Open Source for the Rust Belt?

Today the San Francisco Chronicle reported that over 45% of North American investment in green technology last year landed in California. Of the $3.95 billion invested, $1.79 billion went to firms in the Golden State. That is pretty incredible, given that California's population is roughly 10% of the U.S. and Canada. Can other places improve their fortunes and grab a larger piece of the somewhat finite investement pie?

On one hand, it's great to see Silicon Valley and the rest of the Golden State turn so adeptly on a dime after the tech downturn and strike it rich on new technology. On the other hand, it seems somewhat unfair that the rest of North America must scrape for the leftovers. My current home, the historically auto-centric State of Michigan, is a prime example of a place left out in the cold for growth industries like green tech - or Linux, biotech, etc. What should a state that is Michigan do to seize the future and get out of the doldrums?

Trying to out-Valley Silicon Valley is probably unrealistic. The magnet that is Silicon Valley exists for many reasons, but perhaps most significantly since it's simply the original 'place to be' regarding IT. So many other people - from environmentalists to gays, free spirits, bohemians, drifters, organic-food fanatics, etc. - emigrated from their stifling hometowns to the 'just gotta be me' Bay Area, and IT is no exception. I am open to debate on this, but I doubt that the entrepreneurial culture, venture-capital firms and the unparalleled array of tech firms came about from ads in Chamber of Commerce Monthly.

Perhaps the solution for Michigan is to be smarter and think long term. In my view, in order to join the ranks forward-looking, 21st Century economies, the state has many deficits to erase, such as a negative 'rustbelt' reputation, low educational levels of its citizens, a welfare-like dependence on the auto industry and lack of an entrepreneurial culture. Meanwhile, the state has advantages such as great universities, engineering talent and surplus manufacturing capacity. Why not build solar arrays and wind turbines in those shuttered factories?.

Here are some ideas that might help improve Michigan's chances:

Promote a home-grown, open-source industry

Yes, I bring up this idea to foster a home-grown open-source industry because I am a geek, but I truly think it makes sense. In countries such as India and Brazil, leaders have seen the value of promoting local solutions that not only decrease their dependence on Microsoft but also improve local expertise and create more jobs. Why can't a state or region develop its own economy as such, too? Start by promoting open-source solutions and open file formats in all levels of government, including schools. Follow up by offering students courses and degrees that give them the skills to compete to create those solutions.

Outside of the geek realm, seek other local solutions. Take the City of Chicago, which has policies for turning itself green - literally! For instance, the city mandated an increase in green space, which is to be inhabited by more native plant species from local suppliers. What happened? Suddenly you have many new, agile, local companies (and jobs) with expertise in planting and tending native plants.

Invest in people and give them a reason to stay

Due to its dependence on the auto industry, it has always been easy for Michigan residents to pop out of high school and pop into an auto assemby job starting at $25 an hour. The result is that Michigan, despite its great universities, has one of the lowest college-graduation rates in the country. Even though the state is out of money, it has to find a way to increase investment in education, making it more affordable (close to free!) and accessible. It's tough medicine but the cuts in education spending are only making the situation worse.

Michigan also needs to revive its heart. In my experience, despite Detroit's terrible reputation, it has many strong points and is one of those places that grows on you with its quirky charms. Still in order to succeed as a state, Michigan must revive Detroit and reverse its reputation. It must be a world-class city, a magnet for people of all income levels, ethnic backgrounds and skill sets. Today the state is missing a healthy, vibrant metropolis, a place where talented people seek to live and work, as well as open new companies and find talented workers.

Give incentives for entrepreneurship and nutty ideas

When I visit flourishing cities outside of Michigan, such as Madison, Seattle or Austin, I go numb from all of buildings plastered with company names containing the words "tech" or "soft". Here where I live in the Lansing area, near Michigan State, there are very few start-ups and little non-automotive business activities. What do you do when entrepreneurial energy, risk-taking and investment, some of the key ingredients needed to make start-ups happen, are missing? Ireland has gone from the ghetto of Europe to one of its richest economies, says Dynamic Business Magazine, mainly because of the country's education and training policies, combined with a determined effort to link universities and the private sector through industry clustering and technology transfer. Otherwise,the government and private sector can work more on business incubators and other testbeds for new ideas.

Ireland has gone to a net exporter of young people to a net importer. The same cannot be said for Michigan today, whose college grads tend to seek opportunities in Chicago, California and beyond. Might the promotion of open source, combined with other smart ideas, turn Michigan into Silicon Valley Midwest? After the auto-industry downturn, the state needs all the new ideas it can get. I wish the state all the best!

______________________

James Gray is Products Editor for Linux Journal

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Michigan can be better

Anonymous's picture

Good article, and to repeat what a couple of other folks have said: I can feel your pain, and Michigan is a great place to live. I actually live in Berkeley, am a scientist, and a very long-time Linux and OSS user/supporter. My little daughter moved to Michigan last year with my ex-, but because we still have joint custody, my daughter and I spend a lot of time moving back and forth. I tend to spend a week each month in Michigan during the school year, and she's here in the Bay Area for the summer. So I see both California and Michigan a lot. Why is the Bay Area so great? It's a great place to live, and a great place to work. People here value creativity and creative people, and there is a good relationship between investors, innovators, and workers. Why Michigan isn't more like that is probably due to its long dependence on the auto industry. Corporations do not have anyone's interests at heart but their own. They can't, it's not the way that a corporation is designed. States, and the people in them, have to look out for themselves, carve their own way, and be sure to extract from the corporations the things that they need, and the things that are owed to the people.
Michigan is an absolutely beautiful place, and while solar energy might not work there (I also lived in Arizona), there's a lot more to green and innovative technologies. Make it a place where innovators can get themselves started. If the incentives are there, they will hire locally. Fix the education system. Californians whine, worry and complain constantly about the educational system here, and while there is huge room for improvement, the efforts to improve are ceaseless. The University of California system is mandated to care first and foremost about California, and yet remains the leading state university system in the world.
It is painful and frustrating to see the signs of decay all over the United States. There are good, bright, caring people here (I'm a naturalized citizen). That's where it all starts though, so find those people in Michigan.

Michigan can be better

James Gray's picture

Thanks for your great comments. In my article I meant to suggest that Michigan be the place to manufacture the solar equipment, not necessarily use them, although northern Europe gives us a run for our money in this department. I think that offshore wind is the low-hanging fruit. Why not put an installation right near the ugliest industrial areas? Think Gary, Indiana, Muskegon, Michigan, etc.

Good luck!

James Gray is Products Editor for Linux Journal

I lived in Michigan a long

Anonymous's picture

I lived in Michigan a long time ago. Also lived in Indiana to the south for a while.

I think your idea for Solar in Michigan is going to be a bust. I'm in Arizona right now. That is a good place for solar power. Clear skies and intense sunlight about 330 days a year. I can get a sunburn in about 15 minutes. I remember Michigan as never a blue sky. Neve a sunburn either. Being further north and having much higher humidity, the sunlight is less intense. You have other important resources though. The farm environment, the availability of clean water and lots of it, a ready and hard working labor force. Michigan also has a lot of capital waiting to be used. Resources, labor, capital, Cook some ideas and let her rip!

Use the great Universities, like Ann Arbor to find things that Michigan is perfect for. You have a unique location with the lakes. You have climactic uniquenesses that no other place can match. Michigan has been a magnet for people from as far away as Tennessee for generations. If they want to work, and want to get ahead, they head north.

There are a lot of things that we all need. The current fad of the month in California isn't what we need from you. Blaze your own trail. Open Source can be a start. Startups clustered around the Universities are another. Open source software is more likely to be an enabler for you than a product. Don't approach this as expecting anything to be the magic next great thing.

The next great thing is pretty much defined to be something we don't anticipate.

On Becoming Competitive Again

PhilR's picture

The problem with Michigan is that it's a welfare state and has a welfare mentality. This holds true for both business and government. Take the whole concept of "job banks" that unions were able to foster on to the auto manufacturers if you don't think there's a welfare mentality there. Anyone in Michigan who understands what lean, mean and competitive is all about has relocated. A prime example of companies recognizing how bad the environment is in Michigan has to look no further than Comerica to understand why they moved their headquarters to Dallas.

Taxes are much too high to attract start-up businesses who hope to be around for a while. I used to live in Rochester Hills and moved my company out of Michigan because the tax structure for my business was just absurd.

How much did I save? Over the first two years I saved $26K in insurance, business and personal taxes by leaving. To me, that's pretty significant.

Welfare mentality and taxes

James Gray's picture

I agree with you on the welfare mentality, but I disagree with you on the tax issue. Since I have not run a business in Michigan, I cannot comment on the complexity of the tax structure, but conceptually I think that the tax rates are fair, given what we get in return. Schools, universities, health care and libraries are not free, and I am happy to pay an amount that keeps our institutions well-funded while not stifling innovation or encouraging tax fraud.

A professor at Michigan State did an interesting study on the relationship between the tax rates in Minnesota and Michigan. He showed how Minnesota's higher degree of investment in its institutions (through higher taxes) results in higher household incomes. In 2006, household income in MN was $56,000, while in MI it was only $48,0000. While citizens of MN pay more in taxes, they get much more back through higher incomes.

So, I personally would much rather run a business in a place with strong institutions and smart people rather then be in a place racing to the bottom.

James Gray is Products Editor for Linux Journal

Welfare mentality and taxes

PhilR's picture

You should start your own business in Michigan and personally find out how much paperwork is involved and how much taxes impact your ability to earn a living. It's a totally different ball game when you are writing checks every quarter and wonder what kind of services you are receiving in return. You will find that you analyze every thing that you do and how it impacts the bottom line.

The other thing to realize is that with the "New Economy" how easy it is to move your business and your residence to another state. Taxes, quality of life and cost of living play heavily in anyone's decision to relocate their business. I don't think a lot of governments fully understand how competitive it is to attract businesses to their area.

One thing that I think is unique to Michigan (and northeast Ohio too) is the disaparity, anger and hate between union members and management. Particularly in the auto and steel industries. Contrast the profitablility and success in sales that the Big 3 have had and the success that Honda has (a non-union workforce) and it becomes apparent where the problems are.

Fellow Michigander

Shawn Powers's picture

James, I feel your pain. It amazes me that we really do have amazing universities here, and yet our K12 education is suffering. I work at a school district, and have some notions about what's causing those problems -- but I'll leave those discussions for another time. :)

You nail the issue about Detroit, and that is the history of factory jobs. Detroit's whole culture is currently based on high paying, low education jobs. Add the union, foreign competition, and our mid-west geographic "in the middle of nowhere" problem -- and Michigan's future looks bleak.

I love your ideas about revitalizing Michigan's economy and even it's very spirit. Isn't Google locating one of their "Googleplexes" in Ann Arbor? I don't remember if that was just talk, or if they are committed. That's a great start, but even Google can't fix a whole state. :)

One thing Michigan offers is that it's a great place to live. We have a complete set of seasons, we have gorgeous landscapes, and currently plenty of houses to buy. We're perfect for telecommuters. Unfortunately, our education system isn't exactly drawing families from far and wide. I'm not sure the answer. If the adage, "It takes money to make money" is really true -- Michigan is in trouble.

Shawn Powers is an Associate Editor for Linux Journal. You might find him chatting on the IRC channel, or Twitter

A lot of self-inflicted problems, but not hopeless

Brian Stretch's picture

Ditto what PhilR said. It didn't help that Gov. Granholm decided to hike taxes after she was decisively reelected, further depressing the small business owners who create most new jobs. (Why were people surprised by this? Gov. Blanchard did the same stupid thing!)

Ireland took off because they dramatically cut taxes and simplified paperwork. Everything else was gravy. We need to dramatically simplify tax compliance, so that it doesn't cost small businesses more to figure out how to comply with the tax code than it does to pay the damn tax! On the national level, pass the Flat Tax. Make it "revenue neutral" if you must, just stop the insanity of wasting so many millions of man-hours on useless paperwork. How many potential entrepreneurs give up because government paperwork makes life so difficult?

Supply-side economics in a nutshell: the small business owners who make up the bulk of the top bracket taxpayers get a much higher return on capital than Congress. (Most small businesses pay their taxes on their owners personal tax returns in America.) Keep tax rates no higher than the Laffer Curve to maximize prosperity. Sadly, I fear that we're in for a rerun of President Carter's War on Prosperity after the 2008 elections.

Google's AdWords division has a big office in downtown Ann Arbor. I've driven by it. Ann Arbor's a nice place if you can afford the taxes. Not exactly business friendly. Heaven help you if you want to build anything. Pfizer closing up shop really hurt, they were our #1 private employer. Real estate's on sale now if you want to move in.

There are too many people in universities as it is. At the second-tier schools they cut admissions standards until they're at max capacity. College has become the new high school. We need someone to go in and fire most of the university bureaucrats, shut down the useless ethnic whining departments, and use the cost savings to cut tuition and hire more full professors. Raise admissions standards, which will hurt revenue-wise but it'll make for a healthier academic environment. Start fixing problems at the grade school level instead of fudging the numbers when the students reach voting age. Start by serving real food in the cafeterias, not the synthetic-laden crap that's largely responsible for the rise in ADHD (see http://www.thelancet.com/journals/lancet/article/PIIS0140673607613063/ab...).

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