The Midwest economy is getting better. Will the transformation continue?

Apr 25, 2012

The data is in, and the Midwest economy seems to be on the path of recovery. Our long, regional nightmare still isn’t over for many workers, but there are plenty of signs for optimism. Businesses are hiring, productivity has increased.*

All of this got us thinking: What will happen to the transformation of the Midwest economy when we do finally recover from this horrendous recession? Will we go back to our our old ways, or will we continue to change?

It is not hard to find examples of change in the Midwest. You stumble upon it everywhere you go.

So this week, I met with an economist named Paul Isely, at Grand Valley State University. And to see an example of change, we just walked across the street from his current office in downtown Grand Rapids, Michigan. We went to a huge construction site, where the economics department will move next year.

Isely’s new office will be where a factory used to be. The factory sat empty until GVSU tore it down last year to build the new business school.

In one sense, this kind of change happens all the time in cities: old buildings get torn down or rebuilt. New uses are found.

But it also represents some of the bigger, structural changes in our economy – where once this site was part of our manufacturing economy, now it will do something else. These changes were happening before the last recession. And Isely says they will continue after the recession.

But he says there are limits to the change. For example: the auto industry. Two years ago, politicians in Michigan bemoaned how dependent the state is on the auto industry. But Isely says, it’s an industry that creates a lot of value.

“So it’s very very hard to go away from that to something that creates less value,” he says. “There’s just not a lot of reason to do it. We’ll suffer the ups and downs.”

And since we seem to be headed on the way up again, Isely says there are new risks for all of our manufacturing companies to slip back in the old way of doing business.

“The problem is, as you come out of a recession, you often have all your resources start to be used making the stuff you made before,” he says. “And if you’re busy all the time, you don’t have time to think about, ‘How do I change all this?’”

The risk of falling into complacency, it’s not just for companies, but for everyone involved our economy.

“I remember even in the early 90s, people were saying, ‘Wow, look, our employment is growing, output is growing,’” says economist Ziona Austrian. She heads the Center for Economic Development at Cleveland State University’s College of Urban Affairs. “We forgot to compare ourselves to the rest of the country. They were doing so much better than us.”

Part of the problem, according to another economist, is that when Midwest leaders do make comparisons, it’s the comparison of one Midwest state against another. Our neighbors are seen as our competitors, when, in fact, we’re incredibly connected.

“It’s one of the largest, most integrated markets in the world,” says Geoffrey Hewings, who heads the Regional Economic Applications Laboratory at the University of Illinois.

“I mean, $500 billion worth of goods and services move between Wisconsin, Illinois, Indiana, Ohio and Michigan,” Hewings says. “And yet most of the governors look upon each state as a balkanized entity.”

And whenever he hears about a governor who’s trying to lure business across the border, or hears someone cheering for another state’s bad news, Hewings cringes a bit. He says anything bad that happens in one Midwest state is bad for all Midwest states.

A lot of things have changed in the Midwest economy over the past decade. But Hewings says the lack of cooperation is one thing that hasn’t.

“I get a little jaundiced about the ability of our politicians and policy-makers to see this bigger picture,” he says.

But it’s not just up to them to work together. We’ve already been through a lot of change as a region. Some changes happen to you. Some changes, you have to make happen.