Lessons learned from Michigan

Jeremy Hobson: A lot of people have a lot of advice to give when it comes to getting America's economy back on track. But one person who has some experience in moving a state into the new global economy is Jennifer Granholm, the former Democratic Governor of Michigan. She came into office in 2003, just as signs of weakness started to show in the American auto industry. She left office earlier this year, after two of the big Detroit automakers had gone into -- and come out of -- bankruptcy.

Granholm has just written a book about her experience, called "A Governor's Story: The Fight for Jobs and America's Economic Future," and she's with us now here in our Los Angeles studio. Good morning.

Jennifer Granholm: Good morning.

Hobson: Well I want to start with a moment early on in your governorship: The Michigan economy is starting to get worse, and this big company Electrolux decides to move one of its factories down to Mexico. And what do you do?

Granholm: We went to Electrolux, and they're in a very tiny town of 8,000, but they employ 2,700 people. We had to keep it; it would have been like a nuclear bomb going off. So we said, "We're going to put everything we have on the table, including tax-free 20 years; including helping to build them a new factory. The workers offered huge concessions, the local community as well." And they said to us, "There's nothing you can do."

Hobson: "There's nothing you can do?"

Granholm: "There's nothing you can do."

Hobson: And you'd hear that over and over again from company after company as the economy starts to get worse.

Granholm: Right. And the point being that it was all about this global economy. Electrolux could pay $1.57 an hour in Juarez, Mexico. Other companies were trying to be competitive by going to China, they were getting pressured to lower the price of their products.

And so what has happened in Michigan really is like a canary in the coal mine. It's what's happening across the country -- not just in manufacturing, but in other sectors too. And the whole point of this book is that the world has changed, and therefore our strategies to create jobs in America have to change too.

Hobson: Is there really nothing we can do? Or do you think that there is something that should be done structurally to make our employees and our locations here in this country more attractive to companies?

Granholm: There's absolutely something we can do, but the point being that states alone are not equipped to compete against countries like Mexico or China or Germany. It's got to be a partnership with the federal government, states, as well as the private sector.

We've got to copy what other countries are doing who are very aggressively competing in a global marketplace -- place like Singapore, which have a very aggressive, comprehensive national economic strategy. They are not hands off, which is what a lot of people who are saying "get government out of the way." If government is hands off on this, then we will continue to see the loss of jobs.

Hobson: Do you think the federal government is doing now what needs to be done?

Granholm: Partially. I think what the president has done is to tie tax policy and the jobs act to job creation in America, and I think that's very smart. Every bit of policy has to have the question, "Will this create jobs in the United States, or will this somehow provide extra capital for a company to invest somewhere else?"

Companies are in it to maximize the shareholder return, that's their fiduciary responsibility. If they have extra capital or extra cash through tax cuts, or whatever -- if they're unspecific, they're going to invest that extra money where they can maximize their return. That will be somewhere else -- somewhere other than America. So we've got to be very specific about tying it to the United States.

Hobson: Another interesting point in your book is you go out and you try to get foreign carmakers to do more business in Michigan -- and your constituents aren't happy about that.

Granholm: Well, because we had for a long time feared the globe. And you know, we had been in a position of seeing jobs go somewhere else. And I get saying to people, "You guys, we can't be victims of the globe -- we have to take advantage of it." And our nation has to do that too. Every other country that's aggressively in the game to create jobs for their citizens has foreign direct investment goals. We should have that too, as a nation. Every ambassador, in every country, should be required to get a certain number of companies from that country to come and invest, create jobs in the United States -- and hire Americans.

This whole strategy -- I mean, the whole jobs act that the president has put out -- has public sector investment, which is great. You're creating American jobs for construction workers and teachers, etc. But the real issue is, how do you create private sector American jobs. And really that partnership is necessary. Here's what Singapore does -- they say -- we are going to provide you with access to capital. We are going to condense the permitting times. We've done an assessment of our economy and we're going to provide you with customers. We're going to provide you with a cluster of businesses that will make you competitive. That we're going to get foreign direct investment of companies that dovetail with your strategic interests. They have a strategy -- we don't have a strategy.

Hobson: Is the Michigan that you left prepared to do these kinds of things? Are they doing them already?

Granholm: We started that, but it has got to be a long term comprehensive strategy. Let me just tell you a quick story. In my terms as governor, I cut more out of government -- a footprint of government -- than any state in the country. We cut more government employees than any state in the country because of the contraction in our economy. Our corporate tax burden dropped more than any state in the country -- and yet, we still had the highest unemployment in the country. The point being, that those strategies -- which are often the strategies that supply-siders would have us adopt -- did not work.

What did work was when we were able to partner with the federal government to invest in strategic sectors that we knew we could be competitive in. For example, the battery for the electric vehicle, saving the auto industry -- those kinds of strategies which are smart, strategic, active government. Not big government, active government, are what worked.

Hobson: Do you think that the picture has been painted adequately for the American people of what the U.S. economy would look like if we had not bailed out the auto industry?

Granholm: No, I think that people have -- often, not everybody, but there's a lot of people who think one, that government shouldn't be involved in picking winners and losers, and therefore we shouldn't have strategically intervened. But if you hadn't strategically intervened, we would have lost the backbone of the American manufacturing industry. It's not just the car industry, but it's everything that feeds into it -- there are 10,000 parts plus to every vehicle. And what are those parts? Steel, tire, rubber, glass, electronics -- you name it. All of that feeds into the most technologically advanced mass-produced product in the world, which is the American automobile.

So you lose that, and the international companies who build cars here would also be losing their suppliers. Our unemployment rate in Michigan would have been over 20 percent unemployment, but throughout state that have these suppliers it would have been significantly impactful. And what do we do as a nation if we don't make anything, we will lose as a nation we are a weak nation if we don't have the means to manufacture.

Hobson: How big of a role do you see manufacturing playing in America's future?

Granholm: I think that advances in manufacturing absolutely must play a role in our future. It's a critical national need for a country to be able to build stuff. If we don't build things, then we are basically cutting each other's hair and teaching each other how to paint. That is not going to be a way a nation is strong. So advanced manufacturing -- the robotics, things associated with an advanced assembly line -- the U.S. could and should focus on those issue. And especially manufacturing the means to make us energy independent, for example, we should be making that stuff here.

Hobson: But can we get up to that point where a quarter of our population is working in manufacturing?

Granholm: Not in the repetitive motion, low-skill manufacturing jobs. But advanced manufacturing absolutely. I wouldn't say a quarter of our population but certainly when you think about the infrastructure associated with sophisticated manufacturing, you have to have a high-skilled population -- all those engineers, etc. When you lose the back bone of manufacturing -- when you lose a manufacturing plant, you also lose the research and the development and the engineers that go with it. Because the engineers have to be near where something comes off a production line. So it's snot just the actual building, but it's the brains that go into the building that you lose as well.

Hobson: You mentioned president Obama's jobs plan, which really doesn't look like it's going anywhere.

Granholm: Because he has got people in Congress who will not compromise one penny. He has proposed things in this jobs plan that Republicans have proposed in the past. And the fact that they're saying no -- the fact that republicans when asked would you take a deal for cutting $10 for every $1 in revenue all of them say no -- shows that you're not dealing rationally, pragmatically. He has demonstrated he's the adult in the room and he's willing to compromise -- they are not. I think now he's taken a different posture, saying, "You need to give me people I can work with in this next election."

Hobson: Is there anything that you see that would lead you to believe that we are going to get to a situation the next few years where Washington is willing to really work together?

Granholm: I think it's up to the people. They hire members of Congress and if they're not working, they should fire them. If you hiring people who refuse to compromise one dime when America is in the middle of this crisis, then I think you should fire the person who is refusing to compromise.

Hobson: Is there anything you think President Obama should be doing differently?

Granholm: Well I think that what he's doing right now -- I think he had to do what he did up to this point, which is to demonstrate he is willing to compromise, that he was ultimately extremely reasonable. But once it became very clear that not one penny of compromise would occur -- and we'll see what will happen with this deficit commission that has been, the super committee, that's been assigned the duty the responsibility of cutting and compromising. But if that shows that there is no ability to compromise, then him coming out, taking off the gloves, coming out swinging, and encouraging the citizens to take democracy and give us people who will work to compromise and be pragmatic -- then that's the only solution he has.

Hobson: One of the things that's been happening in Detroit to deal with the housing crisis is that they're actually tearing down homes -- get some inventory off the market. Do you think that needs to happen nationwide?

Granholm: I can speak to Detroit, there's been a huge loss of population -- obviously so much of what has happened in the contraction of the auto industry being responsible for that. If you have houses sitting there it becomes the target for blight, clearly, and drug dealing and crime comes into the neighborhood, getting rid of them is good.

Then you've got to figure out how to concentrate your population in areas. Detroit has swaths of neighborhoods blocks that don't have any homes, or that have homes that are slated to be torn down, what do you do with all that open space? So interestingly enough, Detroit has taken on urban farming as one way of doing that which I think is a very interesting strategy.

Hobson: OK, finally, a quick lightning round now.

Granholm: Uh oh.

Hobson: What kind of car do you drive?

Granholm: Volt! A Volt, which is made in America -- the battery, the guts of it -- made in America, all made in Michigan.

Hobson: And as we always hear, more car than electric, they say, right?

Granholm: Well, more car than electric meaning that it's not a tin can. This is a substantial vehicle, but hey, can I just tell you quickly -- I know this is a lightning round, but this Volt that we drive, we are in a house that is powered by solar panels. My electric bill last month was $4.95. I plug in the car, it's powered by the sun, I never have to spend money on gasoline. All I do is plug it in at night.

Hobson: So you have a very low carbon footprint. Which of the carmakers has done the best job in adjusting to the new reality in Detroit?

Granholm: Oh, I think they're all doing it. Honestly I can't pick a favorite. Obviously Ford didn't have to go the route, but because they were a visionary a couple years earlier and had gone to the market to actually borrow -- bottom line is, all three have seen an entirely new day. It is a new paradigm in Detroit. And I hope that people consider buying products that are made in America.

Hobson: OK, this one I'm actually going to make you pick -- which is the biggest threat to our economy right now: housing, unemployment, American debt, European debt or other?

Granholm: Jobs. It's all jobs. I mean, unemployment is the issue. If we have jobs, then we will reduce the size of our debt. Clearly, though, the globalization of the economy, which of course is impacted in Europe, demonstrates that the world has changed, and our strategies have to be cognizant of the fact that we're dealing with economic competitors who are very aggressive.

Hobson: Jennifer Granholm, former governor of Michigan and author of "A Governor's Story: The Fight for Jobs and American's Economic Future." Thanks so much for coming in.

Granholm: You bet. Thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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