A Tolstoyvian Perspective on Revitalizing Michigan’s Economy—Or “It’s the Customer, Stupid”

5/10/10

To parody Tolstoy, all happy regional economies are alike; all unhappy regional economies are unhappy in their own way.

Michigan has more reasons than most for authentic unhappiness. Even putting aside its uniquely dysfunctional politics, the state’s struggling entrepreneurial class and its bankrupted automobile industry have humbled—humiliated?—what was once a global economic powerhouse.

Yes, the University of Michigan and other higher education facilities remain world class. Yes, the state has talented, high energy human capital. But Michigan—not unlike GM and Chrysler—is more of a turnaround challenge than a viable ongoing concern like, say, Ford.

So what’s the most important step entrepreneurs and innovators can take to invigorating the regional economy? That’s an easy question. The answer is found in the reason why all happy regional economies are alike. They have customers. They have good customers. They have customers who appreciate the region’s goods and services and will pay for them.

For far too long—for completely understandable reasons—America’s automobile industry was Michigan industry’s best customer. Period. Full stop. For reasons requiring no review here, ‘Detroit’ devolved from the ‘biggest & best’ customer to ‘the biggest’ to the most bankrupt. The details matter less than the cultural impact. Michigan’s economy grew up in a symbiotic/parasitic/pathological relationship with a global industry that did a demonstrably poor job of inspiring regional entrepreneurial and innovative subcultures.

Unlike Silicon Valley—or even Route 128 or Seattle—the Big Four and their Tier Ones didn’t foment or empower successive generations of innovators who could take their best ideas beyond powertrains, cars, and trucks. That’s sad. Michigan, its people, and its regional economy have paid an enormous price for that. So have America’s taxpayers.

Let’s be blunt: For almost a generation, Detroit was not a world-class customer for innovative companies. Michigan’s inhospitable business climate discouraged innovators who could afford to choose between Ann Arbor and Palo Alto.

The challenge for entrepreneurial graduates of the Ross School or Wayne State or Kettering University is the same challenge confronting entrepreneurial graduates of MIT, IIT (Illinois or India) and Instituto de Empresa: who are the customers and clients we want? Why? Because it takes more than money to be a great customer.

Unlike many economists and policy wonks, I think higher education and ‘knowledge intensive’ skills are grossly overrated as innovation ingredients. I can say without hesitation that I’ve seen arrogant PhDs fail more spectacularly than humble college graduates who know they’re not the smartest person in the room.

After googling & binging stories about Michigan’s economy and the state’s attempts to foster entrepreneurial growth, I was appalled. The editorial emphasis on ‘supply side’ skills and the minimalist discussion of who the customers for innovation will be is distressing. Michigan’s entrepreneurs need smart customers even more than they need smart employees. There’s a reason why Henry Ford, Alfred Sloan, Charles Kettering, and Walter Chrysler were so successfully innovative—and it wasn’t because they hired the smartest people in Michigan.

Maybe a post-bailout/post-bankruptcy clutch of auto ‘giants’ will have the wit, wherewithal, and willingness to transform themselves as customers and not just as companies. Who knows? I don’t. But if Michigan’s political class and aspiring entrepreneurs stress their smarts and ‘quality of life’ over reasonable, rational, and compelling discussion of the customers who will make their industries great again, then I wouldn’t bet on a turnaround.

The world is filled with smart people who work hard. So is Michigan. But what separates happy economic growth from wrenching economic recession aren’t the IQs and the energy. It’s the environment where people are encouraged to create and serve new markets and new customers. Does Michigan have that yet? We’ll see.

[Editor's note: To help launch Xconomy Detroit, we've queried our network of Xconomists and other innovation leaders around the country for their list of the most important things that entrepreneurs and innovators in Michigan can do to reinvigorate their regional economy.]


Michael Schrage is a research fellow with the MIT Sloan School of Management's Center for Digital Business and a visiting fellow at the 'Innovation and Entrepreneurship' program of Imperial College in London. Follow @

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