Former Governor Jennifer Granholm Discusses Why Michigan Can Serve As A Laboratory For The Nation

Monday, October 24, 2011 - 13:51

The Editor interviews Jennifer M. Granholm, former Governor of Michigan and co-author of A Governor’s Story: The Fight for Jobs and America’s Economic Future.

Editor: Congratulations on publishing your book, A Governor’s Story: The Fight for Jobs and America’s Economic Future. Please tell our readers about your background, your inspiration for writing this book, and your plans going forward.

Granholm: I served as Michigan’s governor for two terms, from 2003 through the beginning of 2011, having already served as the state’s attorney general. I became governor at the most challenging time in Michigan’s economic history since the Great Depression, and what is happening in America right now happened to Michigan first. My husband and I wrote this book to provide instructive insights from a laboratory of democracy to learn from Michigan’s experience in seeking national solutions. Going forward, I will be hosting "The War Room with Jennifer Granholm" starting in January on Current TV.

Editor: In the context of national and global economic recession and persistent unemployment, why did you characterize Michigan as “no aberration?”

Granholm: When I was first elected, the U.S. was emerging from a recession. Historically, Michigan followed the national cycle; thus, we expected increased consumer spending and general economic recovery in tandem with national developments. Michigan’s economy was changing dramatically with the advent of globalization, robust trade and the migration of capital and jobs to emerging markets. Because we had such a concentration of portable jobs, Michigan was hit hard by these developments, so I focused on finding solutions.

I reduced the state’s government, in terms of both size and spending, and, by the time I left office, Michigan ranked 48 in the country by those measures. Between 1997 and 2007, corporate taxes dropped more than in any other state, and I cut taxes 99 times during my first term. I hoped that smaller government and a lower tax rate would spur robust economic development.

But they didn’t, and we still had the highest unemployment rate in the nation. Toward the end of my second term, the federal government stepped in by rescuing the auto industry and providing an opportunity for us to partner with private sector investors to diversify our economy.

Up to this point, I had no effective resources. Michigan always ranked well in state comparisons by Site Selection magazine because we were very aggressive, but that didn’t make a difference overall. The turnaround started when we created clusters of economic sectors, or industry clusters, enabling us to compete globally and in partnership with the federal government. In 2010, our unemployment rate dropped six times faster than the national average.

Editor: Can you explain the term “industry cluster?”

Granholm: We performed an analysis on the state’s economy, including our strengths, weaknesses, opportunities and threats, to determine how Michigan can compete domestically and globally. We explored our geography, history, available talent and other state assets and then identified six sectors, including clean energy.

We knew that the federal government’s Stimulus Bill would encourage manufacturing of electric vehicles, so we seized the opportunity to build “automobile 2.0,” including the essential lithium ion battery. We adopted tax incentives for partnering with the private sector and identified the whole supply chain. If there was a domestic supply gap, I found Asian companies to fill in.

I recruited 18 foreign companies to come to Michigan and manufacture battery supplies, which produced an “industry cluster” and created 63,000 state jobs. It’s one example of public/private partnerships pursuant to the federal initiatives to reduce dependence on foreign oil and create jobs in the auto industry.

Editor: Can solutions like this be rolled out nationally?

Granholm: Washington cannot mandate industry clusters. States and regions are best qualified to develop a bottom-up strategy, which leverages their individual strengths and allows the federal government to incent investment partnerships. For example, in A Governor’s Story, I discuss creating a jobs race to the top, much like the education race to the top, in which just $4 billion was allocated and 46 states adopted higher educational standards.

So we envision a federal initiative to partner with states and launch a jobs race to the top. California’s Silicon Valley, for example, is a place where ideas are incubated, resulting in the need for scale models, product pilots and commercialization opportunities. This process is facilitated if California updates its laws to streamline permitting and to identify land on which to partner with private sector investors.

Every region has assets to develop and barriers to overcome, and partnership with the federal government can facilitate investment and empower legislative updates that create jobs. States should be pragmatic and listen when companies clearly articulate what they need, from resolving labor differences and leveraging a broad pool of U.S. talent, to managing bureaucracy and breaking down location-specific barriers.

Editor: Please talk about Michigan’s groundbreaking retraining program, No Worker Left Behind.

Granholm: There remains a great number of American workers who went from high school to the factory, having made a rational decision to pursue traditional manufacturing jobs that were available at the time. Losing these jobs left behind a generation of great workers who lacked the skills to compete for advanced manufacturing, technology or healthcare jobs. These people naturally resisted the idea of returning to school after so many years of working, so we created No Worker Left Behind.

I secured a federal government waiver to repurpose state workforce training funds, and we offered up to two years of community college tuition –  $5,000 per person per year – to the first 100,000 Michigan workers who applied. In return, recipients had to agree to be trained in an area of need.

The business community identified sectors in need of skilled workers, and by the end of my second term, 150,000 people were enrolled, with more on the waiting list. The results were outstanding: a placement rate that was four times the national average, with 82 percent of participants finding a job related to their training.

Unfortunately, Federal Workforce Development funding was cut, and states require that people look for work while they collect unemployment even though those jobs simply don’t exist. Instead, why not allow them to attend school and earn a certificate or degree that will lead to meaningful employment?

No Worker Left Behind worked in Michigan, and this program definitely could be adopted on a national scale. It leverages a mutual benefit, with local governments partnering with community colleges that appreciate the opportunity to be a relevant force for economic recovery. 

Editor: As governor, you distinguished yourself by reducing Michigan’s unemployment. How did you do it?

Granholm: Michigan lost 800,000 jobs, mostly in manufacturing and automotive, in just one decade – a huge number considering the state’s population of 10 million people. A study by Nobel Prize-winning economist Michael Spence concluded that the national economy is undergoing a similar structural change requiring government attention in the face of dire consequences. 

In my experience, general tax decreases don’t work. We lost Electrolux – which employed 2,700 of Greenville, Michigan’s 8,000 residents – in spite of offering zero taxes for 20 years, assistance with building a new factory, $30 million in annual worker concessions and a retraining program from the community college. Electrolux’s response was to acknowledge the incentives as the most generous they had ever seen, which still didn’t compensate for the ability to pay Mexican workers $1.57 per hour. I realized that these lower-skill manufacturing jobs had disappeared for good and that America must link arms with companies in order to be competitive in advanced manufacturing.

CEOs of multinational manufacturing companies suggest modeling our economic development strategy after Singapore’s hands-on approach to helping businesses enter the country and succeed. Singapore identified industry clusters based on national strengths; for example, being a port makes them a great location for logistics businesses. It also has specific foreign direct investment goals, which the U.S. would do well to emulate in charging all ambassadors with bringing foreign companies to America. The U.S. can compete for advanced, technology-based manufacturing jobs that require a skilled workforce not easily found in developing nations; however, those companies are also looking for a partnership to lower the cost of start-up capital.

Editor: What are the takeaways from your recent discussion with Daimler Chrysler executive Herman Doppler about working in partnership with labor?

Granholm: I believe in borrowing best practices that work. Germany weathered the global recession by preserving its manufacturing base and keeping people employed, so I asked Herman Doppler how they did it. Kurzarbeit is a strategy the German government employed to work with the private sector and keep people working. Instead of lay-offs and subsidized unemployment, people work fewer hours and maintain their skills, and they can bank overtime hours to draw a salary when work is scarce. Further, these terms were negotiated in collaboration with labor unions to preserve jobs, skills and morale.

Editor: In A Governor’s Story, you recognize that the future is tied to education. What initiatives did you implement to encourage higher education?

Granholm: Michigan’s graduation rates have always been low because we are an industrial state, so I set an audacious goal to double the number of college graduates. Today, every student takes a college prep curriculum, and statewide scores are rising every year. College and community college matriculation has increased, also comporting with our No Worker Left Behind effort.

Editor: Please talk about global competition and the impact on U.S. jobs.

Granholm: It is critical for states to work in partnership with the federal government to pursue economic development strategies. No state can compete against China, Sweden or Germany without assistance in creating a market, securing foreign direct investment and establishing industry clusters.

Last March, I visited China, which has established a manufacturing presence in clean energy solutions. They’ve drawn away many U.S. jobs with aggressive incentives. I traveled with a group called Securing America’s Future Energy to explore China’s successful policies. A Chinese official asked when the U.S. would enact a national energy policy, and I explained the divisiveness in Congress, at which point he grinned and said “take your time.” China views our passivity as an opportunity to offer incentives that will draw even American-based companies.

Editor: We understand that a number of states, notably California, have enacted legislation that mandates growth in the green energy industry.

Granholm: Every state has something to offer in the energy sector, and the California legislation created a market for renewable energy, along with 500,000 jobs. California is a big state that can command a large renewables market, but not every state has this advantage. Without a nationally mandated percentage of clean energy consumption, most states cannot enter this space, and we will lose this entire market to other countries.

As soon as China adopted the goal of 20 percent of their energy from renewable sources by the year 2020, they created a billion-strong market. Three years ago, U.S. private sector investment in clean energy ranked number one for the G-20 countries; two years ago, China jumped over us, and Germany joined them last year. Despite our 630 percent growth in private sector clean energy investments since 2004, other countries are passing us by because they have national policies and can guarantee a market.

Editor: What is the appropriate interplay of state and federal regulations that affect job growth?

Granholm: The U.S. must change its paradigm about government involvement away from heavy-handed regulation and catch-all business incentives toward key investments in the private sector. Eliminating dependence on foreign oil, preserving manufacturing for defense products and investing in healthcare research are examples of national goals that merit government involvement.

But for the Department of Defense and NASA, the U.S. never would have achieved its global technological advantage, and if we decrease investment in early-stage research and development, we will cede that territory to other countries. Because the manufacturing sector is critical to continued R&D dominance, government regulation and involvement are appropriate.

Editor: Please expand on the connection between access to capital and economic recovery.

Granholm: Access to capital is vital to recovery in many contexts: venture capital covers early-stage R&D; intermediate funding might sway a technology firm’s decision to locate in the U.S. versus China; and established business might need help during a recession-based capital crunch. Banks are a traditional source of capital that dried up during the recession, even for manufacturing companies with impeccable credit histories.

Our response in Michigan was to create a supplier diversification fund, using a combination of state and pension funds and money from the Small Business Administration. President Obama’s Small Business Jobs Act allowed us to pool those resources and create the Michigan Economic Development Corporation (MEDC), which could address a key recession-related issue.

Take, for example, a manufacturer that applied for a bank loan to invest in technology and that satisfied all credit requirements. While a bank might still deny the loan because of its general reluctance to lend, it now could ask the MEDC for a deposit to buy down loan risk and then confidently underwrite the remaining balance.

This creative partnership between government and banks enabled companies to survive and banks to feel less threatened by economic circumstances. It highlights the direct connection between access to capital and economic recovery.

Editor: What are the critical tax issues that affect job growth?

Granholm: Right now, there is a lot of talk about using national tax policy to create U.S. jobs. We must have a competitive tax environment, yet our corporate tax rate at 35 percent is an outlier. While two presidents cut capital gains from 28 percent to 15 percent, job losses continue because effective tax strategies must tie tax benefits to U.S. job creation, for example, as provided in the American Jobs Act.

Also, we must exercise caution when slashing taxes without any connection to jobs because it may facilitate the flight of capital and jobs. One possible solution involves repatriating offshore cash assets held by multinational companies – a few trillion dollars – but it isn’t enough to offer a one-time zero-tax incentive with no tie to U.S. investment. Some suggest these funds be invested in an infrastructure bank – a broadly defined allowance for public sector jobs.

For further information about A Governor’s Story: The Fight for Jobs and America’s Economic Future, please visit www.AGovernorsStory.com.