Friday, October 21, 2005
Who Lost Delphi?
One of the longest standing and most bedeviling debates among political economists is whether democracy leads to development, development leads to democracy, or neither. There is evidence for all of these positions. Japan, Korea, Taiwan, and Thailand have all grown economically and have transitioned, albeit slowly, to more democratic forms of government. On the other hand, countries like China and Singapore appear to have reached an equilibrium that allows illiberal, single-party governments to co-exist with tremendous economic expansion. Then there are the many non-democracies that have no growth and democracies that lag behind economically.
It is interesting to note that nowhere in this debate is the question asked whether democracy hinders economic growth. But if Brian Dickerson is right (Free Press 10/14/05) and the increasingly cantankerous exchange between democrats and republicans over who is responsible for Delphi corporation’s bankruptcy is a “glimpse of ’06,” then democracy, at least the partisan way we practice it, may not be helping Michigan compete.
The problem is, both parties have it wrong. The GOP’s contention that Michigan’s focus should be on Indiana and not India and that Governor Granholm should do more to protect jobs is shortsighted and unrealistic. At the same time, the Democrat’s obsession that globalization is ravaging Michigan jobs is pointless and irresponsible.
Yet both parties also have it right. Democrats correctly point out our low-educated work force reduces incentives for Delphi and companies like it to stay. At the same time, a republican focus on reducing organized labor’s stranglehold on market incentives is vital.
The reality is that globalization and market forces are much more powerful than partisan politics. As Singapore, Malaysia, and Thailand have all learned, competing with China and India on low wages alone is a losing battle. But if, on the other hand, you can’t compete for high-skill manufacturing jobs, then you’re just stuck in a structural vice, the handle on which globalization is continuously tightening.
Rather than working so hard to lay blame at each other’s feet as a way to promote future electoral fortunes, democrats and republicans must cooperate with business, labor, and academic leaders to find ways to create market incentives for firms to not only to stay in Michigan, but also to upgrade their operations technologically. Steps must simultaneously be taken to absorb some of the pain for those who lose low-wage jobs due to market-induced transitions while they are being re-trained for new economic activities.
Powerful forces are reshaping the economic landscape. To survive and thrive in this new environment might require that we also reshape the political landscape. Otherwise, it won’t matter who gets elected.
Is Michigan a Third World Country?
By 1972 Singapore was in real trouble. Independent for just 13 years, it had failed to merge with Malaysia and, worse yet, the British Army, a major source of income, was going home. If something didn’t change dramatically, and soon, Singapore would cease to exist.
What does this have to do with Michigan? A few weeks ago I went to Detroit for the first time to see the Tigers play. My impression of Detroit was that it was in worse shape than many of the developing countries I had worked in as an executive for several different computer companies and now as an academic. To put it bluntly, Bangkok, Kuala Lumpur, Seoul, Taipei, Shanghai, and other Asian cities were rapidly eclipsing Detroit in terms of wealth and progress. Except for the area around Comerica Park, I saw mostly abandoned buildings, decaying infrastructure, and little if any sign of economic life.
Recent statistics reflect this general malaise. Michigan has the highest unemployment in the nation and Detroit the highest rate of poverty in a metropolitan area. The auto industry, the backbone of Michigan’s economy, seems hopelessly lost in an uncompetitive squeeze between unproductive labor policies promoted by out-of-touch unions on the one side and stale designs and tardy engineering fostered by unimaginative and risk averse executives on the other.
What can we do to reverse this slide and reclaim our position as an economic leader? Governor Granholm has suggested a classic Keynesian idea to invest $10 billion in our infrastructure to create jobs and demand that will jumpstart the economy. But if such infusions are not coupled with higher productivity and output over time, the result will be a one-time economic boost that will soon fall back into prior levels. Knowing this, the Governor plans attract high-tech firms and highly skilled people to “cool” cities. The problem, however, is the difficulty of matching supply and demand. Why do high-tech firms come if there are no well-trained people? And why to well-trained people remain if there are no firms? It’s certainly not because of Michigan’s mild winters, ocean beaches, or mountain skiing.
To solve this problem we need to take a page from the history books of successful developing countries. Last week I presented a paper on how Singapore simultaneously created highly skilled people and attracted high-tech companies. After my presentation, a well-known colleague inquired if I had ever applied my research to Michigan. To be honest, I had never considered it. But as he talked I saw the potential application: globalization and an increasingly complex and technical international economic system is driving the primary location of competition to the state level. Michigan is not competing only with other states. Michigan is competing directly with Singapore and every other developing country. If true, why not act like these other countries?
Singapore’s success in the world economy has come from a mixture of technocratic and bureaucratic professionalism, strong political leadership, and active private sector participation. And by participation I don’t mean simply consultation. Heads of companies, leaders of unions, and leading academics have all taken turns directing the entire public policy process in key economic areas including forming, implementing, monitoring compliance, and ensuring enforcement of policy. The key to making this work is tight coordination between the private sector and government—not government as a regulating force, but as a facilitating one.
In many ways Michigan is at the crossroads that Singapore was in 1972. The cash cow industry that we have depended on for so long is floundering. Our economy is overregulated, our workers underproductive, and our industries less than innovative. What we do next will determine whether we compete successfully in the global economy or whether we continue our slide into underdevelopment.