Auto Bailout: Help Mississippi, Not Michigan

We should be getting used to the depressing spectacle of once-great corporations begging for assistance from Washington. Yet perhaps nothing is more painful than to see General Motors and other big U.S.-based car companies – once exemplars of both American economic supremacy and middle-class aspirations – fall to such an appalling state.

Yet if GM represents all that is bad about the American economy, particularly manufacturing, it does not represent the breadth of our industrial landscape. Indeed, even as the dull-witted leviathan sinks, many nimble companies have shown remarkable resiliency.

These include a series of small and mid-sized firms – in fields as diverse as garments and agricultural machinery, steel and energy equipment – that have managed to thrive in recent years. It also includes a growing contingent of foreign-owned firms, notably in the automobile industry, that have found that "Made in America" is not necessarily uncompetitive, unprofitable or impossible.

Indeed, until the globalization of the financial crisis, American manufacturing exports were reaching record levels. Overall, U.S. industry has become among the most productive in the world – output has doubled over the past 25 years, and productivity has grown at a rate twice that of the rest of the economy. Far from dead, our manufacturing sector is the world's largest, with 5% of the world's population producing five times their share in industrial goods.

So what is the problem then? If it is not the effort and ingenuity of American workers or our infrastructure, Detroit's problems must lie somewhere else, largely with almost insanely bad management.

We have to remember that the Big Three have been losing market share through even the best of times. Their litany of excuses is as tiresome as their product lines. Back in the 1970s it was "cheap" Japanese labor, something that can no longer be cited as an excuse. European car makers, if anything, have even higher wage costs.

Then there is high gas prices – a good excuse, it appears, back in the 1970s, as well as more recently. But the Detroit auto industry has now had three decades to come up with fuel efficient products that are also fun to drive and reliable. While they have slumbered, the Japanese, Koreans and now the Europeans – with products like the new Volkswagen Jetta – have made enormous strides.

Now it is the credit crunch, the car makers say. OK. Will increased credit mean that people will suddenly scoop up the same products they have been deserting in droves for decades? Keep in mind that the desertion could get even worse if the congressional greens – led by new Energy and Commerce Committee Chairman Rep. Henry Waxman – impose stiffer taxes on gas, which will hurt the guzzlers that have generated most of Big Three profits.

So why the push to bail out the Big Three? It's basically about regional politics. The deindustrializing states of California and New York may not care much, but the big car companies' operations are overwhelmingly concentrated in the politically volatile Great Lakes region, an area that proved decisive in President-elect Obama's victory. Another big reason may be that up to 240,000 jobs in Illinois, the nation's new political epicenter, are tied to the big automakers.

Sadly, dependence on the Big Three has had long-term tragic results for this entire region. Between 2000 and 2007 – before the onset of the financial crisis – the nation's largest percentage losses of manufacturing jobs were concentrated in Big Three bastions like Detroit, Warren-Farmington Hills, Saginaw, Flint and Cleveland. In the five years before the onset of the financial crisis, Michigan alone had lost one-third of its auto manufacturing jobs. Now that figure is up to half.

Worse still has been the psychological dependency that has grown from this troubled relationship. By their very nature, declining businesses – particularly unionized ones – tend to protect their older members and encrusted bureaucracies more than they look to the future. This also creates a political environment where the incentive is not to spur innovation, but to protect the already established.

Michigan, for example, has met the challenge of its Big Three habit with a combination of farce and failure. Under the clueless leadership of its governor, Jennifer Granholm, the state first hoped its "cool cities" program would keep young, educated workers close to home. After that failed to work, the governor then pushed the highest tax boost in state history, a reliable job-killer.

So let us be clear. It did not take a world financial crisis to sink Michigan; it was getting there very well on its own. Nearly one in three residents, according to a July 2006 Detroit News poll, believe that Michigan is "a dying state." Two in five of the state's residents under 35 said they were seriously considering leaving the state.

Fortunately, the Big Three do not represent the entire picture of American manufacturing. Even within the Great Lakes region, Wisconsin, which ranks second in per capita employment in manufacturing, has held onto most of its industrial employment due to its large, highly diversified base of smaller-scale specialized manufacturers.

If Congress and President Obama want to figure out how to restart our industrial economy, they need to travel not to Detroit but to an alternative universe that includes the South and Appalachia, where most of the new foreign-owned auto manufacturers have clustered. States like Alabama, with the second-largest per capita concentration of auto-related jobs, as well as South Carolina, Tennessee, Kentucky, Georgia and Mississippi, have been growing these high-wage jobs for a new generation. In the process, they have brought unprecedented opportunity to some of the nation's historically poorest regions.

Nor are these states looking to remain mere assembly centers. For example, they have launched bold new research initiatives, such as the recently formed International Automotive Research Center at Clemson University, which offers the nation's only Ph.D. in automotive engineering, to make their region a major center of technological innovation for the industry. And the fact that the region will likely be producing the majority of the most low-mileage and low-emission cars certainly cannot hurt their future prospects.

However, it is also critical to see beyond merely autos. If you look at the period between 2000 and 2007, as we did at the Praxis Strategy Group, much of the fastest growth in manufacturing was taking place in areas tied to energy production like Midland and Longview, Texas, and Morgantown, W.Va., all of which enjoyed 15% or more increases in manufacturing jobs. Already states like Arkansas, Alabama, Iowa and Mississippi boast more per capita industrial jobs than either Michigan or Ohio.

Another strong performer has been the Great Plains. Places like Dubuque, Iowa, and Fargo and Grand Forks, N.D., experienced substantial growth in industrial jobs during the past decade. The base here, as in Wisconsin, is highly diverse and includes agricultural and construction equipment, electronics as well as a burgeoning sector in the renewable fuels sector, such as LM Glasfibre, a Danish firm with a large operation in Grand Forks. Washington state has been another bright spot, powered by Boeing and other manufacturers attracted to its low-cost, low-emission hydropower.

If the country is serious about enhancing U.S. industrial might – as it should be – it might want to ask executives and entrepreneurs in these areas, as well as foreign investors, what they need to keep growing and expanding exports. There is clearly a demonstrated global market for Boeing airplanes and Caterpillar construction and agricultural machinery, as well as a host of high-tech and fashion-related products now being churned out in factories scattered across the country.

The people running these firms should be those at the congressional hearings, not the pathetic losers from companies like General Motors. They might even have some helpful ideas, like streamlining regulations, investing in critical infrastructure and research facilities, expanding support for training a new generation of skilled blue collar workers and using incentives to encourage firms to improve their energy efficiency. These are the steps we can expect our competitors in Europe, Asia and the developing world to take as well.

Rather than looking for ways to bail out the most egregious serial failures, let us find ways to provide incentives for those successful at creating new jobs and saving existing ones.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.