Detroit – Judging by the haggling over the rich labor contracts with this town’s automakers, you’d think we’ve passed from the edge of collapse into a new Golden Age — and that history doesn’t matter.
When’s the last time signing bonuses approaching $10,000 a piece, or base wage increases in at least two years of a four-year deal, weren’t enough to seal deals that are stunning in the ground they’re making up for United Auto Workers members? A long time.
Right, a new Golden Age: Tally the profits and divvy the spoils; assume the booming economic cycle of today keeps bending upward well into tomorrow; discount the chances that competitors using radically different business models could challenge the status quo.
Except that this 1960s-era rite of national contract ratification, a familiar labor-management tradition forged over decades of boom and bust, is occurring amid seismic economic change. At some point, it will not spare the global auto industry’s top players any less than it is sparing other industries.
Here we have, as 500 people attending Business Leaders for Michigan’s CEO Summit were reminded Thursday, an economy where the largest taxi company, Uber, doesn’t own any taxis; where the largest media company, Facebook, doesn’t produce any content; where the largest lodging company, AirBnB, doesn’t own any real estate.
Automakers are morphing into global mobility companies, the better to compete with Silicon Valley giants like Google and Apple for first-mover advantage in the race to field the first self-driving cars real people could buy and drive.
Wake up, folks. The revival of Detroit’s auto business in its home market, a mass restructuring that is producing record profits at home and financing lucrative labor contracts, cannot by itself power a broader revival of the Michigan economy — no matter how much money the companies make.
Nor does their knack for making real things mean that no one else can find a way to make real things, especially if those things and the technology underpinning them answers a question no one was asking a decade ago.
The industry produces more with less labor than any time in its history. Detroit’s Big Three are investing heavily in Mexico, and pushing hard in Asia, even as they commit to more investment in the United States. The lesson is that three robust automakers here are necessary and part of the future, but they are far from sufficient to sustainably energize the Michigan economy.
Yes, I know: tough to make that argument persuasively when the industry is running at 17 million units a year; Detroit’s Big Three collectively booked adjusted operating profits in North America well over $70 billion; UAW members are landing good contracts; and gas prices are closer to $2 a gallon than $4.
Call that a false sense of security. A blistering auto business today does not change the fact that Michigan’s entrepreneurial climate, its infrastructure investment, and its ability to produce college-ready high school graduates are nowhere near where they need to be to compete with many other states for the business investment that drives growth.
“Despite the fact that Michigan is growing faster than most states, absolute levels for employment, per capita income and per capita GDP remain average or below,” says Business Leaders for Michigan’s 2015 Economic Competitiveness Benchmarking Report.
The state of Michigan’s urban roads rank 39th out of 50; the condition of its bridges ranks 42nd out of 50; and its unemployment rate ranked 46th out of 50 last year, not the signal of a go-go economy. Entrepreneurial activity is improving, but still ranks 31st out of 50; the net number of new businesses established ranks 36th of 50.
Hardly a ringing endorsement, those. Still, Michigan’s business climate rankings are improving, and the state’s corporate tax climate ranks 10th in the nation, a sharp improvement from the waning days of the Granholm administration.
“We’re better,” says Doug Rothwell, CEO of Business Leaders for Michigan, “but we’re not good enough.”
Michigan’s elected officials in both parties, distilled in the dysfunction of the Republican-controlled Legislature, seem incapable of coalescing around a common vision for infrastructure, education spending and economic development. With the exception of tax policy, those arguably are the three most important metrics to would-be business investors.
The state needs to grow its population and encourage would-be entrepreneurs. It needs tax policy that invites capital investment and welcomes it once it arrives. It needs elected officials who understand the linkage between well-maintained infrastructure, education and economic growth — and show it by what they do.
“It’s not competitive,” says Albert Berriz, CEO of McKinley Inc., an Ann Arbor-based real estate investor with a $.4.6 billion portfolio spanning 33 states. “It’s a nuclear arms race, and everyone wants to put you out of business. We need to talk less and win more.”
Exactly. And remember that it’s hard to see the road ahead while looking in the rearview mirror.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.
Catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM