Bruce Katz' Input on Michigan's Next Economy

When it comes to thinking about the next economy and how to move cities and regions forward, Bruce Katz is one of the smartest guys in the room. As a vice president at the Brookings Institution and founding Director of the Brookings Metropolitan Policy Program, he usually busy advising local and national leaders on what cities and metro regions need to do to succeed. We sat down with him a few weeks ago, ahead of the 2011 Michigan Land & Prosperity Summit, and talked about how Michigan fits into the next economy.

Q: What message do you have to share with Michigan today?

Katz: I'll be talking about the need to move to a different economic growth model in the aftermath of the recession. So, I think the economy that preceded the recession was characterized primarily by consumption and debt and, frankly, innovating in the wrong things. And so for the country as whole ... we need to shift to an economy that is driven by exports and powered by low carbon and fueled by innovation.

And cities ... are really the vehicles for getting us to that next economy because they really concentrate all the assets that matter.

Q: And when you say "cities" you mean metropolitan centers?

Katz: Yes, metropolitan centers.

Q: Can you talk about your emphasis on the importance of these metro areas as opposed to "small town America"? Does that mean, for Michigan, just Detroit or also mid-sized cities like Lansing and Ann Arbor?

Katz: I think all of the above. I think Michigan has 15 metropolitan areas. They're about 80 percent of the population and about 85 to 86 percent of your economy. You've got two big ones, Detroit and Grand Rapids. And then you've got Ann Arbor, Lansing, the Mid-Michigan metros, Flint, obviously. Every one of these places has sort of a distinct set of assets and attributes.

Frankly, they relate to each other more than people think. Because of the auto supply chain, because of life sciences or because of food to market. This is a very integrated state in some respects, compared to other states where the western part of the state has nothing to do with the eastern side of the state. This state is actually more of a holistic economy.

So, I think the challenge for Michigan is really the challenge for the country: to understand that as you move to this different kind of economy, what you want do and what you want to build on are the distinct assets of different places.

The U.S. has been through 30 years of what I would call cookie cutter growth. It never differentiated between Detroit and Denver, or Charlotte and Cleveland. Because the growth was consumption-led, it just focused on retail and housing. Well, there isn't that much difference between a Wal-Mart in suburban Detroit and a Wal-Mart in suburban Denver. There's a huge difference in between what Detroit exports and Denver exports. Or what Grand Rapids innovates on and what another metro in the country innovates on.

So differences actually matter and they should be exploited and leveraged. I think that's a very powerful message for the country.

Now, the federal government may never get that, but governors can get that, and mayors and business leaders and county leaders can get that. I generally feel that the U.S. has been through a shock and we need to recognize it's not enough just to recover from the recession, we need to retool and restructure. It's a different kind of challenge we have before us.

Q: So, what you're saying is that Michigan, because of our manufacturing base and integrated economy, is in a good position on that road to retooling?

Katz: I think manufacturing, innovation a global orientation, frankly, a receptivity to immigration… From the governor on down, the talk about immigration in this state is quite different than the talk in, say, Arizona. Being receptive to immigrants at this point in time in the economic cycle is very powerful, because there are lots of talented workers who could be coming here from China, India. They're coming here as students already. We should really try to keep them here. You already have a strong level of foreign investment from Japan and Germany. You're very open to this, unlike other parts of the country.

You, potentially, are well aligned with this different kind of growth model. I mean, in other parts of the country all they've had for 15 or 20 years is housing growth. I don't think that's how you--housing is a derivative sector, it's not a driving sector--you don't build a national economy based on housing. You build it based on manufacturing and innovation and exports.

Q: You've said that metros will drive the new economy, not "small town America." What about the rural areas of Michigan that are set apart from metros? How do they participate in the new economy?

Katz: Most small towns are part of metro areas. A lot of places that are on these national lists--"best small town in America"--are basically suburbs of metropolitan areas. They exist because the metropolitan areas are the growth engines. Most of the people who wake up in a small town commute somewhere else, unless we're just talking about retirement communities for people with means.

The fact is, it's a metro nation and most small towns are a part of that metro nation. And then there is about 17 percent of our county who lives outside of metropolitan areas in rural areas and in "real" small towns. But even there, the relationship to the metro engines is quite pronounced. I think we need to understand frankly how the country functions in this century, as opposed to how it functioned in the 19th century. It's a completely different economy today here and abroad. 

I fundamentally respect the decision of anyone to live anywhere, but if the nation is going to compete globally, with the rising nations of the world, then we need leverage the strengths of our metropolitan areas. This is not Jefferson's country anymore.

The power of China, the power of India, and the power of Brazil are [rising] because they are urbanizing and they are building powerful metropolitan economies. We are the most powerful metropolitan nation in the world. If we don't understand that, we will lose our ability to compete.

Q: What about all the hype about Detroit shrinking and sprawling? Does that mean Michigan should be pushing against that, and how would we go about it?

Katz: I think the broader question for Michigan is, when you're competing for talent, not just domestically, but globally, the younger generation in the world is looking for quality places. A lot of those quality places would be traditional cities with their downtowns and their waterfronts and their cultural institutions, and that sort of magic mix of street life. If you don't have cities that have that, it's hard to imagine how you can compete for the talent of the world.

So, Detroit's challenge is really Michigan's challenge; it's not their problem, it's the state's problem. The state does have some incredible places, obviously--Ann Arbor, Grand Rapids, Traverse City, there are a whole host of places that are pockets of urbanity and density. It needs more of that, or you'll see this drift out of the state.

Q: Are there any final thoughts that you have on Michigan's transition to this new economy, and how we can better prepare ourselves?

Katz: Be focused and disciplined. It's a brutal world out there.

Natalie Burg is the news editor for Capital Gains.
Bruce Katz photograph copyright Jim Harrison.

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