Back in High Gear : Michigan’s Economy Stages Broad Recovery After Its Near Collapse

The state of Michigan is undergoing a striking economic recovery these days, with jobs going begging in some areas. In fact, on Friday the state announced that its unemployment rate continued to fall, even as the nation’s jobless rate inched upward.

For Michigan, it’s been a long road back. Seven years ago, in fact, this state almost went out of business. The recession that gave America an economic cold in the early 1980s left the state with pneumonia.

Overwhelmingly dependent on the auto industry, which found itself in the midst of its most traumatic crisis since the 1930s, Michigan suffered nearly a total economic collapse.

By 1982--when the state’s jobless rate peaked at a stunning 17.3%--an eerie, desperate silence had descended on Michigan’s industrial heartland.

With tens of thousands of auto workers receiving layoff notices each month, plant closings became so numerous that each new idling hardly rated a mention in Detroit’s newspapers.

Jobless Emigrating to Sun Belt

Detroit’s soup kitchens were bulging, and the lines at the state’s unemployment offices frequently snaked around the block. By December, 1982, a staggering 750,000 people were out of work in a state with a total population of just 9 million.

“Michigan had more unemployed people than lots of states had people,” recalls Doug Ross, Michigan’s commerce secretary. With tax revenue plunging, the state’s government was so broke that it had to turn to a consortium of Japanese banks to pay its bills.

Soon, the highways south to Texas were filling up with what Texans, then still riding their oil high, derisively called the “black taggers.” They were the new Okies, jobless auto workers emigrating to the Sun Belt in search of work, and easily identifiable by the black Michigan license plates on their domestic vans and cars.

As a result, Michigan, once known as the pre-eminent manufacturing center of the nation, quickly gained a new reputation: It was dubbed the buckle of the Rust Belt, the most depressed state in the most depressed region in the country.

“The Rust Belt reputation had a lot of truth to it at the beginning of the decade,” concedes Ross.

But today, much of that rust has been scraped away, and Michigan is now in the midst of a dramatic economic turnaround.

No longer a basket case, Michigan now has a balanced budget and has become a prime example of how a state can survive and flourish in the wake of a devastating blow to its main industry.

Indeed, the economic changes that are helping the entire Rust Belt to recover can be seen most dramatically here in Michigan. The rate of job growth since 1982 has not only outpaced its neighboring states, but the national average as well. Thanks to the creation of 616,000 new jobs, Michigan’s jobless rate has fallen by more than 10 percentage points since 1982 to just 6.1% today, and employment is now at an all time high. While the state’s unemployment rate remains higher than the national average, its dramatic tumble has drawn national attention to the turnaround here. In fact, Michigan officials bragged Friday, the gap between the state and national unemployment rates in April was at its narrowest in a decade.

“The changes seem sharper here because we went through a more traumatic period,” Ross says. “We saw the beast. But you are seeing some aspects of it happening in Illinois, Ohio and Indiana.”

Market Driven Rebound

Yet Michigan’s growth has not come as a result of any grand state policies, or from any governmental efforts to target industrial winners and losers, state officials and economists agree. “This is a free market phenomenon, this is clearly the result of people reacting to market forces,” acknowledges Mark Murray, a research economist with the state commerce department.

Although Democratic Gov. James J. Blanchard has been credited with reducing tensions between state government and the business community, “It is still extremely hard to tell the role that government policy has played,” says University of Michigan economist Paul Courant. “This recovery has primarily been market driven.”

And, perhaps more surprisingly, Michigan’s recovery has also not come by diversifying away from the auto industry, which has dominated the state’s economy since the turn of the century.

Rather, growth has come, Ross and others like to say, by diversifying “through the auto industry,” into new automation-related fields spawned by heavy manufacturing’s new need to compete with the Japanese.

The auto industry’s demand for robots and other automation equipment has led to the creation of dozens of new companies in the Detroit area that are supplying advanced manufacturing technology to the Big Three auto makers.

So many of them have located in the area, in order to be near the auto companies’ headquarters, that a stretch of suburban Detroit from Ann Arbor to Troy, Mich., has been dubbed “Automation Alley.”

The Alley is now home to some 400 manufacturing technology firms, with $5 billion in total sales and employing 35,000 workers. Many are actually owned by the Big Three--Electronic Data Systems, General Motors’ computer services subsidiary, has transferred thousands of workers from its Dallas headquarters to the Detroit area to service GM.

Won Foreign Customers

Another GM affiliate, GMFanuc, a joint venture between General Motors and Fanuc of Japan, is now the largest robot company in America, and is based in Auburn Hills, a Detroit suburb on the northeastern end of the alley.

Many of these companies--involved in such arcane fields as robotics, machine vision, and manufacturing applications of artificial intelligence, have now won over new customers among the Japanese and European auto makers. Nissan for instance, has just opened a big research and development center in Ann Arbor. Some firms are branching out into other industries as well, looking for sales in the aerospace and appliance industries.

As a result, Detroit is fast becoming the new national center for manufacturing technology.

“What we’ve got here is a critical mass of firms that makes us the intellectual center of the action for those trying to find out how you apply new information technology to manufacturing,” Ross says.

This new technology-based sector has led to rapid growth in service sector employment, mostly in the Detroit area, which has more than offset the decline in manufacturing jobs.

Between 1979 and 1982, Michigan lost 431,000 jobs, including 292,000 in manufacturing, according to the U.S. Bureau of Labor Statistics. Although just 94,000 manufacturing jobs were regained by 1987, 557,000 non-manufacturing jobs had also been newly created in the state, according to a University of Michigan study released at a recent seminar on the state’s economy.

“This is the first economic cycle in Michigan in which manufacturing employment has declined at the same time that we have had a decline in the unemployment rate,” observes George Fulton, a University of Michigan economist.

Fear Fed Policies

Other sectors of the state’s economy are blossoming as well. The Grand Rapids area in western Michigan has regained its status as one of the nation’s leading centers of furniture manufacturing with a new emphasis on modern office furnishings. Meanwhile, plastics manufacturers, established here to serve the auto and furniture industries, are now winning over other new customers. State officials say 25% of the nation’s growth in the plastics industry in 1987 occurred in Michigan.

But despite the recovery, the state’s economy remains vulnerable. Blanchard warned this month that the Federal Reserve Board’s recent tight-money, high interest rate policies threaten the auto industry as well as Michigan’s turnaround, and called on other Midwest governors to join him in a protest against the Fed.

Meanwhile, many center-cities in Michigan, like others around the nation, have never made it back from the recession of the early ‘80s. Auto factory towns such as Flint and Pontiac and the central city of Detroit, lost plants but have not benefitted from the growth in high-technology jobs, which have generally gone to affluent suburban areas.

“To the extent that you’re a GM factory town, you ended up in trouble,” Ross says. “What has hurt the Flints and the Pontiacs and the Detroits is that they had people who couldn’t switch over to the new information-based technology.

“Our problem right now is that we have a mismatch of people and jobs.”