Michigan’s Automobile Industry: A MCEE Roundtable Commentary
By Martha Rowland, Center Director, Marygrove College (2007)
Our economic world can be summed up in six simple principles: People choose; all choices involve costs; trade creates wealth; economic systems influence our behavior; people respond to incentives in predictable ways; and all choices have consequences that lie in the future.
No matter where one lives, how one lives, or tries to live, these six principles will dictate the economic landscape of every individual, household, government, organization, and business. The automobile industry tried ignoring them for forty years, and today’s result is that consequence. Continuing to ignore them will assuredly prolong the current pain.
Today, Michigan is faced with an automobile based economy that is undergoing drastic structural change. The structural changes our economy face today began 40 years ago as the world increasingly became a global marketplace for producing goods and services and consuming them. As Thomas Friedman succinctly stated “the world got flat.”
As we look back on the choices made in the past, one cannot help but realize that the trade offs made followed a predictable pattern of businesses and individuals simply responding to their incentives. The Big Three made choices that maximized their short-term profits at the detriment of long-term viability. Individuals naturally responded by making car buying decisions based on their belief for more benefits at less cost.
Since consequences of decisions lie in the future, we can now see several decisions made a generation or more ago that were based on short term expediency and not with the view of long term consequences; those very consequences that have significantly affected the automobile industry. Their problem today with legacy costs began with their decisions two generations ago. The industry’s unwillingness to provide not only fuel efficient, but energy clean “green” cars and trucks as well may have created a lag time for them to successfully enter a rapidly rising global market. The jury may still be out on these decisions. For their benefit, let’s hope they are not too late.
Just as the consequences of decisions forty years ago are now being realized, Michigan’s decisions today will set the future environment of their consequences. Michigan’s business, educational, and political environments must continue to change and accelerate those changes wherever possible.
The post-World War II baby boom automobile industry provided a unique lifestyle to Michiganders without much thought to the costs of their choices. Manufacturing and lifestyle choices made many decades ago during the periods of economic growth and prosperity created a unique way of life in Michigan. Always prone to business cycle ups and downs, the average automobile employee developed an “it’s only temporary” mentality towards work and the automobile industry. Remembering all choices have costs and consequences, today’s global business and economic climate has changed the equation, and with it the need for a new mentality.
In Governor Jennifer Granholm’s State of the State address this past February she outlined several initiatives to increase the state’s competitive business environment and improving the state’s level of education. Since firms and individuals change their behavior as their incentives change, it is up to Michigan’s leadership to adjust the Michigan economic environment in ways that provide the appropriate incentives – adopting rules that explicitly acknowledge that all choices carry costs whose consequences often lie in the future.
The future Michigan must be competitive in every sense of the word. It must be competitive from the education of our children to the diversification of the business environment to support a vibrant, competitive, profitable automobile manufacturing sector. Consequences of the decisions to be made by Michigan’s leaders regarding the Michigan automobile industry and the state economy must be examined prior to those decisions being made. Realizing people and firms respond to incentives in predictable ways will help Michigan in its quest to deal with these structural changes.
As the premier independent promoter of economic education in Michigan, the MCEE aims to create a great state of Michigan whose citizens lead, work, invest, and save through the economic way of thinking based on the six core economic principles. Helping Michigan students and citizens learn to apply these core principles to the political, economic, and social issues facing Michigan today, we will all benefit today and our future generations tomorrow.
The author would like to thank Center Directors Patrik Hultberg (Kalamazoo College), Brooks Hull (U of M-Dearborn), and David Dieterle (Walsh College/CMU) for their assistance with this Commentary.
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