Michigan: Stop Blaming Yourself for the Auto Sector's Demise

The Michigan Legislature just passed a $600 million tax relief bill package for large manufacturers, which Michigan Gov. Jennifer Granholm will soon sign into law. The legislation is designed to aid the state's struggling automotive industry, and it will provide the relief to these companies over four years.

The legislation will create a 15 percent personal property tax credit beginning in 2006 and a new 100 percent new investment credit on property directly related to jobs transferred to Michigan in 2007 and 2008. (This is a way for Michigan to gain favor with consolidating manufactuirng companies to bring more jobs back to Michigan. The strategy is to capture a larger share of a rapidly shrinking national manufacturing employment pie. In the short term, it might appear to work, but in the long term this is "zero-sum" economic development strategy.)

Michigan-based companies that export goods would also get a tax advantage with a change in the state's sales tax apportionment factor. (My guess is that these companies are already exporting their goods. Shame on them if they're not.)

The new Michigan legislation will also maintain the current tax status for auto suppliers Delphi Corp., and Visteon Corp., allowing them to avoid a massive tax hike at the end of this year. (What else is new?)

If you are so inclined, you can read more here.

Commentary: Let me start off by saying that I am not picking on Michigan, but this situation is my "tipping point" when it comes to the sad state of economic development policy and strategy across the United States.

I am deeply concerned by the "acts of desperation" that I see masquerading as "economic competitiveness strategies." There must be a better way. I will do my best to find it. Stay tuned.
I have very serious doubts that the tax relief being proposed in Michigan, or any local or state reduction in corporate taxation anywhere, is going to improve the competitiveness of the manufacturing sector here in the United States.

You can cut taxes until you are blue in the face and it will not prevent the inevitable evolution of the manufacturing sector. This is especially true for the automotive sector, which has created its own "nightmare on Elm Street."

My advice to Michigan economic development officials: Stop blaming yourself. You have a wonderful state, which is rich in people, variety of place, environment, knowledge, creativity, compassion, and so much more. Your state tax policies are not responsible for what is happening to the automotive industry or the larger manufacturing sector. Therefore, changing these policies will not prevent the inevitable.

Accept there is little that you can do to make life easier for these companies. They created their own success and now they are creating their own misery. Don't allow these companies to bully you into concessions like those they pound out of their suppliers worldwide. This is a time for "tough love."

Focus your attention on the people directly and indirectly impacted by the massive self-destruction of the auto industry. Better educate them. Create jobs in new industries for them. Give them hope and encouragement that they can succeed in the global economy. Above all, tell them the truth about what they need to do to survive and prosper in the future. Use your great universities to rethink the state's model for economic development and how to move to the global entrepreneurship model.