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The state of Michigan is often viewed as being at the vortex of the American economic recession; that is, all the woes inflicted by the downturn have been maximized here. The Great Lakes State is indeed beset by high unemployment, soaring foreclosures, substantial poverty and thousands of abandoned houses and properties.
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However, the seeds of Michigan’s economic problems began long ago (when things were going well) and became exposed through the occurrence of a perfect storm of negative concurrent events – the collapse of U.S. manufacturing, a global credit squeeze and the implosion of the housing bubble.
Michigan is, of course, famous for its auto industry, which consistently grew and provided millions of jobs for much of the 20th century and created an American middle-class virtually single-handedly. During that time, the state’s heavy reliance on this one industry didn’t cause any problems since cars were so hugely successful.
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But when U.S. automakers went into decline, Michigan went into downward spiral also.
According to data from Charles L. Ballard, a professor of economics at Michigan State University in East Lansing, employment in Michigan peaked in the summer of 2000. Since that time, the state has lost about 867,500 jobs, or about 18 percent of the total workforce. And about half of those job losses (442,000) came from the manufacturing sector, which of course includes the automakers.
“We have had net job losses in every year of the past decade,” Ballard said. “The pace of these losses really accelerated in 2008 and 2009, when we lost more than 400,000 jobs.”
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To illustrate the magnitude of the decline of the manufacturing sector, consider that in 1963, manufacturing accounted for half of Michigan’s total GDP. By 2008, that number shrunk to under 20 percent. (For the U.S. as a whole, manufacturing as a percentage of GDP fell from about 28 percent to 11 percent over that period).
The decay of the automobile industry has been even more dramatic. In 1963, cars represented just under 25 percent of Michigan’s GDP; by 2008, that figure amounted to just above 5 percent.
Moreover, while inflation-adjusted per capita income has steadily risen in the U.S. (and Michigan) since 1932, by 2000 or so that figure stopped climbing in Michigan at about $35,000 and has stagnated at that level ever since (while income in the U.S. as a whole has continued to rise).
Michigan has a multitude of problems, but the fall of the automobile industry probably ranks as the number one woe, which spilled over into much of the rest of the economy.
“In the 1940s, 1950s and 1960s, having a non-diversified economy was not a problem since the dominant industry in Michigan -- autos -- was so wildly successful," Ballard said. “Carmakers reigned supreme for so long here that Michigan seemed to develop the mindset that the good times would last forever.”
Another (perhaps unintended) after-effect of the automobile boom was that it reduced the state’s commitment to education.
“The auto plants and related factories provided high-paying jobs to people without any college degrees or even any high school degrees,” Ballard said. “For decades, a person like that could get a factory job for life that would give them a comfortable middle-class existence. As such, there was not a great deal of emphasis on education."
And this lack of focus on education likely hampered the potential development of other industries which could have diversified the state’s economic base.
Indeed, in the current economic malaise and anti-tax hysteria, funds for schools are getting slashed left and right.
