milwaukee, Toledo, and Youngstown—are already among the country’s top 20 metro areas in terms of the share of their metro output that is exported. In particular, Great Lakes metros can capitalize on the growth potential of knowledge exports, as they have a concentration of top universities and associated medical complexes.
Clean Energy/Low Carbon Capacity — Industries and universities in Great Lakes metros have created the research capacity and manufacturing prowess needed to build a clean energy, low-carbon economy. They have an outsized ability to lead on wind and solar renewable component manufacturing, and to capitalize on the “green-blue” potential of the Great Lakes and their waterways. The region’s research and innovation infrastructure is already spurring the development of new products and processes: Michigan, Ohio, and Illinois are among the top states in terms of green tech patenting, focused on new technologies in battery power, hybrid systems, and fuel cells.
Innovation Infrastructure — Great Lakes metros have the industrial and institutional infrastructure necessary to power an innovation economy. The 21 largest Great Lakes metros alone are home to 32 major public and private research universities, which attract substantial federal research investment. The region produces approximately 36 percent of America’s science and engineering degrees each year. Between 2001 and 2007, an average of nearly one-third of the country’s patents each year were awarded to the Great Lakes states.
Opportunities — Like innovation, opportunities grow in the presence of a robust educational network, such as the one that exists in the Great Lakes region. In addition to its public and land grant universities—the latter created in the 19^th century to promote agriculture, science, and engineering—the region is also dotted with community colleges, which help the region’s workers develop skills and credentials necessary to secure jobs in the region’s industries, and in so doing maintain a pool of skilled employees to attract and support them.

Second — To realize the promise of the next economy, federal, state, and metropolitan leaders should join with the private and philanthropic sector to:

Invest in the assets that matter: innovation, infrastructure, and human capital
Devise new public-private institutions that are market-oriented and performance-driven.
Reimagine metros’ form and governance structures to set the right conditions for economic growth

Voices from the Region
As part of this project, a number of scholars, practitioners, and policy experts from Great Lakes metros, and beyond, contributed their recommendations for how the federal government could support the region’s transition to the next economy. These recommendations, discussed in a series of briefs, focus on a range of issues including workforce policy, manufacturing, higher education, transportation, and water policy.

The Federal Role in Helping Incumbent and Dislocated Workers Adjust to the New Economy » (PDF)
Randall Eberts and George Erickcek

Strengthening American Manufacturing: A New Federal Approach » (PDF)
Susan Helper and Howard Wial

The Federal Role in Leveraging America’s Community Colleges » (PDF)
James Jacobs

The Federal Role in Supporting Auto Sector Innovation » (PDF)
Thomas Klier and Christopher Sands

The Federal Role in Supporting Public Universities’ Global Missions » (PDF)
Lou Anna K. Simon, Richard M. Foster, and John C. Austin

Developing a National Strategy for Goods Movement » (PDF)
Robert Puentes

Leveraging the Great Lakes Region’s Water Assets for Economic Growth » (PDF))
G. Allen Burton, Don Scavia, Samuel N. Luoma, Nancy G. Love and John C. Austin

Additional Resources
Hubs of Transformation: Leveraging the Great Lakes Research Complex for Energy Innovation »
James J. Duderstadt, Mark Muro, and Sarah Rahman

Turning Up the Heat: How Venture Capital Can Help Fuel the Economic Transformation of the Great Lakes Region »
Frank Samuel

Facing the Urban Challenge: Reimagining Land Use in America's Distressed Older Cities—The Federal Policy Role »
Alan Mallach

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Authors

Publication: Brookings Institution

Strengthening American Manufacturing: A New Federal Approach

Susan Helper and Howard Wial — Mon, 27 Sep 2010 09:00:00 -0400

Manufacturing is essential to America’s economic well-being. It accounts for the bulk of United States exports, is key for innovation, and provides many highwage jobs, especially for less educated workers. It is the economic lifeblood of much of the Great Lakes region. Yet the United States has lost manufacturing jobs for the last three decades, and manufacturing output has grown much more slowly than GDP.

During this time, federal policy has done little to stem the loss of manufacturing jobs or improve the economic performance of U.S. manufacturing plants. Manufacturing’s decline has contributed to the nation’s huge trade deficit and worsening earnings distribution, and puts America’s innovation potential at risk. To address these problems, the federal government should adopt policies to improve the performance of manufacturing firms in the United States. It should support the development and diffusion of improved manufacturing technologies, ways of organizing work, and relationships between final goods producers (typically, assemblers) and their suppliers; help groups of manufacturers within an industry work together to improve performance; and promote understanding of the importance of the economic and geographic ties that among U.S. manufacturers that contribute to U.S. manufacturing performance. These policies would not favor any particular industries, but would help solve problems that exist in both newer manufacturing industries (such as solar panels) and older ones (such as auto assembly).

America’s Challenge
Improving manufacturing’s performance is a crucial part of the solution to America’s trade, innovation, and income distribution problems and is especially important to the well-being of metropolitan areas throughout the Great Lakes region.

Manufacturing employment has fallen and output has grown slowly. U.S. manufacturing employment has trended downward since 1980, and job losses have been especially severe in the past decade. Between 2000 and 2009, the nation lost 31.2 percent of its manufacturing jobs, and manufacturing fell from 13.1 percent of total employment to 9.1 percent.3 The nation’s manufacturing output grew by only 11.0 percent during this period, while GDP grew by 15.7 percent. As a result, manufacturing’s share of GDP fell from 14.2 percent to 11.0 percent.

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Strengthening American Manufacturing: A New Federal Approach

Authors

Susan Helper
Howard Wial

The Great Lakes: Mid-America’s Might

John C. Austin and Jennifer S. Vey — Mon, 27 Sep 2010 13:42:00 -0400

As seen here on the Avenue, our colleagues have been hammering on the fact that, just as the nation’s metropolitan areas went into the Great Recession carrying their own unique economic baggage, so too, are they are emerging from it differentially equipped to participate in the economy to come.

The metros of Great Lakes, region, for example, did not enter the crisis on the housing and finance-fueled bubble that “popped” the economies of many metros in the south and west. Rather, many of these communities were hit by a one-two punch: a financial crisis that froze already struggling credit-dependent auto and manufacturing sectors and a broader housing market and economic collapse that crushed already stressed workers and families. All told, since the second quarter of 2007, the 21 largest metros in the region have lost a combined 1.3 million jobs.

The severity of these issues nudged the administration to provide special aid to the region, through the stimulus, the bailout of Chrysler and GM, and the establishment of the White House Council on Auto Communities and Workers—efforts that together helped staunch some of the bleeding. But Washington’s ability to help has largely run its course. With budget concerns significantly curbing the nation’s appetite for big federal moves, innovation will necessarily come from new (and perhaps existing) governors and their public and private sector counterparts in the region’s metros.

These leaders have a daunting job in the face of state and local budget freefalls, and will need to demonstrate both pragmatism and creativity under conditions of continuing scarcity and uncertainty. But the region, driven by its metropolitan areas, has a bevy of strengths they can exploit to gain real traction in the next economy—an economy that will, by necessity, be export-led, low carbon, and innovation-fueled, and which will provide better opportunities for larger numbers of people. Our new work takes stock of these assets, including:

global trade networks and relationships that will enable it to expand the volume of goods and services sold overseas, creating new jobs at home and helping the nation meets its goal of doubling exports
firms and universities that have the research horsepower and manufacturing know-how to be leaders in the invention and production of clean technologies and processes
the industrial and institutional infrastructure that can help spur economy-building innovations, and ultimately convert them into new businesses, new products, and new jobs
And a robust network of community colleges and public universities that can help provide the education and training residents need to move up the opportunity ladder

Seizing the opportunities afforded by the next economy is not for the faint of heart, however. Tempting though it may be to try to hunker down against the winds of dramatic economic change, leaders in the Great Lakes region must instead push it to be at the vanguard of even more disruption and change. Hard hit by globalization, the region needs to be the most globally-oriented in the country, building on its export base to create even more innovative products and services for global consumers. Creator of the high-carbon American lifestyle of the last century, the region must pivot to become the source for low-carbon technologies, and new, greener urban infrastructures and communities. And lulled into complacency by an economic structure that didn’t require, and therefore didn’t value, education, the region must become an example of how to create an economy that offers opportunity for all to gain the knowledge and skills they need to compete.

Crisis, in short, must be used to spur innovation and renewal.

To be sure, the federal government still has to take on some macroeconomic fundamentals: trade, currency, carbon pricing strategies, and investment in the nation’s infrastructure and education systems. But our report argues that state and metro leaders need to put forth their own set of smart reforms and investments, from developing cluster-based strategies to boost metropolitan exports, to developing tough, merit-based approaches to funding transportation projects, to creating land banks that would allow them to better manage land for long-term planning and economic development.

The region’s leaders may very well be up to the task. Governors and mayors of both parties, backed by shrewd business, civic, philanthropic, and labor allies, can often be more courageous and innovative than those trapped within the Beltway. As such, they can help the region create a new and improved narrative about itself, one based not on how it failed to adapt to the economy we just left behind, but on the important role it will play in the one that lies ahead.

Authors

Publication: The Avenue, The New Republic

Image Source: © Rebecca Cook / Reuters

Cleveland Area Builds Foundation for Increased Exports and New Jobs

Jennifer Bradley and Bruce Katz — Sun, 08 Aug 2010 00:00:00 -0400

Should increasing exports be part of the solution to Greater Cleveland's -- and the nation's -- economic doldrums? Can export growth make this recovery job-filled rather than jobless?

That's a counterintuitive proposition, but one that is gaining traction in Northeast Ohio. Cleveland, Youngstown and other metros often see themselves on the losing end of globalization, as manufacturing has moved abroad and trade barriers and currency manipulations impede the entry of U.S.-made goods into foreign markets.

But exports bring tremendous benefits to workers, companies and the nation as a whole. Exporting companies tend to be more innovative. They pay higher wages across all skill levels. And they are a response to a new global reality: 95 percent of the world's customers live outside the United States.

Any successful export strategy, including the one that the Obama administration is developing, must start with where U.S. exports come from. Our major metropolitan areas are the nation's export hubs. In 2008, they produced about 64 percent of U.S. exports, including more than 62 percent of manufactured goods and 75 percent of services.

Northeast Ohio's major metros are leaders in exports, oriented toward global consumers in a way that most American regions are not. Exports contribute more than 12 percent of the gross metropolitan product in Akron, 13 percent in Cleveland, and a jaw-dropping 18 percent in Youngstown, compared to a national metro average of 10.9 percent.

Exports are also a source of much-needed jobs in these metros. As of 2008 (the most recent year for which we have data) there were 110,000 export jobs in the Cleveland metro and about 30,000 each in greater Akron and Youngstown. Every $1 billion in exports from the average metropolitan area in 2008 supported 5,800 jobs.

To leverage the powerful export activity already occurring in Cleveland and elsewhere, the Obama administration should connect its macroeconomic vision for export growth with the metro reality where the doubling will mostly occur.

For example, the president's export advisory council should include state and local leaders, and revamp export guidance and support to meet the needs of small firms, which find it hard to enter new markets.

But Northeast Ohio metros have their own work to do. The rate of export growth between 2003 and 2008 in Cleveland and Akron is lackluster when compared to the large metro average. U.S. companies dominate the global market in service exports, and the nation actually has a generous service trade surplus, but service exports' share of overall output in Northeast Ohio metros is smaller than the large metro average, and growth in service exports is slower.

Most troubling, Cleveland and its neighbors are underperforming when it comes to innovation, which is a critical ingredient for future international success. Metros that are manufacturing-oriented or export-intensive (or both) tend to create patents at a rate of just over five patents per 1,000 workers. But Cleveland, Akron and Youngstown fall short, with 2.8, 4.5, and 1 patent per 1,000 workers, respectively.

Northeast Ohio must accelerate its efforts to increase the region's innovation and export capacity, through regional organizations such as NorTech and JumpStart. Just as the president set an export goal for the nation, Northeast Ohio should embrace the opportunity to set its own aggressive export goals. Business groups, the Fund for Our Economic Future, universities and regional economic development organizations have made a start but need to devote more resources and collaborate to achieve those goals.

The region can make this happen. Organizations like the Manufacturing and Advocacy and Growth Network (MAGNET) and its partners, with support from the Fund and chambers, are working directly with companies to increase manufacturing innovation in Northeast Ohio, with increasing exports one of their major emphases.

For too long, the debate over export policy has been the exclusive domain of macro policymakers in Washington and a narrow clique of trade constituencies. It is time to include a larger portion of the business sector and, just as importantly, the places like Northeast Ohio, where exporting companies can thrive.

Authors

Publication: Cleveland Plain-Dealer

Great Lakes Exports: The Cleveland Conundrum

Jennifer A. Bradley — Thu, 29 Jul 2010 16:57:00 -0400

The Cleveland metro is an export powerhouse. Exporting industries employed more than 110,000 of the region’s workers as of 2008 (over 10 percent), and its economy is among the nation’s most export intensive.

So, if exports will be, and must be, a critical component of economic growth in the future (which is one of the messages of the new Export Nation report), Cleveland, and the other Great Lakes metros that are also intensely export oriented, are pretty well positioned, right?

Yes and no. A closer examination of Cleveland and other large metros in the Great Lakes shows the challenges they face in a global marketplace, and suggests what they need to do to compete on the world stage.

While the Great Lakes metros are generally quite strong on exports, their export growth has been lackluster. Only two Great Lakes metros (Des Moines and Madison) had better-than-middling export growth between 2003 and 2008. True, it’s harder to post big gains when your base is high, but growth rates of between 5 and 7 percent (or zero in the case of Detroit), when U.S. exports as a whole are growing at more than 9 percent, don’t bode well for future export strength.

Essentially, a lot of Great Lakes metros—and I picked on Cleveland in the title for alliterative purposes, but this post could just as easily been called the Toledo, Dayton, Grand Rapids, or Great Lakes conundrum—are exporting things for which global demand is dropping or being met by other countries. Or, demand is fairly steady, but the number of workers it takes to meet that demand has taken a nose dive, which is what happened with Youngstown and the steel industry. And these metros aren’t coming up with new things (or services) for which demand is growing to export instead.

This, I think, is at the heart of the Cleveland, or Great Lakes, conundrum: Cleveland and most Great Lakes metros have unimpressive rates of innovation. Metros that are manufacturing-oriented or export intensive (or both) tend to generate patents at much higher rates than other metros. But most Great Lakes metros underperform on innovation, given their high degree of manufacturing employment. Fifteen metros in the Great Lakes are manufacturing-intensive, meaning that they have more than 10 percent of their workers employed in manufacturing. Of these 15, only Detroit, Minneapolis, and Rochester exceeded the 5.15 patents-per-thousand-workers average of manufacturing-intensive metros nationwide. And only six of the Great Lakes metros had patent rates above the average for large metropolitan areas, regardless of their degree of manufacturing intensity.

“Innovate or die” is not just a mantra for Silicon Valley and other high-tech economies—it applies with equal or greater force to manufacturing. The region needs to ramp up its innovations within the manufacturing sector to fully realize the promise of a global-oriented export economy. The exporting industries that made them strong in the past, like autos or steel or appliances, are not necessarily the ones that will carry them to a strong future.

Authors

Jennifer A. Bradley

Publication: The Avenue, The New Republic

Drilling for Oil in the Great Lakes

John C. Austin — Thu, 10 Jun 2010 15:36:00 -0400

One of the annual Great Lakes political rites of late spring is the leadership policy conference on scenic Mackinac Island, the car-less Great Lakes getaway, at which Mackinac’s Grand Hotel, with the longest front porch in the world, is weighed down by 1500 of Detroit and Michigan’s leading business, media, and political figures, along with the odd early presidential aspirant.

This being an election year, the manure being spread by seven Republican and Democratic Michigan gubernatorial hopefuls, along with visiting keynoter and maybe presidential candidate Newt Gingrich, rivaled the piles left by Mackinac’s famous horse-drawn taxis.

An unprecedented (and unlikely to be repeated) bi-partisan gubernatorial debate hosted by the Detroit Regional Chamber of Commerce saw seven Michigan candidates to replace term-limited (and sand-blasted by Michigan’s auto and economic collapse) Governor Jennifer Granholm deal with a host of hot-button topics.

None was more interesting, given the BP moment, than the question posed by moderator Tim Skupick: “If the Canadians were to start drilling for oil in the Great Lakes, would you try to stop it, and if so, how?”

The question was not a wild hypothetical. Canadian provinces have been considering exploiting more of the significant gas and oil deposits under the Great Lakes. Drilling has been done on land for years. Drilling in the Lakes has been episodically proposed by various states, and most recently, Canadian provinces. Michigan’s legislature was moved in 2002 to ban Great Lakes drilling, and pushed a federal law in 2005, as proposals for “slant drilling”—getting at oil and gas under Michigan proper—from “out at sea” in the Great Lakes were seriously being pursued.

Michigan straddles almost 4,000 of the 10,000 miles of Great Lakes frontage; but eight other states and two Canadian provinces—including leading metros like Chicago, Milwaukee, Buffalo, Cleveland, and Toronto to smaller Duluth, Green Bay, and Traverse City—share the same waterfront real estate.

Given the Gulf-induced drilling backlash—all the candidates—Republicans and Democrats—groped to outdo each other in demonstrating their zeal to prevent such a thing with varying degrees of credibility given Canada is a sovereign nation and a lack of clarity concerning what, if anything, a governor could do.

Some of the answers: “I’d fly to Ottawa; I’d phone the premier of Quebec; I’d lobby the Obama administration to stop it; a governor can’t do anything, but I’d try.”

At a moment when the nation is just beginning to pour serious dollars into cleaning the Great Lakes, repairing damage done by the prior carbon-fueled industrial era’s water abuse; and prompted in no small part by our work demonstrating the huge economic importance of clean Great Lakes to the long-term economic revitalization of these industrial metros, there have been some ironic recent twists in the political winds.

Prior to the Gulf BP disaster, not only was Great Lakes drilling once again sneaking up as a real and potentially “needed” economic opportunity (albeit with Canadians as the stalking horse), but Michigan just gained an unprecedented windfall to maintain its once crown jewel state parks system from the latest round of oil and gas leases that are routinely auctioned. Michigan’s park system, like a lot of Michigan, has been decimated by 10 years of economic and state budget collapse, leading to deferred maintenance and park budget cuts. The recent round of land-based oil and gas exploration leases earned a surprise $178 million for the parks trust fund—almost as much as the $190 million total netted since the program began in 1929.

Making a choice in the Great Lakes devil’s bargain between long-term economic gain by capitalizing on its spectacular freshwater coast as a place-defining, people attracting magnet or exploiting the rich resources that lie below the Great Lakes, and maybe wrecking the place again, will be held at bay due to the BP moment. But the underlying tensions and Faustian political choice remains.

Authors

John C. Austin

Publication: The Avenue, The New Republic

Hubs of Transformation: Leveraging the Great Lakes Research Complex for Energy Innovation

James J. Duderstadt, Mark Muro and Sarah Rahman — Wed, 02 Jun 2010 14:29:00 -0400

Policy Brief #173

America needs to transform its energy system, and the Great Lakes region (including Minnesota, Wisconsin, Iowa, Missouri, Illinois, Indiana, Ohio, Michigan, Kentucky, West Virginia, western Pennsylvania and western New York) possesses many of the needed innovation assets. For that reason, the federal government should leverage this troubled region’s research and engineering strengths by launching a region-wide network of collaborative, high intensity energy research and innovation centers.

Currently, U.S. energy innovation efforts remain insufficient to ensure the development and deployment of clean energy technologies and processes. Such deployment is impeded by multiple market problems that lead private firms to under-invest and to focus on short-term, low-risk research and product development. Federal energy efforts—let alone state and local ones—remain too small and too poorly organized to deliver the needed breakthroughs. A new approach is essential.

RECOMMENDATIONS

The federal government should systematically accelerate national clean energy innovation by launching a series of “themed” research and commercialization centers strategically situated to draw on the Midwest’s rich complex of strong public universities, national and corporate research laboratories, and top-flight science and engineering talent. Organized around existing capacities in a hub-spoke structure that links fundamental science with innovation and commercialization, these research centers would engage universities, industries and labs to work on specific issues that would enable rapid deployment of new technologies to the marketplace. Along the way, they might well begin to transform a struggling region’s ailing economy. Roughly six compelling innovation centers could reasonably be organized in the Great Lakes states with total annual funding between $1 billion and $2 billion.

To achieve this broad goal, the federal government should:

Increase energy research funding overall.
Adopt more comprehensive approaches to research and development (R&D) that address and link multiple aspects of a specific problem, such as transportation.
Leverage existing regional research, workforce, entrepreneurial and industrial assets.

America needs to transform its energy system in order to create a more competitive “next economy” that is at once export-oriented, lower-carbon and innovation-driven. Meanwhile, the Great Lakes region possesses what may be the nation’s richest complex of innovation strengths—research universities, national and corporate research labs, and top-flight science and engineering talent. Given those realities, a partnership should be forged between the nation’s needs and a struggling region’s assets.

To that end, we propose that the federal government launch a distributed network of federally funded, commercialization-oriented, sustainable energy research and innovation centers, to be located in the Great Lakes region. These regional centers would combine aspects of the “discovery innovation institutes” proposed by the National Academy of Engineering and the Metropolitan Policy Program (as articulated in “Energy Discovery-Innovation Institutes: A Step toward America’s Energy Sustainability”); the “energy innovation hubs” created by the Department of Energy (DOE); and the agricultural experiment station/cooperative extension model of the land-grant universities.

In the spirit of the earlier land-grant paradigm, this network would involve the region’s research universities and national labs and engage strong participation by industry, entrepreneurs and investors, as well as by state and local governments. In response to local needs and capacities, each center could have a different theme, though all would conduct the kinds of focused translational research necessary to move fundamental scientific discoveries toward commercialization and deployment.

The impact could be transformational. If built out, university-industry-government partnerships would emerge at an unprecedented scale. At a minimum, populating auto country with an array of breakthrough-seeking, high-intensity research centers would stage a useful experiment in linking national leadership and local capacities to lead the region—and the nation—toward a more prosperous future.

The Great Lakes Energy System: Predicaments and Possibilities

The Great Lakes region lies at the center of the nation’s industrial and energy system trials and possibilities. No region has suffered more from the struggles of America’s manufacturing sector and faltering auto and steel industries, as indicated in a new Metropolitan Policy Program report entitled “The Next Economy: Rebuilding Auto Communities and Older Industrial Metros in the Great Lakes Region.”

The region also lies at ground zero of the nation’s need to “green” U.S. industry to boost national economic competitiveness, tackle climate change and improve energy security. Heavily invested in manufacturing metals, chemicals, glass and automobiles, as well as in petroleum refining, the Great Lakes states account for nearly one-third of all U.S. industrial carbon emissions.

And yet, the Great Lakes region possesses significant assets and capacities that hold promise for regional renewal as the “next economy” comes into view. The Midwest’s manufacturing communities retain the strong educational and medical institutions, advanced manufacturing prowess, skills base and other assets essential to helping the nation move toward and successfully compete in the 21st century’s export-oriented, lower-carbon, innovation-fueled economy.

Most notably, the region has an impressive array of innovation-related strengths in the one field essential to our nation’s future—energy. These include:

Recognized leadership in R&D. The Great Lakes region accounts for 33 percent of all academic and 30 percent of all industry R&D performed in the United States.
Strength and specialization in energy, science and engineering. In FY 2006, the Department of Energy sent 26 percent of its federal R&D obligations to the Great Lakes states and is the second largest federal funder of industrial R&D in the region. Also in 2006, the National Science Foundation sent 30 percent of its R&D obligations there.
Existing clean energy research investments and assets. The University of Illinois is a key research partner in the BP-funded, $500 million Energy Biosciences Institute, which aims to prototype new plants as alternative fuel sources. Toledo already boasts a growing solar industry cluster; Dow Corning’s Michigan facilities produce leading silicon and silicone-based technology innovations; and the Solar Energy Laboratory at the University of Wisconsin-Madison, the oldest of its kind in the world, has significant proficiency in developing practical uses for solar energy. Finally, the region is home to the largest U.S. nuclear utility (Exelon), the nation’s largest concentration of nuclear plants and some of the country’s leading university programs in nuclear engineering.
Industry potential relevant to clean energy. Given their existing technological specializations, Midwestern industries have the potential to excel in the research and manufacture of sophisticated components required for clean energy, such as those used in advanced nuclear technologies, precision wind turbines and complex photovoltaics.
Breadth in energy innovation endeavors and resources. In addition to universities and industry, the region’s research laboratories specialize in areas of great relevance to our national energy challenges, including the work on energy storage systems and fuel and engine efficiency taking place at Argonne National Laboratory, research in high-energy physics at the Fermi National Accelerator Laboratory, and the work on bioenergy feedstocks, processing technologies and fuels occurring at the DOE-funded Great Lakes BioEnergy Research Center (GLBRC).
Regional culture of collaboration. Finally, the universities of the Great Lakes area have a strong history of collaboration both among themselves and with industry, given their origins in the federal land-grant compact of market and social engagement. GLBRC—one of the nation’s three competitively awarded DOE Bioenergy Centers—epitomizes the region’s ability to align academia, industry and government around a single mission. Another example is the NSF-supported Blue Waters Project. This partnership between IBM and the universities and research institutions in the Great Lakes Consortium for Petascale Computation is building the world’s fastest computer for scientific work—a critical tool for advancing smart energy grids and transportation systems.

In short, the Great Lakes states and metropolitan areas—economically troubled and carbon-reliant as they are—have capabilities that could contribute to their own transformation and that of the nation, if the right policies and investments were in place.

Remaking America’s Energy System within a Federal Policy Framework

America as a whole, meanwhile, needs to overcome the massive sustainability and security challenges that plague the nation’s energy production and delivery system. Transformational innovation and commercialization will be required to address these challenges and accelerate the process of reducing the economy’s carbon intensity.

Despite the urgency of these challenges, however, a welter of market problems currently impedes decarbonization and limits innovation. First, energy prices have generally remained too low to provide incentives for companies to commit to clean and efficient energy technologies and processes over the long haul. Second, many of the benefits of longrange innovative activity accrue to parties other than those who make investments. As a result, individual firms tend to under-invest and to focus on short-term, low-risk research and product development. Third, uncertainty and lack of information about relevant market and policy conditions and the potential benefits of new energy technologies and processes may be further delaying innovation. Fourth, the innovation benefits that derive from geographically clustering related industries (which for many years worked so well for the auto industry) have yet to be fully realized for next-generation energy enterprises. Instead, these innovations often are isolated in secure laboratories. Finally, state and local governments—burdened with budgetary pressures—are not likely to fill gaps in energy innovation investment any time soon.

As a result, the research intensity—and so the innovation intensity—of the energy sector remains woefully insufficient, as pointed out in the earlier Metropolitan Policy Program paper on discovery innovation institutes. Currently, the sector devotes no more than 0.3 percent of its revenues to R&D. Such a figure lags far behind the 2.0 percent of sales committed to federal and large industrial R&D found in the health care sector, the 2.4 percent in agriculture, and the 10 percent in the information technology and pharmaceutical industries.

As to the national government’s efforts to respond to the nation’s energy research shortfalls, these remain equally inadequate. Three major problems loom:

The scale of federal energy research funding is insufficient. To begin with, the current federal appropriation of around $3 billion a year for nondefense energy-related R&D is simply too small. Such a figure remains well below the $8 billion (in real 2008 dollars) recorded in 1980, and represents less than a quarter of the 1980 level when measured as a share of GDP. If the federal government were to fund next-generation energy at the pace it supports advances in health care, national defense, or space exploration, the level of investment would be in the neighborhood of $20 billion to $30 billion a year.

Nor do the nation’s recent efforts to catalyze energy innovation appear sufficient. To be sure, the American Recovery and Reinvestment Act (ARRA) provided nearly $13 billion for DOE investments in advanced technology research and innovation. To date, Great Lakes states are slated to receive some 42 percent of all ARRA awards from the fossil energy R&D program and 39 percent from the Office of Science (a basic research agency widely regarded as critical for the nation’s energy future). However, ARRA was a one-time injection of monies that cannot sustain adequate federal energy R&D.

Relatedly, the Great Lakes region has done well in tapping two other relatively recent DOE programs: the Advanced Research Projects Agency–Energy (ARPA-E) and Energy Frontier Research Centers (EFRCs). Currently, Great Lakes states account for 44 and 50 percent of ARPA-E and EFRC funding. Yet, with ARPA-E focused solely on individual signature projects and EFRC on basic research, neither initiative has the scope to fully engage all of the region's innovation assets.

The character and format of federal energy R&D remain inadequate. Notwithstanding the question of scale, the character of U.S. energy innovation also remains inadequate. In this respect, the DOE national laboratories—which anchor the nation’s present energy research efforts—are poorly utilized resources. Many of these laboratories’ activities are fragmented and isolated from the private sector and its market, legal and social realities. This prevents them from successfully developing and deploying cost-competitive, multidisciplinary new energy technologies that can be easily adopted on a large scale.

For example, DOE activities continue to focus on discrete fuel sources (such as coal, oil, gas or nuclear), rather than on fully integrated end use approaches needed to realize affordable, reliable, sustainable energy. Siloed approaches simply do not work well when it comes to tackling the complexity of the nation’s real-world energy challenges. A perfect example of a complicated energy problem requiring an integrated end-use approach is transportation. Moving the nation’s transportation industry toward a clean energy infrastructure will require a multi-pronged, full systems approach. It will depend not only upon R&D in such technologies as alternative propulsion (biofuels, hydrogen, electrification) and vehicle design (power trains, robust materials, advanced computer controls) but also on far broader technology development, including that related to primary energy sources, electricity generation and transmission, and energy-efficient applications that ultimately will determine the economic viability of this important industry.

Federal programming fails to fully realize regional potential. Related to the structural problems of U.S. energy innovation efforts, finally, is a failure to fully tap or leverage critical preexisting assets within regions that could accelerate technology development and deployment. In the Great Lakes, for example, current federal policy does little to tie together the billions of dollars in science and engineering R&D conducted or available annually. This wealth is produced by the region’s academic institutions, all of the available private- and public-sector clean energy activities and financing, abundant natural resources in wind and biomass, and robust, pre-existing industrial platforms for research, next-generation manufacturing, and technology adoption and deployment. In this region and elsewhere, federal policy has yet to effectively connect researchers at different organizations, break down stovepipes between research and industry, bridge the commercialization “valley of death,” or establish mechanisms to bring federally-sponsored R&D to the marketplace quickly and smoothly.

A New Approach to Regional, Federally Supported Energy Research and Innovation

And so the federal government should systematically accelerate clean energy innovation by launching a series of regionally based Great Lakes research centers. Originally introduced in the Metropolitan Policy Program policy proposal for energy discovery-innovation institutes (or e-DIIs), a nationwide network of regional centers would link universities, research laboratories and industry to conduct translational R&D that at once addresses national energy sustainability priorities, while stimulating regional economies.

In the Great Lakes, specifically, a federal effort to “flood the zone” with a series of roughly six of these high-powered, market-focused energy centers would create a critical mass of innovation through their number, size, variety, linkages and orientation to pre-existing research institutions and industry clusters.

As envisioned here, the Great Lakes network of energy research centers would organize individual centers around themes largely determined by the private market. Based on local industry research priorities, university capabilities and the market and commercialization dynamics of various technologies, each Great Lakes research and innovation center would focus on a different problem, such as renewable energy technologies, biofuels, transportation energy, carbon-free electrical power generation, and distribution and energy efficiency. This network would accomplish several goals at once:

Foster multidisciplinary and collaborative research partnerships. The regional centers or institutes would align the nonlinear flow of knowledge and activity across science and non-science disciplines and among companies, entrepreneurs, commercialization specialists and investors, as well as government agencies (federal, state and local) and research universities. For example, a southeastern Michigan collaboration involving the University of Michigan, Michigan State University, the University of Wisconsin and Ford, General Motors, and Dow Chemical could address the development of sustainable transportation technologies. A Chicago partnership involving Northwestern and Purdue Universities, the University of Chicago, the University of Illinois, Argonne National Lab, Exelon and Boeing could focus on sustainable electricity generation and distribution. A Columbus group including Ohio State University and Battelle Memorial Institute could address technologies for energy efficiency. Regional industry representatives would be involved from the earliest stages to define needed research, so that technology advances are relevant and any ensuing commercialization process is as successful as possible.
Serve as a distributed “hub-spoke” network linking together campus-based, industry-based and federal laboratory-based scientists and engineers. The central “hubs” would interact with other R&D programs, centers and facilities (the “spokes”) through exchanges of participants, meetings and workshops, and advanced information and communications technology. The goals would be to limit unnecessary duplication of effort and cumbersome management bureaucracy and to enhance the coordinated pursuit of larger national goals.
Develop and rapidly deploy highly innovative technologies to the market. Rather than aim for revenue maximization through technology transfer, the regional energy centers would be structured to maximize the volume, speed and positive societal impact of commercialization. As much as possible, the centers would work out in advance patenting and licensing rights and other intellectual property issues.Stimulate regional economic development. Like academic medical centers and agricultural experiment stations—both of which combine research, education and professional practice—these energy centers could facilitate cross-sector knowledge spillovers and innovation exchange and propel technology transfer to support clusters of start-up firms, private research organizations, suppliers, and other complementary groups and businesses—the true regional seedbeds of greater economic productivity, competitiveness and job creation.
Build the knowledge base necessary to address the nation’s energy challenges. The regional centers would collaborate with K-12 schools, community colleges, regional universities, and workplace training initiatives to educate future scientists, engineers, innovators, and entrepreneurs and to motivate the region’s graduating students to contribute to the region’s emerging green economy.
Complement efforts at universities and across the DOE innovation infrastructure, but be organizationally and managerially separate from either group. The regional energy centers would focus rather heavily on commercialization and deployment, adopting a collaborative translational research paradigm. Within DOE, the centers would occupy a special niche for bottom-up translational research in a suite of new, largely top-down innovation-oriented programs that aim to advance fundamental science (EFRCs), bring energy R&D to scale (Energy Innovation Hubs) and find ways to break the cost barriers of new technology (ARPA-E).

To establish and build out the institute network across the Great Lakes region, the new regional energy initiative would:

Utilize a tiered organization and management structure. Each regional center would have a strong external advisory board representing the participating partners. In some cases, partners might play direct management roles with executive authority.
Adopt a competitive award process with specific selection criteria. Centers would receive support through a competitive award process, with proposals evaluated by an interagency panel of peer reviewers.
Receive as much federal funding as major DOE labs outside the Great Lakes region. Given the massive responsibilities of the proposed Great Lakes energy research centers, total federal funding for the whole network should be comparable to that of comprehensive DOE labs, such as Los Alamos, Oak Ridge and others, which have FY2010 budgets between $1 and $2 billion. Based on existing industry-university concentrations, one can envision as many as six compelling research centers in the Great Lakes region.

Conclusion

In sum, America’s national energy infrastructure—based primarily upon fossil fuels—must be updated and replaced with new technologies. At the same time, no region in the nation is better equipped to deliver the necessary innovations than is the Great Lakes area. And so this strong need and this existing capacity should be joined through an aggressive initiative to build a network of regional energy research and innovation centers. Through this intervention, the federal government could catalyze a dynamic new partnership of Midwestern businesses, research universities, federal laboratories, entrepreneurs and state and local governments to transform the nation’s carbon dependent economy, while renewing a flagging regional economy.

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Authors

James J. Duderstadt
Mark Muro
Sarah Rahman

A Clean Energy Hub in the Great Lakes Region

Mark Muro — Tue, 01 Jun 2010 17:10:00 -0400

Mark Muro, fellow and policy director in the Metropolitan Policy Program, says the United States needs to rethink its method for developing and deploying new technological advancements, especially in green energy. He says a better way to promote innovation may be with the development of regional clusters or hubs where universities, government and industries can collaborate on new ideas. He says the Great Lakes region has great potential to become one of these hubs.

He is co-author of a new policy brief, "Hubs of Transformation: Leveraging the Great Lakes Research Complex for Energy Innovation."

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Great Lakes are Dead, Long Live the Great Lakes

John C. Austin — Tue, 01 Jun 2010 17:28:00 -0400

The portion of the blogosphere inclined to noodle over Brookings State of Metro America report, included some who now ask, “whither the Rust Belt?” and “whither the Brookings Great Lakes Economic Initiative?”.

I’m pleased to say all are alive and in forward-looking form. The Great Lakes Economic Initiative developed several years ago, not out of a DC-based “mega-region” overlay, but as I traded notes from my years as an elected official and public policy-shaper in Michigan and teamed up with similarly situated political, business and civic leaders from Cleveland, Pittsburgh, Milwaukee, and elsewhere around the region. We basically said, “Don’t we have a similar economic and cultural story? Aren’t we trying to treat the same problems; and leverage the same assets? Isn’t there more we can do working together to accelerate our economic transition?”

At the same time Dick Longworth, a Pulitzer prize-winning former journalist, documented the shared Midwestern and cultural reality in his book Caught in the Middle: America's Heartland in the Age of Globalism.

The basic story line of the Great Lakes states was of a region uniquely rich in raw materials and fertile land that became the breadbasket of the growing country, then the world’s manufacturing innovation and creation center.

As the grains of the plains came to Minneapolis-St. Paul, it became the flour-milling and export capital of the world, home to Pillsbury and General Mills. As pigs were slaughtered in Cincinnati, making soap as a byproduct, the consumer products giant Proctor and Gamble grew. As buggy makers in Flint and Detroit were converted by Henry Ford and Billy Durant into Ford and GM, so too metal-benders for farm equipment in Grand Rapids starting making chairs for Steelcase and Herman Miller, electronics innovators in Dayton led to EDS and AC-Delco, iron ore from Duluth-fed US Steel in Gary, Cleveland and Buffalo.

Given its natural bounty (and enabling policies like land giveaways, canal and railroad construction) the region grew rapidly in the 1800s and became densely- populated. Then, most of us made our living on farms, or work linked to farms in small towns. This same region then converted its bounty to finished agricultural and manufactured goods, and it arguably created and ruled the factory-era when 60% of us worked in blue-collar industry.

This region led America in the first two waves of economic organization: the farm, and subsequently the factory economy. It is today making a spotty but accelerating transition to leadership in the 3^rd wave, Peter Drucker’s knowledge economy. This new economy was enabled by the internet (largely created by the Big 10 universities) with its concomitant urbanization and metropolitan agglomeration of people, ideas, innovation and jobs. People once moved off the farms to factories; now they are moving to metro-centered offices, labs, studios, universities, hospitals, and related work locations.

So what do metros of this region have in common, if their stories now diverge? Minneapolis-St. Paul is not the flour-milling capital of the world anymore; Chicago is not the meat-packing capital; nor is Pittsburgh the Steel City. All are more diverse (in all good ways)—than they once were. Rochester, New York was once almost as much a company town beholden to Eastman Kodak, (and experiencing similar magnitude of job losses) as Flint, Michigan with GM. They are in different places now.

Beyond the still-significant regional integration of their economies and supply chains and importance of lessons learned from true peers with similar “bones”, the unique economic histories and cultural experiences during the 19^th and most of the 20^th centuries leave many common socio-economic residues for good and for ill across most of the region.

The good: leading private/public centers of innovation, technological skill, global networks, education institutions, and natural infrastructure. The ill: low education attainment levels, lagging entrepreneurship, aging infrastructure, industrial pollution residues, a dated benefits system , fractured and multiple government units, and a culture of protecting the past, versus embracing the future.

So metros of the region have a huge stake in figuring out how to capitalize on their water assets as a source of “clean-tech” innovation and jobs, and lakefronts as economic draws—versus water as an input to making paper and steel, or to ship bulk commodities.

The world’s leading axis of research universities can be fulcrums for solving the nation’s and world’s problems in energy, sustainability, health care and medicine, new materials and can accelerate the transition to knowledge economy leadership

The nation-leading network of community colleges can be leveraged to retool the skills of today’s manufacturing workforce, for tomorrow’s green- and health-related jobs

The engineers, IT specialists, and designers laid off by Delphi in Kokomo and Dayton can be the spark for the next round of “gazelle” firms in the country, with appropriate support, training, and early stage capital.

This is the work to do across the region – to accelerate the transition of our unique competencies to leadership in a new era, and the next economy. As my colleague Alan Berube noted — the question for us all, and Brookings in particular, is “what can public policy do to help?”

Authors

John C. Austin

Publication: The New Republic, The Avenue

Financial Excess Still Claiming Car Country Casualties

John C. Austin — Fri, 21 May 2010 13:42:00 -0400

In Michael Lewis’ disturbing but illuminating book unearthing the machinations behind the global financial crisis, The Big Short, one of the Wall Street investors enmeshed in creating the web of sub-prime mortgage-backed securities and related derivatives reports on how he knew the bubble was going to burst. It was when he (somehow!!) learned from a Las Vegas prostitute that she owned five homes, financed with sub-prime ARMs, ready to implode.

As Washington (hopefully) gets financial reform done to restrain the “animal spirits” (to borrow one of Alan Greenspan’s favorite phrases) of investors and borrowers alike, I was reminded of the economic havoc wreaked by this orgy of incestuous investing at a summit sponsored by Brookings and the Obama administration on the future of auto-impacted communities.

Local mayors, business, labor leaders, civic, and philanthropic leaders—along with governors and members of Congress from auto communities—took stock of the damage, their own and the administration’s efforts to repair it, and what needs to be done next to aid the metros of auto country to accelerate their recovery.

To say the hard-hit auto communities of Michigan, Ohio, Indiana and the rest of the industrial Midwest did less financial sleeping around than the real estate bubble communities of Vegas, Florida, and the coasts is an understatement. The workers in these communities were too busy furiously trying to retool their own skills and industries in the face of job loss and restructuring in autos and manufacturing than to try and finance five homes with bad loans. Then the global financial crisis hit them with a second punch to the gut—effectively destroying credit-dependent markets for the things they made (autos and the expensive parts that go into them).

The biggest tragedy is that these Wall Streets “markets” for synthetic mortgage-backed securities and credit-default swaps had absolutely nothing to do with what we want financial markets to do well—put money efficiently into economic growth generating investment: plants, equipment, new technologies, new goods and services. When credit markets “froze” thanks to the collapse of these financial “products”—it put a deep-freeze on the work of those in auto communities—trying to make and invent new real products.

At the summit I talked Sue Osborne, the mayor of my former hometown of Fenton, Michigan, a solidly blue collar bedroom community 15 miles south of Flint—a community which should be cheered by the announcement of a new federal plan to help clean up 90 former GM industrial sites, and position them for new development; including the massive and iconic Buick City complex in Flint.

Meanwhile though, auto suppliers and auto-related firms are still reeling from the effective freeze on lending by banks to anything auto-related—even to finance their move to clean energy components, medical devices, or other new product lines. Mayor Osborne told me Creative Foam, a Fenton auto supply firm, and a leading corporate citizen of 40 years, can’t get the loans to finance their retooling to make non-auto products—and was at risk of going out of business.

Larry Summers, head of the National Economic Council, noted in his remarks that loosening credit is one of the basic building blocks for a manufacturing revival and reiterated a call for Congress to pass a proposal modeled on a Michigan program to provide loan guarantees for manufacturers looking to diversify their product lines.

On the ground in Fenton, Flint, Kokomo, and Mansfield and the other communities represented at the summit the economic survival clock is ticking, like a real-life version of “24.” Let’s hope we can see more action, and a happy ending.

Authors

John C. Austin

Publication: The Avenue, The New Republic