An educated work force is the key to Michigan’s future as the state transitions to a knowledge-based economy, but we are still lagging when it comes to creating a place where talent wants to call home. So, what’s missing? Earlier this week on 1290 WLBY I talked with Lou Glazer, president of Michigan Future Inc. The Ann Arbor non-profit recently issued a report on the state’s economy, conducted by Glazer and Don Grimes, senior research specialist at the University of Michigan’s Institute for Research on Labor, Employment and the Economy.

Glazer: Michigan Future got started twenty years ago to be a source of ideas about what’s happening to the Michigan economy in a world that’s being driven by global innovation and technology and what we can do to succeed in it.

Lou Glazer

Glazer: It turns out that everyone’s got their theories about how to explain who’s succeeding, who’s not succeeding. By far, the single greatest explainer is the proportion of adults with a college degree. Of the top 15 states in college attainment, 13 are in the top 15 in income. I mean, there’s nothing else that correlates like education does. Human capital is now driving the economy.

Lucy Ann: Are we replacing Michigan’s manufacturing sector with anything? Are we growing?

Glazer: That’s basically Michigan’s challenge. The factory-based economy that made us so wealthy in the 20th century is now in permanent decline. It’s now down to 9 percent of the employment nationally and 12 percent in Michigan and, as we know from the UAW, it no longer pays as well as it used to so the decline in manufacturing is happening nationally. The places that are doing well are replacing it with a knowledge economy. Things like health care, education, information, finance, and professional and technical services. Michigan is lagging in that. Our fundamental problem is that the growing part of the American economy is not growing here.

Lucy Ann: And why isn’t it?

Glazer: Certainly, those employers, more than anything else, need talent. They need human capital. Michigan has now fallen to 36th in college attainment and you can’t be 36th in college attainment and have a knowledge-based economy. It’s pretty simple.

Lucy Ann: Is it just going to take longer to get people reprogrammed into thinking “college,” as opposed to the factory?

Glazer: Sure. I think one of the reasons that we’re having real problems with this is that the old economy was so good to us. We had 100 or so years when we were one of the most prosperous places on the planet. That’s hard to give up. But the lesson Michigan has to learn is what made us prosperous in the past won’t in the future, and until we learn that lesson we’re going to continue to struggle. In 2000, at the end of that 100-year run, we were 18th in per-capita income; we were still in the top 20. Within nine years, we’ve fallen to 37th. No one has fallen that far, that fast, ever. It’s because that old, high-paid factory economy collapsed and it’s not coming back. So either we make the transition or we’re going to be one of the poorest states in the country, which would be a real tragedy after 100 years of being one of the most prosperous.

Lucy Ann: One of the big surprises in your report was what you found when you deconstructed personal income.

Glazer: Almost all the income growth for Michigan households came from government payments over a 20-year period. You can’t sustain an economy where your income growth is coming from transfer payments. We’ve got to grow private sector earnings in this state and for 20 years they haven’t grown and the only way you’re going to grow them is if you’re in the knowledge part of the economy. That was stunning. A lot of this stuff, we kind of know what the answer is, but this we didn’t know at all. It was really surprising to us.

Lucy Ann: So how do we create this knowledge-based industry?

Glazer: The conventional approach to that is to figure out ways in which you provide subsidies for companies. There is this quote which we use from the publisher of Forbes: “Smart people tend to be mobile. Watch where they go because where they go, robust economic activity will follow.” In the knowledge department, companies have got to follow where talent is located. We would rather focus on preparing talent and then retaining and attracting talent. Google just paid $2 billion for an office building in Manhattan, which is the dumbest thing in the world because it’s so expensive. Except their business can’t work unless they have talent, and talent is in places like Manhattan so they’ve got to follow talent.

Lucy Ann: There’s a great amount of talent coming out of the University of Michigan.

Glazer: Among the best in the world. Clearly, Ann Arbor is the bright spot in the state for retaining and attracting talent. But it could be a lot better if the city was more pro-development. All this blocking of high-density residential development in the downtown area … these are the kinds of neighborhoods that young professionals are looking for. …

Lucy Ann: What else can we do to retain these people?

Glazer: In 2007 we had all the public universities, including U of M, survey their graduates to figure out where they went and why. Half the kids left the state, half stayed. Of those that left the state, a third had a full-time job offer in Michigan, so it’s not just jobs. All these young professionals will tell you that place matters just as much as employment. Of those that left, more went to Chicago and most of them ended up in central cities like, Seattle, San Francisco, Boston, Washington, D.C.; Minneapolis and Denver. We have got to have a central city that competes. Detroit is the most natural place for that to happen, but Ann Arbor is second, and both of them at the moment don’t offer the high-density mixed-use neighborhoods and transit that young professionals are looking for. That’s at the top of the list.

Lucy Ann: This past week Governor Rick Snyder talked about having a high-speed bus system to get to various towns, including Ann Arbor.

Glazer: I spend a lot of time with the students on campus. There’s a real generational shift going on now. One of the things they’re looking for when they leave college is a place they don’t have to own a car, and unless we’re one of those places, we’re not on the list. … I know there’s been some kind of talk about doing a streetcar system here in Ann Arbor. It’s really important because it changes development patterns, which is really what we need more than anything else.

Glazer: Are you saying that if transit comes first, development will follow?

Glazer: Exactly. The folks in Portland, Ore., described their streetcar system in the ‘70s as “development-oriented transit” and argued that the reason they did it was not for getting people around, it was for development. Streetcars and light rail are very important to change development patterns and create the type of walkable, high-density neighborhoods that we desperately need.

Download Michigan Future Inc.’s complete report on our economy at www.michiganfuture.org

Lucy Ann Lance co-owns Lance & Erskine Communications, which produces “The Lucy Ann Lance Business Insider” (M-F, 8 a.m.-11 a.m.) and “The Lucy Ann Lance Show” (Saturdays, 9 a.m.-12 p.m.) on 1290 WLBY. The programs are live streamed at www.1290WLBY.com, and podcast on www.lucyannlance.com. The above interview is a condensed version of a longer conversation that is edited for clarity. The complete audio interview is posted online at www.lucyannlance.com.