Tuesday, May 29, 2007

A “Way Forward” for Michigan?

Excellent article by Jack McHugh of Mackinac Center for Public Policy http://www.mackinac.org/article.aspx?ID=8533

A “Way Forward” for Michigan?

Like its biggest employers, the State of Michigan is at a turning point. The Big Three automakers know they face an "existential" crisis and the old ways mean bankruptcy and liquidation. They’ve placed "everything on the table" and are making big changes, but it’s still touch and go.

The state is in as much trouble, but only recently have some in Lansing begun to appreciate the level of restructuring and reform needed to turn things around. As with Big Three managers in recent years, many in state government are in denial, while others just want to patch it together long enough to get out with their pensions — or win their next election.

The problems of Michigan and the Big Three have the same roots. Simply, they got fat, dumb and happy in an era of little competition. The responses of late have been different, though. The automakers know that without real change they’ll soon be out of business. Unfortunately, state government is insulated by getting its revenue the old fashioned way — coercion. Car makers can’t force buyers, but the state can raise taxes, and those who don’t pay go to jail.

Or, they can vote with their feet, a path chosen by increasing numbers, as shown by outbound migration trends documented in moving company reports.

The call for a large tax increase by some in Lansing is really about postponing fundamental restructuring. Without reform Michigan won’t be liquidated like a failed private company. Instead, the ongoing declines in employment, home values, personal income and population will continue, and probably accelerate. Unreformed school and government establishments will keep feeding off a declining population and shrinking economy, extracting ever greater proportions of dwindling resources.

As the city of Detroit demonstrates, this can go on for a long time. The notion that "when things get bad enough they’ll get their act together," be it city hall or the capitol, is not a source of optimism, because things can get really bad.

The automakers faced two specific challenges: Mediocre products and employee compensation levels divorced from productivity. Likewise, the state’s "mediocre product" is excessive regulations, arrogant and unresponsive bureaucracies and antediluvian labor laws. Not unlike the "entitlement" mentality that infected some autoworkers, many in Lansing have a toxic attitude that the private sector exists to serve the government, and not the other way around.

"Excessive costs" for the state are the fact that Michigan pays too much for the government we get. The average state employee receives a salary and benefits package worth nearly $75,000, while the comparable private sector figure is approximately $58,000. "Journey" level Michigan prison guards earn $43,785 on average, compared to $33,531 nationwide. School employee retirement benefits will absorb 30 percent of education payrolls by 2020.

All this in a state where per-capita personal income is actually falling, and is now 6 percent below the national average — its lowest since the Great Depression.

The old ways no longer work in Michigan any more than they do for the Big Three, and the depressing trends won’t turn around by themselves. Those demanding higher taxes and more "investing" in government are equivalent to "no concession" auto union hardliners. Just "balancing" the bloated $42 billion budget with marginal cuts won’t turn things around either

Here’s what would turn things around:

Government and school establishments at all levels massively scaled back and privatized, their pension and health benefits renegotiated from top to bottom. If constitutional amendments are needed to permit reasonable "haircuts" for current beneficiaries, so be it.

Current environmental laws repealed and replaced with ones that pull back rulemaking authority from unaccountable bureaucrats and return it to elected legislators, with standards no more stringent than federal ones.

A Right-to-Work law and the repeal of industrial-era dinosaurs like prevailing wage statutes that pad the costs of public construction projects.

The state "economic development" industry — MEDC, "Automation Alley," "Technology Tri-Corridors, "Incubators," etc. — consigned to the ash heap of history’s other intrinsically fatal central planning conceits, including Lenin’s "Five-Year" plans, Mao’s "Great Leap Forward" and "Japan, Inc."

These things will happen. We can do them now and start rebuilding right away, or let the decline continue for a few more generations, doing them only when those vested in the status quo have died and millions of others have moved out. No natural law requires Michigan to succeed or fail as a state. It’s all up to us.


Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited

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