Thoughts on Prosperity

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.

# posted by Bryan K. Ritchie @ 6:51 AM