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Issue Number 19
Globalization and Neighborhoods
Planners’ role in
fueling Michigan’s
economic engine
Globalization and neighborhoods:
The challenge and opportunites for
Michigan cities
Michigan is suffering. While the coffers of many
states in the southeast and west have surplus
funds (Montana is using part of its surplus to give
its citizens property tax relief and Wyoming’s
surplus is so big, legislators are squabbling over
what to do with it), Michigan, on the other hand,
faces another budget deficit.
The future role of Michigan cities in
today’s 24/7 global economy is growing
more uncertain. I use the term “24/7
economy” to stress the fact that due to
advancements in global communications,
businesses can increasingly coordinate
While Michigan’s unemployment rate – one of
the highest in the nation - fell slightly at the end
of 2005, 14,000 manufacturing jobs were lost.
State level budget woes are trickling down to
local municipalities as revenue sharing cuts have
diminished their working capital over the last four
years. Coupled with the affects of the Headlee
Amendment and Proposal A, communities across
the state are doing less with less, and residents
and businesses are beginning to feel the pinch.
If these negative
“demand side”
economic trends—
lack of new orders
for our goods and
services—were not
alarming enough,
the state and its
cities are facing
on-going threats on
the “supply side”
as well. Many of
the state’s smaller
cities are finding it
increasingly difficult
The lack of manufacturing employment growth is not due to a
to attract skilled
slowdown in production, but due to a speedup in productivity.
and professional
For Michigan and its cities, this can mean the loss of jobs, tax
workers. Two-wage
base, and population.
earning, professional
the production and delivery of products
households are more likely to find the
and services anywhere around the world
more promising career opportunities for
instantaneously. This seriously diminishes advancement in large metropolitan areas
than in the state’s small towns and cities.
the significance of place and heightens
the importance of the knowledge and
skills of the workforce and relative cost of Given these trends, it is very easy for
production.
community leaders and planners to
become discouraged. Many city leaders are
In this new environment, the historical
comparative advantage that many of the
continued on page 2
Yet still important endeavors are underway that
could result in positive change, albeit perhaps not
for several years: Governor Jennifer Granholm’s
Cool Cities Grants and Planning Programs; the
brand new Centers for Regional Excellence
program; and the Safe Routes to School initiative.
As professional and appointed planners, our
interest in these topics is high, and we recognize
the connection between a stable economy, low
unemployment rates, and healthy local budgets, and
strong, healthy, safe, and sustainable communities.
George Erickcek first presented this brief on
the state of Michigan’s economy at the opening
session of the 2005 Annual Planning Michigan
Conference in September 2005. His paper
reiterates the challenges and opportunities
Michigan cities face in the coming years.
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state’s cities held in manufacturing activity
has waned. Michigan has lost thousands
of factory jobs during the past five years.
Moreover, employment in its serviceproviding industries is also lagging the
nation.
3
struggling with the questions of “what
will be the next ‘economic base’1
engine for our area?” and “can the
current ‘hot technology’ truly jumpstart
our economy?” These are important
questions, and I do not have the
answers. Nevertheless, I do believe the
state’s cities should focus their attention
on supply side issues, beginning with
there neighborhoods. To shamelessly
borrow a phase from Ann Markusen,
a well-regarded regional economist,
cities must work to become “sticky in a
slippery world.”2
Structural change
in manufacturing
The nation’s manufacturing sector is
cruising; it just doesn’t need as many
deck hands as before. As shown in
Chart 1, manufacturing output has
surpassed its previous 2000 peak, but
it is generating this level of output
with only 14.3 million workers. In the
1950s, when output was much smaller,
manufacturers employed an average of
15.3 million workers.
Clearly, the current lack of
manufacturing employment growth is
not due to a slowdown in production,
but is due to a speedup in productivity
gains. For the nation, this is great news
because it frees up resources to be used
for other activities and it is a necessary
condition for long-term economic
growth. For Michigan and its cities, it
can mean the loss of jobs, tax base, and
population as workers “freed” to pursue
other jobs struggle to find their footing.
However, I have not yet revealed the
most troubling trend during the past 10
years for Michigan and its cities. The
state’s private economic-base, serviceproviding sectors are not keeping up
with national counterparts. As show
in Chart 2, Michigan’s employment
in the selected services of information,
financial activities, professional and
business services, and education and
health declined by 12 percent relative
to the nation from 1995. Manufacturing
employment fell as well relative to the
nation, but by just more than 5 percent.
Finding new
economic drivers
for Michigan cities
The challenges facing the state and
its cities are: finding new economic
base service providing firms that can
replace or, at least, shore up its declining
manufacturing economic base; and
enacting the right public policies to
attract, retain, and grow these new
sectors. The state’s cities face serious
barriers in overcoming both of these
challenges.
THE CHALLENGE OF FINDING
A REPLACEMENT FOR
MANUFACTURING
1. Manufacturers swing a big bat. A
city will likely have to create up
to twice the number of private
economic-base, service jobs for
every manufacturing job it loses
just to stay even. In general,
manufacturers generate a larger
employment multiplier than service
jobs. For example, we estimate
that an average auto assembly job
generates 3.5 additional jobs in the
state; other researchers argue that it
is up to five additional jobs. On the
other hand, service activities, even
if they produce services that are sold
outside the state, rarely generate
more than 1.5 additional jobs per
employee. Most services employees,
especially in health and finance,
generate much smaller spin-off
effects because they provide services
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to local residents and thus add little
to the local economic base.
2. It is very different to identify
an economic base service. For
example, an accounting firm
with out-of-state clients looks no
different from one that is meeting
the needs of local businesses. One
is bringing new money into the
area while the other one is not.
Moreover, a service firm can
become an economic base firm
overnight if, for example, it lands a
big job in Chicago. How can a city
assist what it cannot identify?
3. Although there are well-known
exceptions such as Boeing,
most corporations do not move
their headquarter functions so
they are very difficult to attract.
Unfortunately, when corporations
do move their headquarters, it is the
result of a takeover or merger, and
in these events, larger out-of-state
metropolitan areas more often win.
4. Professional workers have a big
say as to where their firm locates.
Professional workers have more
to say in their firm’s location than
non-professionals. Professional
workers pick areas for a variety of
reasons including potential career
development opportunities for
themselves and their most-often
professional-careered partner,
and perceived quality of life
characteristics. Two-career families
present a major challenge to smaller
cities; it means that to attract a
knowledge-based firm the city must
offer two promising professional
career tracks. This is an offer that
Chicagoland and the Detroit Metro
area can provide, but smaller areas
cannot.
HAVING THE RIGHT TOOLS FOR
THE JOB
1. Property tax abatements are of little
importance to most economic
base services. A property tax
abatement means little to a software
SMART GROWTH TACTICS - JANUARY 2006
company which owns one or two
computers and rents its office space.
Incentives for physical infrastructure
and capital miss the mark for
the knowledge-based activities.
Knowledge-based services can
locate almost anywhere; therefore,
government polices should be
directed to meeting the needs of the
firm’s human capital requirements
and not its physical capital needs.
2. Specialized financial and business
services such as venture and angle
capital funds are “captured” by
existing cluster locations. “Hottechnology” industries tend to
cluster in certain areas for historical
reasons, and once established, these
clusters are hard to move—they
become sticky. New firms hatch
and new products are developed as
the cluster generates and maintains
an environment where new ideas
are created, stolen, re-engineered,
dropped, dusted off, and taken to
market. This dynamic “place-tobe” environment attracts talented
professionals and specialized services
including venture capitalists,
understanding financial institutions,
and good patent attorneys.
What can Michigan
cities do?
FOCUS ON SERVICE DELIVERY;
NOT JUST TAX INCENTIVES
Do not give up on manufacturing.
Despite all of this, Michigan and its
cities should continue to work to retain
and attract manufacturing activities.
Manufacturing is not going away; it
will simply need fewer and better
trained workers. The state’s excellent
system of community colleges is the
first line of defense in retaining for our
manufacturers and in attracting new
ones. Of course, taxes matter, but
the state cannot, and should not try to
compete on pricing against Mexico,
China, and aggressive southern states.
Manufacturing provides medium-to-
First step:
Take a walk in
your successful
neighborhoods
In every city some neighborhoods
work while others do not. A working
neighborhood is one that is able to attract
and retain residents who have the means,
abilities, and propensity to live elsewhere.
Education achievement, income, and age
are three of the characteristics that are
strongly associated with mobility. Examine
the 2000 Census and identify those Census
Tracts which are housing residents with
these characteristics and simply walk in the
neighborhood. What is special and what
can be transferred to your not-so-successful
neighborhoods? Publicize your successful
neighborhoods in the local media and
talk to the neighborhoods’ residents to
learn what they like and dislike about their
neighborhoods and the city.
good paying jobs for individuals who
do not have much formal education.
Given the alternatives, these are jobs
your community does not want to lose.
Moreover, given that a high percentage
of the workers in manufacturing are
nearing retirement and that many
industry analysts are predicting severe
labor shortages of high-skill workers,
the industry can still offer good-paying
jobs for young adults.
FOCUS ON THE NEIGHBORHOODS
Cities are similar to forests: they are
stuck in place and cannot move when
threatened; both are vulnerable to
disease; they do better when properly
managed; and are a product of their past
and current environments.
Deterioration of neighborhoods is the
most deadly disease facing cities. A
successful city will see its economicbase industries come and go and will
see its neighborhoods change their
compositions. When its neighborhoods
3
lose their attractiveness, livability, and
uniqueness, the city struggles. This
is especially true as cities attempt to
nurture and build new economic-base,
service-providing industries.
Attracting professional workers into
the state is a necessary step to starting,
expanding, and innovating in its
knowledge-based service-providing
activities. As shown in Table 1, 36.3
percent of the individuals 25 years
and older who moved into the state
between 1995 and 2000, held a
bachelor’s degree or higher, compared
to only 18.6 percent of the state’s stayat-home residents. Cities are on the
front line in creating the environment
professionals. In short, economic
developers have long argued that
retention efforts are more important
and fruitful than attraction activities.
In today’s world, their argument is
still correct; however, the focus is
increasingly on the individual and not
the firm.
that will attract these new knowledgebased residents.
Conclusions
Cities can only act locally in response
to global changes. On the demand
side, they can attempt to identify,
nurture, and attract new economicbase, service–providing activities. This
is a difficult task; picking winners is
seldom successful. Also, if your crystal
ball is correct, many of the available
economic development tools are still
inappropriate.
I recommend that cities focus on basic
supply-side issues on the neighborhood
level. Since
professional
workers have
Table 1: Education by Migration:
a say in where
Michigan residents in 2000 who:
they locate,
Lived Outside Lived in
identifying
Educational Attainment of
Michigan in
Michigan in
what current
Persons Age 25 and Older
1995
1995
professional
Dropout
14.8%
17.2%
workers like
High School Diploma
21.3%
34.2%
Some College, No Degree
20.7%
23.2%
about your
Associate Degree
6.9%
6.8%
city is the
Bachelor’s Degree
21.6%
11.9%
first step in
Graduate School or
14.7%
6.7%
creating an
Professional Degree
environment
Source: 2000 PUMS
that would
attract other
George A. Erickcek is the Senior Regional
Analyst for the W.E. Upjohn Institute for
Employment Research. His research focuses
on analyzing issues in regional economics
and regional public policy. He also writes the
Business Outlook for West Michigan, the
Institute’s quarterly report which examines
the economic conditions in West Michigan.
He joined the Institute in 1987.
Footnotes
1 In this paper I use “economic base” to define a job or firm
as one that sells its produced goods or services to customers
outside the local area. By doing so, it brings new activity
to the area where a local service provider does not. An
economic base activity can also bring new money into the
area if it produces a good or service to the local area that was
previously shipped in from the outside.
SmartGrowthTactics
2 Ann Markusen, “Sticky Places in Slippery Space: A
Typology of Industrial Districts,” Economic Geography v72,
This publication was produced by the Michigan Association of Planning.
n3 (July 1996).
Photo and graphic credits: Cover photo, Kenn Kiser, pages 2 and 4, George Erickcek.
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