Donald Trump’s surprise victory was driven in large part with a frustration that Washington is not doing its part to improve the American economy. As the Trump campaign noted, the growth in any nation’s gross domestic product is driven by four factors: consumption growth, the growth in government spending, investment growth, and net exports. By most measures, the growth of the American economy in the last 15 years has slowed substantially compared to the Post World War II Era. In part, the slowdown in the American economy is connected to deindustrialization—only 10% of American jobs are in manufacturing compared to 15% in 2001 and over 30% in the 1970s. America is losing high-wage manufacturing jobs and many regions have not found a worthy substitute for these lost jobs.
Reviving the American economy in many ways depends on recharging the Great Lakes region. Southern states have experienced much stronger economic growth than Great Lakes states over the past quarter century. Faster population and market growth, greater business investment, and greater Federal spending have accelerated this growth in the South. Trump’s victory was clinched by the Industrial Great Lakes as he captured the growing frustration that Washington D.C. is hurting not helping the manufacturing heavy Great Lakes States. The economic facts illustrate a steep decline in high-wage manufacturing jobs in the key battleground states of Ohio, Michigan, Wisconsin and Pennsylvania. These four key battleground states have lost 855,025 manufacturing jobs from 2001 to 2015.
As the chart above illustrates, the United States and the Great Lakes region have seen their share of its manufacturing economy decline steeply over the past decade and a half. Donald Trump’s promise to “make America great again” really hinges on redeveloping the Industrial Great Lakes.
However, reviving the Great Lakes economy cannot be done by developing more manufacturing jobs alone—building a more diverse and globally competitive regional economy is essential. Revitalizing the Great Lakes economy needs to center on developing high-wage jobs and capital investment in advanced services such as financial services and healthcare, high-technology such as information technology and bio-tech, global firms through foreign direct investment and exports, energy-led economic development, and manufacturing. These are the industries producing the high-wage jobs that can create a stronger, diversified American economy.
In five strategic steps, we can make American great again!
1. Reduce Corporate Taxes and Reward Domestic Investment.
The federal government operates a $4 trillion-dollar budget, funded primarily by income taxes on individuals and businesses.
The topic of tax reform often focuses primarily on tax rates, and not shifting what we tax. The Trump Tax Plan is focused on reducing the U.S. tax on corporate profits for all companies from an industrial world high of 35% to 15%, but companies would no longer be able to defer taxes on overseas profits, and he would cap business interest deductions and charge a 10 percent repatriation tax for overseas earnings. Reducing corporate tax rates paid by large and small companies alike and driving global investments back into the United States are good economic development policies.
Big Tax Idea. The federal government can learn a lesson from its state government partners about how high-wage job production is spurred when companies receive tax incentives. All fifty states provide tax credits, abatements, grants and/or loans to companies that agree to create jobs and make capital investments. A federal job creation tax credit could provide a similar incentive to companies choosing to invest in the United States and create high-wage jobs.
2. Build a Budget that Addresses the Infrastructure & Workforce Gap. The federal government operates primarily a social service agency. As the chart below illustrates, Social Security, Medicare, Medicaid and other social service programs dominate the federal budget. While the American economy is likely too big for the federal government to influence through its government programs, federal government programs can have a major impact on regional economic development. Two areas that need attention include federal government spending for infrastructure and workforce programs.
Private sector leaders considering business expansion need the infrastructure in place at the site and skilled workers ready to work. Yet, these top business issues constitute a very small portion of the federal budget. The United States today invests in infrastructure about half of what it did at the beginning of the 1980s, and economic development projects that need roads, water, sewer, environmental contamination, power and other critical infrastructure are needed the federal government to fill the infrastructure funding gap. Donald Trump $1 trillion infrastructure proposal would be a catalyst for greater private sector investment. It is important that this massive new federal infrastructure program not just fund highways, roads, and bridges but also create a site development program that provides funding for infrastructure, including the delivery of power, to sites planned for development.
Big Infrastructure Idea. The federal government could create a program to set up mega sites prepared for development similar to Tennessee’s to develop large-scale sites ready for high-wage job development in partnership with private sector developers. This program could create a large funding stream to prepare for large scale developments at rural and urban sties to recruit a range of industries including manufacturing. The Tennessee Mega Site Program has lured several global auto manufacturers to the Volunteer State and served as a major driver of high-wage job creation
Addressing the workforce challenge is another critical piece in the Make American Great strategy. The federal government’s 47 workforce development programs have too little money and the sheer number of them illustrates their lack of focus on developing high-wage jobs. More importantly, trillions in welfare spending needs to shift the workforce development focus from the welfare recipient to the companies searching for workers.
Big Workforce Idea. The federal government should create one workforce development program and shift the funding to the states to operate their own workforce development program that funds employers who train their existing and new workers. North Carolina has a workforce training program that prepares workers in targeted industries, such as bio-manufacturing, to be certified and prepared for work with companies in those industries. This permits North Carolina to recruit global companies with the promise of workers ready to work in their industry.
3. Capitalize on All Sources of Energy. No sector illustrates current or future economic growth capacity more than the energy sector. Too often, Washington has made energy an ideological issue picking winners and losers among sources of energy. From small towns in South Dakota to the Appalachian Hills of Ohio and Pennsylvania to sundrenched Arizona and rainy Oregon, energy is a leading source of growth. The Make America Great strategy needs to embrace all sources of energy as needed and help regions and communities capitalize on whatever source of energy they possess. As the chart above illustrates, America has a diversified pool of energy sources. Natural gas and renewable energy has grown in recent years with increased domestic production driving down the costs for American consumers.
Federal regulatory policies attacking domestic energy sources such as coal cause substantial economic harm and should be stopped. For too long, the federal government has been driven by energy ideology. Federal environmental regulation has been designed recently to benefit certain sources of energy over others. American industry cannot run without a reliable and affordable source of energy. However, American energy policy ending the war on coal is not enough. Market realities make the short term domestic use of coal unlikely—shale developments have driven the price of natural gas to amazing lows.
Big Energy Idea. The federal government should be in the business of encouraging that energy production and distribution growth but also supporting the development of critical infrastructure needed to connect those energy sources to energy intensive businesses looking for power access. It should be the national energy policy to develop an energy-led economic development strategy using all sources of domestic energy focused on retaining and attracting energy intensive industries such as steel, chemical, paper, aluminum, data centers and others to the source of electricity or natural gas. Too often in many deregulated utility marketplaces, energy intensive businesses struggle to gain access to power because the utility companies lack a funding guarantee. A large portion of the federal government infrastructure program should provide funding to build the “last mile” of energy infrastructure to enable high-wage job creation. Federal matching funds could provide support for the last mile of energy pipeline and transmission line connections to energy intensive industries.
4. Address the Health Care Challenge. Few topics have as much political energy as does the repeal of the Affordable Care Act. The Trump healthcare plan not only calls for the repeal of Obamacare but calls for legislation to give tax credits to the uninsured to pay for health insurance, allow insurance companies to sell health insurance across state lines, and allow people to deduct the cost of their premiums from their taxes. Trump has also proposed transforming the federal-state Medicaid program for the poor by giving block grants to the states, which would have flexibility to develop their own programs.
The direction of federal health care policy may also be driven in large part by the thinking of U.S. House Speaker Paul Ryan. Speaker Ryan proposed a comprehensive health care reform initiative rejected by the Obama Administration that could well reappear. Ryan’s health care plan in part proposes to make health insurance portable and sales open across state lines, create a tax credit to support health insurance purchases by the uninsured, enhance health care pooling, reward employees for healthy choices, continue tort reform, mandate coverage for pre-existing conditions and permit young adults up to 26 years old to remain on their parents health insurance, and block grants funding for Medicaid to the states to permit them to determine how best this program should cover their citizens.
Big Health Care Idea. Federal funding for Medicaid needs to be turned into a block grant program for the states and states must be given the leeway to operate the health care program for the poor as they wish. A healthy population is a productive population and states need the flexibility with Medicaid funding to address this issue.
5. Build a High-Tech Midwest Economy. Donald Trump tapped into voter unrest about the underlying struggle of an economy that has been losing high-wage manufacturing jobs since the 1970s. The Industrial Great Lakes reflects this struggle. While regions such as Columbus, Indianapolis and Chicago grow as centers for highly educated, advanced services centers, too many other regions who were once industrial leaders in big towns and small are struggling. The Trump campaign recognized this challenge and pointed out that manufacturing as a percent of the labor force has steadily fallen from a peak of 22% in 1977 to about 8% today while competitors such as Germany and Japan still have 20% and 17% respectively of their workforce engaged in manufacturing. Furthermore, Trump identified further challenges with current trade policy in that Trade policy factors identified by the Trump that permitted currency manipulation, the equally widespread use of mercantilist trade practices by key US trading partners, and poorly negotiated trade deals that have insured the US has not shared equally in the “gains from trade” promised by textbook economic theory.
To address the trade challenge, Donald Trump became the most anti-free-trade GOP candidate since World War II. Trump advocated canceling the United States’ trade agreements if countries do not agree to renegotiate them, applying a 35% tariff on Mexican goods and a 45% percent tariff on Chinese goods and he opposes the Trans-Pacific Partnership. Trump also advocated major tax reform changes to make America a more attractive market. Donald Trump’s economic plan also promises to dramatically reduce the regulation on business and the financial services sector to spur economic growth, cut taxes and spend big money on infrastructure.
However, addressing trade issues to increase America’s manufacturing sector back up 20% alone will not solve the economic dilemma of the Industrial Great Lakes. America has the most productive manufacturing workforce in the world and it only takes 170 people to manufacturing what it took 1000 in 1950. Lima, Ohio offers an illustration. Lima actually has 26% of its residents working in manufacturing but negative population growth, a vastly lower homeownership rate, median home value, bachelor degree attainment rate, and median household income but a poverty rate almost three times the national average as the chart below illustrates.
What Lima and many former industrial regions lack is a large quantity of skilled and college educated workers primed to succeed in the advanced services and high-tech jobs driving growth in neighboring Findlay and other successful small towns.
Big High-Tech Ideas. The Trump economic agenda needs to focus on diversifying the Great Lakes’ economy through the creation of high-tech jobs. First, these high-wage industries need skilled labor with a college degree. The Trump economic agenda needs to increase the number of skilled workers but also the college educated workers in the critical Science, Technology, Engineering and Mathematics (STEM) fields that are high demand and produce higher wages. The creation of these STEM workers begins by addressing the crisis in America’s urban schools through funding to high-performing charter schools and promotion of shared services among America’s schools. Next, the federal government needs to shift funding priorities to encourage students to enter these STEM fields that the nation desperately needs.
However, support for STEM workers is not enough to transform the Midwest economy into a high-tech Mecca. Global Innovation Centers need to be created by the federal government through public-private-partnerships with states, regions and private companies to accelerate broadband services, create venture capital pools and provide funding for critical equipment at incubators, accelerators & research parks that spur technology commercialization. Ohio’s Third Frontier Program offers a strong national model for how the federal government can turn research into early-stage company startups as well as support larger scale research institutions such as the Cleveland Clinic to create products and services in growing markets.
The Trump Agenda is an opportunity for the transformation of the American economy by.
- Making tax reform a reality by rewarding domestic investments;
- Addressing the infrastructure and workforce gaps through smart budget decisions that devote public and private capital into these two critical areas.
- Implementing a national energy policy focused on all sources of energy focused on retaining and attracting energy intensive companies;
- Fixing the health care system without killing what is working; and
- Bringing the benefits of the tech sector to all parts of the U.S.
How this gets done is another matter. The Trump Agenda is clearly being hashed out all over the United States. Three clear steps exist to move this agenda forward:
- What are now bullet points on a Trump Agenda website need to be transformed into substantial policy proposals with the development of policy papers, budget and policy proposals and ultimately legislation.
- The leaders of the Great Lakes, both public and private, should gather to reach consensus on how the Trump Agenda can transform their economy based upon these policy proposals; and
- Driven at the local level, economic development, public policy and private sector leaders of the Great Lakes region need to connect with the Trump Transition Team, lead on domestic issues by Ohio’s own Ken Blackwell, to support the Trump Agenda and promote dramatic change in Washington’s economic development policy that returns manufacturing to its previous glory but also supports the growth of energy, advanced services, global firms and high-tech industries.