Wednesday, May 23, 2018
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Jack Lessenberry

Next year critical for Michigan's chances of survival

DETROIT - Michigan has endured wars, depressions, enemy invasions, and endless boom-and-bust cycles ever since the first few French explorers arrived in their canoes.

Yet next year may be the most challenging one the state has faced in its history - and the year that determines its future.

Simply put, it is no great exaggeration to say the real question is: Can Michigan can survive 2009? That is, will the state's economy still exist a year from now in the form we know today?

That is far from certain as this year ends.

Among next year's great unknowns:

Will there even be a domestic auto industry a year from now? The government has supplied General Motors and Chrysler with bridge loans that should enable them to survive through March 31.

Yet they are certain to need more money then. What President Bush has said is that they'll need to show that they have a plan to make themselves viable. If they don't, he said the government should immediately call in the loans, leaving the automakers no choice except to file for bankruptcy. That would mean "something like an economic [Hurricane] Katrina," said one top-level state economist who did not want to be named, for obvious reasons.

However, that decision won't be President Bush's to make; he will be out of office and back in Texas. The auto industry's future will be in the hands of President Barack Obama, who is likely to have his hands full just trying to keep the nation's entire economy from crashing.

However, it seems unlikely that barring a financial meltdown, the new president will be willing to allow the automakers to fail.

Though Chrysler and GM face the most immediate danger, the Ford Motor Co. is none too healthy itself: It also is losing money but is sitting on somewhat larger - but dwindling - cash reserves.

Ford has asked for a line of credit from the government but has received nothing yet. Should all three automakers disappear, Ann Arbor's independent Center for Automotive Research calculates that 3 million jobs could disappear within a year.

Naturally, Michigan and Ohio would be the states hit hardest of all. Even if the automakers survive and the economy turns up faster than imagined, they are considered certain to keep shedding jobs.

The University of Michigan's vaunted annual economic forecast last month predicted the state would lose 108,000 more jobs next year, half of them high-paying manufacturing jobs.

Charles Ballard, author of Michigan's Economic Future, may understand the state's economy better than anyone else.

As a professor of economics at Michigan State University, he's been specializing in the state of the state for some time. He doesn't pretend that next year is going to be anything but tough.

Like everyone, he breathed a sigh of relief when President Bush agreed to give Chrysler and General Motors up to $17.4 billion to get them through.

But he warned: "A soft landing really isn't possible anymore. The choice is between a landing where things are thrown around the cabin and one where there is wreckage strewn all over the runway."

Yet the good news is that he is less pessimistic about the state's future than some people.

"Michigan has a lot of things going for it, including excellent universities and magnificent tourism possibilities," plus a thriving agricultural sector.

He and other economists agree a brighter future is possible - if a number of things happen in the year ahead:

1) The automakers must avoid bankruptcy, by coming up with a plan to right-size themselves and more towards profitability.

2) The nationwide credit crunch must ease, so people are able to get loans for cars.

3) And Chrysler, which experts agree is no longer viable on its own, has to either merge or partner with another automaker, preferably one that has complementary strengths and product lines.

Beyond that, the state needs to develop new economic sectors not closely related to the auto industry. And there were two major little-noticed but encouraging developments this year.

The state finally ratified the Great Lakes Compact, which was then approved by Congress and signed into law. Essentially, it protects Great Lakes water from vast outside diversions.

That, in the long run, may be key to a revived economy. Also, the voters in November decisively overturned the state's ban on embryonic stem-cell research. That opened the door to attracting a high-level research and perhaps new bioscience industries.

Accordingly, this month the University of Michigan purchased the vast, 177-acre Pfizer research complex of life science and research facilities.

"Our hope for this state's future lies largely with Michigan's great universities," said Phil Power, a former UM regent who then founded the Center for Michigan, a "think-and-do" tank designed to help the state escape its economic morass and political gridlock.

For him, another challenge will be to keep the state's politicians from "eating our seed corn," by slashing university budgets to cope with what are certain to be mounting state budget deficits.

The next year, he and everyone else acknowledges, is not going to be an easy one. It may however, be as important a year as any Michigan has seen since 1837, the year it became a state.

Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade's ombudsman, writes on issues and people in Michigan.

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