Revamping the Rust Belt: Software Comes to the Fore

Revamping the Rust Belt: Software Comes to the Fore
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Do you know what’ll happen if the city of Detroit loses another 10 percent of its population? The City Council will change its name from Motown to Lesstown. Have you heard this one: What’s the only thing that grows in Detroit? The crime rate. (Rimshot, please.)

One need not be a Michigander to wince at the ubiquitous one-liners aimed at the Motor City. “We are the butt of a lot of jokes,” notes IBM engineer — and proud Michigan native — John DeMarco. “We have to change that perception.”

Increasingly, however, such gags are dated. Yes, violent crime remains a problem -- Detroit has the third-highest murder rate in the country -- but the local economy is staging an impressive comeback. Perceptions are changing because so are Michigan and its largest city.

“We’re the comeback state in the nation — it’s not even close!” boasts Gov. Rick Snyder. “We’ve created over half a million private-sector jobs in the past seven years.”

For the most part, the jobs he’s talking about aren’t the kind traditionally associated with Michigan. Epitomized by River Rouge, the vast Ford Motor Co. plant in Dearborn, the Detroit metropolitan area was in the 20th century a testament to hardware. It was a place that built products made of steel -- cars and trucks, and during wartime, planes, tanks and ships, all on a scale unequaled in the world.

Ford still builds its popular F-150 pickup trucks at “the Rouge,” although lighter-weight aluminum alloys recently replaced steel. The assembly line workforce is lighter, too: 6,000 today compared to more than 100,000 in Henry Ford’s heyday. But those employees, aided by robotics and other time-saving technologies, produce 1,300 pickups each day, which is about one per minute, at a plant that is greener and cleaner than before. What makes this all work is software. The new version of the F-150 has 150 million lines of computer code in it. As tech writer Robert Sarraco likes to say, today’s cars and trucks are “just a bunch of computers with wheels.”

The Big Three, in other words, can be viewed as giant software companies as well as automakers. Detroit’s economic future rides on its ability to embrace the technological realities of the 21st century while training, attracting, and retaining a workforce that can implement this vision. This was the theme of two recent events hosted by RealClearPolitics and, the first in Indianapolis and the second in Detroit. At these sessions, top officials in both cities, including Snyder and Indiana Gov. Eric Holcomb, expressed pride in strides they’ve made, but exhibited pragmatism about the challenges in maintaining forward momentum.

In a discussion moderated by RCP co-founder Tom Bevan, Holcomb and a panel of his fellow Hoosiers pointed out that Indiana now has more skilled jobs available than workers with the requisite skills to fill them. The governor suggested that for the first time in quite a while, employment opportunities aren’t an issue. The challenge is coaching up the workforce to be able to handle those jobs. “We have 350,000 Hoosiers who are 18 to 64 years old who don’t have a high school diploma,” Holcomb said. “Prime working-age Hoosiers who don’t have the skills for not just tomorrow, but today.”

Indiana’s workforce made news in 2016 in a different context. Carrier, a subsidiary of United Technologies Corp., announced the impending closure of two profitable manufacturing plants, one in Indianapolis and another in Huntington, and that it was moving 2,000 jobs to Mexico where workers earn lower wages. In the presidential primaries, Donald Trump and Bernie Sanders hammered away at this example, using Carrier as a case study in how the North American Free Trade Agreement had decimated U.S. industry.

Their pitch found a willing audience. Both candidates won their respective Indiana primaries, with Trump wrapping up the Republican nomination. A similar thing happened in Michigan. In hindsight, these results were a harbinger of what would happen in the 2016 general election when Hillary Clinton and the Democratic Party had trouble making the sale in her native Midwest. A year later, the narrative has shifted, particularly on the Republican side. In the current campaign cycle, Midwestern governors are trying to retire the old “Rust Belt” moniker. Their states are on the move. In their telling, two main factors are at play.

The first one, puckishly invoked by Illinois Gov. Bruce Rauner, is that the Democratic Party’s big-spending ways in the Land of Lincoln are driving businesses to nearby tax havens, specifically Missouri, Wisconsin, and Indiana. Although the Chicago Cubs weren’t in the World Series this year, Chicago area fans who watched anyway were dunned by political ads from the Rauner campaign with the tagline “Thank you, Mike,” with cameos by Eric Holcomb and two other Midwestern Republican governors, Eric Greitens and Scott Walker.  The “Mike” in the spot is Illinois House Speaker Mike Madigan. The three governors are giving him mock thanks, presumably for driving business out of Illinois to their states. The most specific assertion in the ads came from Holcomb: “We’re growing union jobs faster than Illinois.”

Although it seems an unlikely claim, it checks out. Yet cutting red tape is only half the battle, as the governors concede. Officials can woo businesses, promote policies conducive to start-ups, and tout high-paying tech jobs all they want. But can they fill those jobs? Can they retain successful tech companies as they grow? That’s trickier.

When Amazon announced it was looking for a second worldwide headquarters, civic leaders across North America jumped into action, spurring 238 proposals to the Seattle-area behemoth. In Detroit, local officials such as Josh Hundt, a top executive with the Michigan Economic Development Corp., found the process of putting together a bid encouraging. They came to realize how many engineers already live in the area, were cheered at how the local jurisdictions pulled together, and could point to hundreds of thousands of new jobs that had been created (some of them by the opening of Amazon satellite offices). And they know with confidence that Detroit has as much available real estate as Amazon could ever want.

In reality, the glass was half-empty. If that.

Ned Staebler, president and CEO of TechTown Detroit, looked closely at the criteria Amazon laid out: a metropolitan area with at least 1 million residents, an international airport, good mass transit, top-notch higher education, an educated workforce, and intangibles that afford Amazon “the potential to attract and retain strong technical talent.” In several of these areas, Staebler said, “we fail miserably.”

“We don’t have a lot of college-educated people,” he explained. “We’re in the bottom 10 states in the country for having folks with a college degree. We train fabulous people at U of M and Wayne State and elsewhere, but then they tend to leave. They’re looking for metropolitan areas with walking urbanism, mass transit, housing, those kinds of amenities that we don’t have in Michigan, so they go to Boston or San Francisco -- or frankly, to London or Paris or Tokyo.”

Staebler was on a panel Monday along with IBM’s John DeMarco, Josh Hundt, and University of Michigan business school professor Stewart Thornhill. The session was moderated by RCP President Erin Waters. In a one-on-on conversation with Waters, Gov. Snyder conceded that the hurdles Staebler described are real.

But he and others are encouraged by the trend lines. DeMarco noted that off-shoring software development was a fad that may have run its course. Software isn’t ancillary anymore, he said, it’s the core business and cannot easily be farmed out. “I work for a company that used to make a lot of things,” he said. “IBM doesn’t really make a lot of hardware these days -- we’re more of a software development company -- so we’ve made that transformation.”

“Yeah, we used to make stuff here,” Staebler added. “Now we don’t just make the stuff, we make the stuff that powers it as well. So when you ask about success stories in Detroit in the tech space? Oh. I don’t know: General Motors? Chrysler? Ford? They’re huge tech companies. There are more lines of code in that new Buick you bought than in an F-16.”

Carl M. Cannon is the Washington Bureau Chief for RealClearPolitics. Reach him on Twitter @CarlCannon.

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