This week, PAAdvisory is excited to publish a guest column written by Public Affairs Associates (PAA) intern Vincent Brown. Vincent is a senior at Central Michigan University and plans to pursue a law degree upon his graduation.
A One State Recession: A Tale of Michigan’s Manufacturing Dependent Economy
By: Vincent Brown
Michigan undoubtedly suffered the effects of the nationwide recession to the deepest extent. Evidence provides that Michigan began developing recession-like symptoms well before the nation plummeted into a recession as a whole. Michigan has proven to be a predictor to the nation’s economic status, experiencing the effects first. Although at times the unemployment rates were not as low as found in other states, there was always the auto industry to hold Michigan together and provide jobs, right? Wrong. The fallout of the auto industry cut Michiganders right through the heart, as the iconic powerhouse of American manufacturing crumbled before our eyes. A symbolic industry that set Michigan apart from all other states, which everyone praised and was proud to be a part of, was shattered. Michigan jobs were depleted, hope gone, and families struggling to survive. This downturn began before the nation as a whole experienced economic trouble.
Michigan's economy has maintained direct ties to the auto industry and has felt the effects of recession through hard economic times or when monetary authorities attempt to restrain the economy by tightening credit. These effects are felt due to the reliance upon the auto industry and when credit is down, car purchasing is down, and when car purchasing is down, Michigan’s economy suffers. The nationwide recession officially ended in June of 2009 and states began to slowly recover, including Michigan. Historically, Michigan has mirrored the employment rates of the nation as a whole, except in the degree in which these rates fluctuate. When the nation as a whole experienced a declining employment rate, Michigan consistently had declined at a rate more severe; indicating larger losses and effects being experienced in Michigan due to the recession. As referenced before, when times are hard for the nation, credit tightens and sales are low, meaning new car production is stalled, subsequently furthering the effects of the recession in Michigan due to our dependence on the heavy manufacturing. This dependence is what keeps Michigan locked within the auto industries grasp, although we may think that we own the auto industry, contrary to that belief, it may own us.
According to Michigan demographer Ken Darga, Michigan has had a set of properties that have consistently indicated a "normal performance" economy. These properties consist of: deep recessions when the nation has recessions, strong recoveries when the nation has recoveries, a tendency to start recessions and recoveries a little bit sooner than the nation as a whole, and eventual rebounds to the national employment rate. When the nation found itself in previous economic downturn as experienced in the early 1980s, early 2000s, and the most recent recession, Michigan had always suffered the most severe job losses. Yet after every past drop in jobs, there were significant increases as recoveries began. From 2009-2010, Michigan had growth in jobs similar to that of previous recoveries after recession, indicating that Michigan is beginning to turn around for the better. It is safe to say, for the moment, that Michigan is headed in the right economic direction.
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As shown above, at the end of the recession in 1982, there was immediate growth in jobs per 1000 residents. That growth of 6 jobs per 1000 residents was nearly equivalent to the growth experienced from 2009-2010 after the most recent recession. This mirrored growth is a sign of possible prospective growth that could take place if the similar growth continues to the extent of the growth following the 1982 recession.
Michigan job losses began to decline while national job gains increased simultaneously. As Michigan began to show improvement, the nation as a whole, although slower to show signs of a positive economic state, was also on its way to improvement. Michigan’s tendency to experience recovery before the nation as a whole has set an economic precedent. The one-state recession Michigan has been dealing with places the state deeper into economic hardships for extended periods of time and when recession sweeps the nation, Michigan is cut even deeper. A chart based on the Census Bureau’s Current Population Survey was created to compare Michigan’s share of the United States population to Michigan’s share of the United States unemployment rate. From 2002-2010, Michigan’s share of the unemployment rate continued to rise while Michigan’s share of the country’s population was in decline. Michigan’s increased share of the national unemployment rate with a declining population is a pivotal piece to understanding the deeper recession that was felt in Michigan. As Michigan lost significant population, there was concern because the rate of unemployment was increasing. Lost population and high unemployment was a deadly combination for our state, driving us further into a recession economy.
After the most recent recession, Michigan began posting economic numbers that were conducive of an immediate recovery. Michigan is currently posting growth in jobs along with growth in personal income. By experiencing recession before the nation does, Michigan is placed in its own one-state recession. This can be attributed to the fact that Michigan has placed itself in a corner with its development of a one dimensional economy. Michigan’s dependence upon the auto industry has further limited Michigan to expand and diversify itself. A diversified economy is crucial in regards to job growth and more so the economy. Placing faith within one industry to act as the state’s economic backbone is fiscally irresponsible. Since I was a young boy, my Grandmother has always stressed not to “place all of my eggs in one basket”, meaning that a single industry such as that of the auto industry, should not be the only form of reliance for the vast economy of Michigan. If only Michigan would have understood what my Grandmother meant. By diversifying the economy, Michigan would be taking preventative measures in order to avoid another recession. More industries need to come to Michigan in order for the economy to detach itself from its dependence upon heavy manufactures. Not only do more industries need to be established within Michigan, there needs to be incentive for businesses to base their operations within our state lines.
For more than a hundred years, Michigan has been a leader in manufacturing of numerous goods that extend past automobiles. To put it as simply as possible, Michiganders like to build, and this desire to build goes way past the automobile industry. It is in our blood as Michiganders to manufacture and that is one distinct characteristic that has yet to change throughout our history. Michigan’s heart and soul has been structured by manufacturing and that does not have to change, but merely expand into new ventures. Manufacturing new products within our state lines is what this state needs to diversify itself while at the same time doing what it has been doing for years. Clean energy strategies are an example of a future industry as environmental conditions seem to worsen from our current situations. Michigan needs to become a leader within the clean energy arena as times change and natural resources become scarce. Clean energy is the future, and to become a leader in the field would be exactly what Michigan needs to stimulate its economy. Companies such as Dow Corning and Dow Chemical have begun producing materials that are meeting the growing demand for alternative energy supplies. Dow Corning has become the world leader in solar panel materials and is setting a precedent in the industry, by basing the majority of its operations inside Michigan. New proposed industries such as advanced battery manufacturing have helped contribute to Michigan becoming a leader within the industry. In 2009, tax incentives totaling up to $225 million were approved to target research and manufacturing of advanced batteries. The largest automakers in the world have made a push toward electric vehicles and lithium-ion batteries which will be a significant piece of the auto industry future. This is a step in the right direction since the auto industry is already a staple within Michigan. By diversifying the connections with the auto industry ties, the economy itself would be diversified simultaneously without having to start from scratch.
Other industries such as food processing and different forms of manufacturing are what Michigan needs to diversify itself while at the same time including some of its strengths. Michigan produces vast amounts of food products agriculturally and then ships the food elsewhere to be processed, in order to form an array of products. In an effort to attract new industries, Michigan should attempt to bring food processing to Michigan to eliminate the need for out-of-state companies and eliminate supply chain cost. With the food being produced within our state and potentially processed into other food products, Michigan would have a newly developed industry that would enhance the economy.
Michigan has finally made headway from the worst recession it has seen since the Great Depression. While continuing on the path of recovery, strategic planning is in order to ensure that the lessons we learned in the last decade are not repeated. A diversified employment base, new industry, and businesses, along with a growing population will secure our state benefits when the next recession comes calling.