TOM WALSH: The industrial job cycle has turned vicious
January 20, 2004
BY TOM WALSH
FREE PRESS COLUMNIST
Talk about mixed signals.
These three things happened Friday:
The University of Michigan's consumer sentiment index surged to its highest level since Bill Clinton was president (November 2000).
The Federal Reserve said U.S. industrial production had risen for the fourth consecutive month.
Swedish appliance maker Electrolux AB rejected $182.6 million in tax breaks and other goodies from Michigan, deciding instead to close its refrigerator plant in Greenville, set the plant's 2,700 employees adrift and move most of the work to Mexico.
The message, in case it hadn't dawned on you before, is that THE WORLD HAS CHANGED.
Get used to it. Toss your old assumptions about Michigan's economy into the Dumpster before you wind up there, too.
Old days won't return
The most dangerous assumption is this old saw: We're accustomed to the cyclical swings of the auto industry. When things turn around, Michigan jobs and income and state tax revenue will come roaring back.
Forget about it.
In 2001, 2002 and 2003, the U.S. auto industry recorded three of the five best sales years in history, yet General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group reduced employment by nearly 100,000 jobs combined during that period.
"We've been fortunate over the years to rely on very, very big companies to generate jobs and growth when cycles turn upward," says Charles Rothstein, managing director of Beringea Capital, a venture capital firm in Farmington Hills.
"But things have shifted. A lot of industrial jobs have left the state and the country permanently," says Rothstein, who also sits on Michigan Gov. Jennifer Granholm's economic advisory council.
U.S. job growth suffers
The old axiom that job growth will accompany rising output of goods and services no longer holds true.
Today, we're witnessing a great surge in industrial productivity accompanied by en masse effort by global companies to make their products in China, India, Mexico and other low-cost nations. The result: weak job growth in the United States and little or no job growth in industrial states like Michigan.
So what are we to do about it?
One positive step, taken quickly and fairly quietly two weeks ago by the Michigan Legislature and signed into law by Granholm, was a bill to create a $150-million venture capital fund for investment in small Michigan companies with strong growth potential. The fund wouldn't dole out Michigan tax dollars but solicit money from pension funds and other investors.
This isn't a huge sum -- it barely matches the government goodies rejected by Electrolux -- but it's a start. Ohio, Indiana, Wisconsin have similar funds.
"We need to be investing in emerging companies that will create jobs in Michigan," says Raj Kothari, managing director of Seneca Partners, a Walled Lake venture capital firm.
A few years ago Michigan wasn't seen as fertile ground for venture capital. Even now, barely $600 million in venture capital is managed by Michigan firms. That makes a new $150-million fund "a huge step forward" for Michigan, Kothari says.
We'll need lots more focus on growing new companies, because the old cyclical giants have run out of gas as new job creators.
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