Dean Barber

Reinventing Michigan

In Corporate Site Selection and Economic Development on May 10, 2015 at 11:41 am

Let me begin by stating that I am by nature a cynical man. Years of being an observer of politics have rendered me so.

A 20-year career in journalism buttressed a belief system that politicians are by and large an inferior class, a self-serving, self-promoting bunch who rarely follow through on promises.

In truth, I would like to believe, I hope to believe, that most elected officials actually do want to do the right thing if they could only recognize it.

And here is where I get cynical again, as I believe most of them “couldn’t hit a bear in the ass with a handful of sand,” as my father, an avid outdoorsman, used to say.

So it almost pains me to acknowledge that I am impressed with an office holder, but it does happen on a rare occasion.

I have already proclaimed in past blogs that I believe Gov. Rick Snyder of Michigan to be the finest economic development governor in the country.

In my opinion, he follows in the footsteps of some former great economic development governors – that of Haley Barbour in Mississippi, Bob Riley in Alabama, Mitch Daniels in Indiana, all of whom are now out of office.

A Problem Solver

Snyder insists, and I actually believe him, when he says that he does not view himself as a politician, but rather a problem-solving pragmatist who just so happens to have an extensive background in business.

I met Gov. Snyder last week, courtesy of the Michigan Economic Development Corporation, to which he was the first chairman back in the late 1990s, proof that he was interested in economic development well before he became governor.

I was among a group of site selection consultants invited to meet with the MEDC off its home turf in New York City. During a sit-down session, we were urged to give our impressions of Michigan and suggest how the state could become more competitive in winning investment projects.

Afterward, we met the governor at a Shinola watch store in Manhattan. Shinola watches are made in Detroit. Now this is a great product and a great story that I have told several times, so will not repeat it here again.

To learn more, read my earlier blog DETROIT VS EVERYBODY.

To start, Snyder believes in his role as that of a public servant.

“Anyone doing business in my state is our customer. And that is the simple view of the world that I have. The citizens and the businesses of our state are who I work for. People are excited when they see the governor, but the way I see it, I’m here to serve you. You are who I work for.”

About 400,000 jobs have been created in Michigan since Snyder took office in 2010 and today, the unemployment rate is about half of what it was five years ago. Of course, it doesn’t hurt for a governor to be in office in Michigan when the auto industry is at its highest level in eight years.

More Than a Fix Needed

Still, Snyder preached a different message on his way to winning the governorship.

“I saw a lot of politicians running back in 2009 and 2010, and they talked about fixing Michigan. Fixing Michigan was not good enough. We needed to reinvent our state,” said Snyder.

“We are a great state but we had lost our way. When you talk about finding your way back, it’s not just about changing laws and regulations. It’s about changing the culture.”

Certainly the culture or at least the business climate was radically changed with the passage of laws that cut business taxes and literally shocked the world when Michigan became a right-to-work state.

Detroit Comes Back from the Brink

Snyder then set his sights on Detroit, where decades of mismanagement, corruption and decline characterized a city on the brink of total collapse. He pushed for bankruptcy as he viewed it as “an exercise in solving problems.”

“And so we used it effectively and it was very constructive. We rallied everyone,” Snyder said. “Now street lights are being turned back on, trash is being picked up, and public safety has improved dramatically.”

Detroit also became one of four cities in the state where one of Snyder’s brainchild pilot programs called Community Ventures was initiated. It is designed to help the structurally unemployed find jobs.

“The reason I wanted to do it is because I represent these people. I work for these people that haven’t been able to find a way to work.

“And I wanted to reach out in any way that I could to constructively and intelligently help them. Not wasting resources but to do something, because if they are working, we all win. They win. We win. Everybody wins.”

Getting to the Root Cause of Joblessness

Snyder said he believed a myriad of federal programs were not working well addressing joblessness.

“There are 45 different federal workforce programs. I think they should all be restructured. My view is they were doing too much at keeping people more dependent. They were too narrow in their scope and they were not getting at the root causes as to why these people were not successful at finding work.”

Snyder’s Community Ventures program, initiated in four cities and about to go statewide, put aside $10 million a year starting three years ago with no federal constraints and in Snyder’s words “total flexibility.”

“We’re going to do what needs to be done. So after these three years or so, we’ve placed 3,000 people into jobs with about a 70 percent retention rate after one year which is very high for a program like that. Average wage is about 11 ½ dollars an hour and 14 in the Detroit area, so it is well above minimum wage.”

“If you think about it, this addresses an issue that a lot of people talk about and don’t do anything about at the national level. One, we are growing the economic pie by this program, and, two, we are dealing with the income disparity issue. Three, we are actually reducing the cost of state government over the long-term because now you have successful people versus people using programs.

“Four, we have addressed the root cause instead of the symptom and we have really helped people. Because it gets down to the human level ultimately. Have you really made a difference in someone’s life?”

I have to wonder if a program like Community Ventures were in place in a big way in West Baltimore if we would have seen the violence take place there. I have to think economic opportunity, or the lack of, was the root cause for that riot.

See last week’s blog, Smoldering Ground.

A Role for Government

In short, Snyder is a reformer by nature, believing that there is a role for government but that it can do better.

“I think how government delivers services is messed up, so we’re going to step back and do it at a much more people-focused level that focuses on root causes and focuses on measuring success,” Snyder said. “It’s not so much about the government spending money but a community coming together to help people.”

Unlike many Republican officeholders who refuse to acknowledge of a growing wealth gap in this country, Snyder, a former chairman of the board of Gateway Inc. and a former CEO and co-founder of Ardesta LLC, a venture capital firm based out of Ann Arbor, says wealth disparity and the lack of economic opportunities is our big problem.

“You solve by growing the pie and creating more opportunity,” he said.

Talent is the Future

Snyder said his top priority for the future is developing Michigan’s talent pipeline.

“The major distinguishing feature of who is going to be successful and who is not from an economic point of view is who has the best talent with the right skills sets. And we’re going to lead the nation, particularly in the area of bring back the skilled trades.

“We have a broken system in our country when it comes to skilled trades. We’re re-establishing it here in Michigan, because that is a fundamental competitive advantage that we have over the rest of the country and a sustainable one.”

FIRST Robotics, a national program designed to create competing teams of high school students to build robots, has taken root in Michigan in a big way, with the support of the governor.

“We now have 348 teams. We have more teams than any state in the nation. We created 77 teams last year, more than all the other 49 states combined. And we are shooting for 500 teams. So this the kind of pipeline of talent that we are developing,” Snyder said.

FIRST Robotics will hold its annual championship in Detroit and Houston in 2018 through 2020.

Now I have long believed that presidents and governors get more credit and more blame than they probably deserve when economies turn for the better or for worse. But perception is reality in politics.

Still, occasionally you get a leader who takes it upon himself or herself to affect change that makes a difference in people’s lives. I think Snyder has been that change agent in Michigan. He is actively trying to reinvent Michigan.

As governor, he will not get everything that he wants, nor probably should he. But he now has a real record of success, and I stand by my earlier assessment that he is the best economic development governor in the country. I pity his successor.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

Smoldering Ground

In Corporate Site Selection and Economic Development on May 6, 2015 at 8:50 am

Last year when I was in New York, I spent a lot of time walking in neighborhoods that used to be pretty rough places back in the 1970s, places like Harlem and the Meatpacking District.

In a blog that I subsequently wrote, The Center of the World, I marveled how gentrification had transformed these once desperate and dangerous places into high-demand, high-rent places, where crime had pretty much evaporated.

What I wrote was accurate, but looking back, I think I had blinders on to some degree. I wasn’t really seeing the big picture, or at least the whole picture, even if I thought that I was. And that’s a problem for all of us.

In hindsight, I now believe I have a more accurate picture of big city America because of the events that transpired last week in Baltimore, where poverty, crime, and hopelessness, is juxtaposed against renovated waterfront homes, tree-lined streets,  sparkling waterfront views, trendy bars and restaurants.

A massive breakdown of civil order in our cities is a rare thing, but what is not rare is this tale of two cities, and I’m not just talking about Baltimore, although it is very extreme in Baltimore.

I submit there are there are two New Yorks, two Philadelphias, two Los Angeles, two Atlantas, two Chicagos and two Houstons. And the list goes on and on, our biggest and best cities, where disparity of wealth continues to grow. (There’s even two Planos where I live.)

Now even the most casual observer realizes and could rightfully point out that there have been rich and poor neighborhoods in cities big and small throughout this country and throughout our history. The haves and have nots have lived cheek by jowl for a long time.

But what may not be so evident, and that which concerns me in my role a consultant to businesses and economic development organizations alike, as a keen observer of places, is the tenacious grip that chronic poverty has on certain neighborhoods, particularly in our bigger cities.

In 1970, 38 census tracts in Baltimore had a poverty rate of about 30 percent; by 2010 it had risen to 55 census tracts. Indeed, according to a City Reports study in 2014 called “Lost in Place,” three-quarters of 1970 high-poverty urban neighborhoods in the U.S. are still poor today.

What’s more, three times as many urban neighborhoods have poverty rates exceeding 30 percent as was true in 1970 and the number of poor people living in these neighborhoods has doubled.

I just watched a snippet from a documentary film made in 1967 about Baltimore. The language is archaic by today’s standards, but the observations are just as true now as they were then.

NARRATOR: “Today, few whites enter the ghetto. Most of them are aware that the black ghetto is a place to be avoided, as a place where there is likely to be trouble. Negroes insist that there will be trouble in the ghetto so long as they have inadequate housing, poor schools, high unemployment and no money.”

The year after that documentary was aired, Baltimore exploded into a firestorm with the assassination of Dr. Martin Luther King. It was 1968 and the Maryland National Guard was called in and a city-wide curfew imposed. Before the mob violence had run its course, six people had died and more than 1,000 businesses had been looted.

Nearly 50 years later, I am watching television news and hearing the older residents of Baltimore say how their neighborhoods had never fully recovered from the maelstrom of 1968. Fifty years later and the effects were still with us.

Last week’s wave of violence resulted in more than 200 businesses destroyed, most of them minority owned and most of them without insurance.

How many of these small businesses will rebuild is uncertain. The fact that some will not be able to is almost a certainty, just as it was nearly 50 years ago.

The sad fact is that the number of high-poverty neighborhoods in the core of metropolitan areas has tripled and their population has doubled in the past four decades.

Most of the increase is due to “fallen stars”— neighborhoods that in 1970 had poverty rates below 15 percent, but which today have poverty rates in excess of 30 percent.

A new study finds that poor children who grow up in some cities and towns have sharply better odds of escaping poverty than similar poor children elsewhere. Among the nation’s largest counties, the one where the children faced the worst odds of escaping poverty is in Baltimore, the study found.

The findings suggests that geography and neighborhoods matter in determining which poor children are able achieve what we like to think of as the American Dream, which is based largely on the concept of upward mobility.

But clearly, many people are frustrated and anxious about trying to get ahead or just being left behind. And just as clearly, the approaches we have used to eradicate pockets of poverty have failed miserably.

You don’t have to be a social scientist to recognize that. Just get in your car and take a look.

I cannot tell you the last time I heard an economic developer tell me that his or her community was taking measures to tackle the problem of poverty in some form or fashion. I certainly wasn’t thinking in those terms when I was an economic developer.

But I think that is going to have to change.

We’re going to have to come up with new ideas on how to address what has become a permanent underclass in this country.

Last week, I listened to Joe Scarborough, a former Florida congressman and now host of a morning talk show on MSNBC, go on a rant that I think was justified.

“Republicans think if we just give everyone tax breaks, everything will be great. Democrats think that if we just start a new federal program, everything will be great.

“Trickle down liberalism, where we count on the government to do everything, doesn’t work. Trickle down conservatism, where we just cut taxes for big businesses, doesn’t work. We need to look at this permanent underclass and come up with new ideas.”

Well, that is easier said than done, but Scarborough is right in that we need to rethink this thing anew. The old ways are broken.

I believe that until we give people the tools and the means by which to escape poverty, most (not all by any means) will lead lives of entrapment in broken neighborhoods. And the multi-generational poverty cycle that snares lives will not be broken, as it has not been broken in most American cities.

Now I’m not telling you this as a liberal or a conservative. I’m just making a cold-eyed assessment by looking at the facts on the ground in some neighborhoods in some cities, some of which we would think of as prosperous.

In too many places, where upward mobility has been thwarted, we see smoldering ground, either where a single incident can be a flashpoint or from ashes in the aftermath of a riot.

Nearly 50 years after Watts, Detroit, and Baltimore, America still faces the same reoccurring crisis of providing economic opportunity to those living in impoverished neighborhoods.

Upward mobility does not constitute welfare or handouts. But it does constitute opportunity and I think it has to start with better schools and a culture shift of having goals that go beyond being a player in the local drug trade.

If we as a country devise a better way to provide opportunities, a better chance for upward mobility and to escape poverty, then we will have extinguished the embers. There will be no more smoldering ground.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

Ride the Tiger

In Site Selection on April 26, 2015 at 3:48 pm

During the 1992 presidential campaign, then candidate Ross Perot, an astute Texas businessman if there ever was one, warned that NAFTA (North American Free Trade Agreement) would create a “giant sucking sound” of jobs going south to the cheap labor markets of Mexico.

There is no question that many companies have turned to Mexico because of its proximity to the United States and because of its substantially lower labor costs, factors that became more enhanced with NAFTA. You don’t have to be Jack Welch to figure that out.

Just in the past couple of weeks alone, three behemoth world-class manufacturers, Toyota, Ford and Goodyear, announced plans to build major facilities in Mexico.

Toyota said it will build a $1 billion plant in the central state of Guanajuato, north of Mexico City, to produce Corollas, while Ford will spend $2.5 billion on new engine and transmission factories in Chihuahua and Guanajuato.

Advantage Mexico

Low labor costs and fewer tariffs gives a huge competitive advantage to Mexico, where eight automakers have opened or announced new plants in the past two years.

A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits. That compares with $58 in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research.

Mexico also trumps the U.S. on free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally. That, along with low labor costs, convinced Audi to build an SUV factory in the state of Puebla.

Audi will save $6,000 per vehicle in tariffs when it ships a Q5 to Europe, compared with building the same vehicle in the U.S., says Sean McAlinden, chief economist at CAR.

What Does Volvo Know?

So these substantial cost advantage factors in favor of Mexico, both in terms of labor and tariffs, have to make me wonder why Volvo is centering its focus on South Carolina and/or Georgia for a new $500 million plant. What does this company know that the other automakers don’t know?

Mind you, I would be gratified if Volvo does build in the U.S. Both Georgia and South Carolina have good business climates in comparison to many other states. But I still fail to see the rationale.

Some would counter with the answer of quality or transportation costs. Based on what the industry is doing, not saying, I believe quality is now largely a moot point. The automakers are getting the quality they want, and even luxury models are planned for production in Mexico.

In terms of transportation costs, I think it is safe to say that such costs do not offset or exceed the savings offered by lower labor rates and the NAFTA agreement afforded to Mexico.

Was Perot Right?

But between 1994 and 2000, the U.S. economy created 2 million jobs annually, despite NAFTA.

The truth is that both exports and imports are good for just about every country in the world. Exports typically create better-paying manufacturing jobs while, imports give consumers more choice at lower cost, and they force competing domestic firms to improve their game.

There is no question in my mind that Detroit had gotten lazy and complacent and was turning out pretty crappy products in the 1970s and 80s. Slowly, the Big Three began to realize that Japanese automakers were for real and were not going away.

In short, Detroit had to up its game to survive. (But that’s another story for another day.)

Battling a Ghost

Today, President Obama finds himself battling the ghost of NAFTA in his desire to pass legislation in Congress ratifying the Trans-Pacific Partnership, an agreement, among 12 nations bordering the Pacific, aimed at reducing trade barriers and promoting greater economic cooperation

Obama says that critics of TPP — primarily organized labor, most Democrats and environmental groups – are wrong to see the proposed trade agreement as another NAFTA. The president argues that unlike NAFTA, TPP would compel other countries to adopt enforceable labor standards, leveling the playing field and opening them up to U.S. exports — creating more U.S. jobs.

“When I listen to criticism of this deal, what I primarily hear is criticism of NAFTA,” Obama said. “If you don’t like the fact that labor provisions aren’t enforceable right now, why wouldn’t you want a trade deal that makes labor provisions enforceable with some of the same countries we currently trade with?”

Said the president to a group of supports last week: “You need to tell me what’s wrong with this trade agreement, not one that was passed 25 years ago.”

Strange Bedfellows

It is interesting to note that the president is getting most of his support on TPP from Republicans and the nation’s business community, although not all are in lockstep by any means.

Kevin L. Kearns, president of the U.S. Business & Industry Council, opposes TPP, calling the proposed agreement “another giant step in the industry-by-industry giveaway of American manufacturing,” while the National Association of Manufacturers and the U.S. Chamber of Commerce supports the ratification of TPP.

The way I see it, the Asia-Pacific region is a tiger we’re going to have to ride. For the U.S. not to do so will be to our competitive disadvantage.

I say this because, according to the International Monetary Fund, the world economy will grow by $21.6 trillion over the next five years. Nearly half of that growth will be in Asia, where the region’s middle class has grown by 2 billion people in the past 20 years.

On the Outside Looking In

This a lucrative market to say the least, but U.S. companies have lost market share in the Asia-Pacific region because many countries maintain steep barriers against U.S. goods.

Trade agreements, if they are done right, are crafted to overcome these barriers. However, Asia-Pacific nations are clinching trade deals among themselves that threaten to leave the U.S. on the outside looking in.

The number of trade accords between Asian countries surged from three in 2000 to more than 50 today, with some 80 more in the pipeline.

Meanwhile, the U.S. has just three trade agreements in Asia, with Australia, Singapore and South Korea.

Remember, one of the main reasons that Audi cited for picking Mexico over the U.S. for its future new assembly plant was because Mexico had twice as many free trade agreements in place with other countries than the U.S.

Now I would be lying to you if I told you that I knew the intricacies of TPP. I don’t and I bet very few people do.

But I do believe that free trade agreements in principle, if negotiated right, can benefit U.S. companies by opening up potential new markets to them, thereby creating U.S. jobs. A study by the Peterson Institute for International Economics estimates that TPP could boost U.S. exports by $124 billion by 2025.

So let’s try to ride this tiger.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

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