The Fall of the Midwest Business Model

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Don't Mess with TEXAS

Wall Street Journal Chronicles the Rise of the Texas Business Model and the Expense of the Midwest

In a hard hitting article by Michael Barone in yesterday’s Wall Street Journal, the business model of the Midwest that was largely responsible for the prosperity of Detroit and Michigan until 1970 is compared to the less regulated right to word policies of Texas and the south since that time.

As the upcoming election for Mayor of Evansville has produced the agreement of both candidates that one of governments most important functions with respect to business is to create an atmosphere that promotes investment and prosperity. Michigan and Texas during the past 40 years are the best cases to study to see exactly if and how public policy effected business.

If one were to have asked the question in the 1960’s regarding whether Dallas or Detroit was the most prosperous city with the brightest future most people would have answered Detroit. Now 40 years later Detroit has lost enough people to fill Dallas and most economists and general observers would choose Dallas in answering the same question.

Following are excerpts from this analysis and a link to the full story. As the City of Evansville and the State of Indiana move forward the lessons of these two states should have much to be learned in making the decisions on just how to set the stage for the creation of a business friendly atmosphere.

Excerpts:

“it seemed there were two models for the U.S. future. One was the Michigan model, which prevailed in the industrial Midwest and the factory towns of the Great Plains. The other was the Texas model, which prevailed in most of the South and Southwest.”

“The Michigan model was based on the Progressive/New Deal assumption that, after the transition from farm to factory, the best way to secure growth was through big companies and big labor unions.”

“Liberals assumed the Michigan model was the wave of the future, and that in time—once someone built big factories and unions organized them—backward states like Texas would catch up.”

“History hasn’t worked out that way. In 1970, Michigan had nine million people. In 2010, it had 10 million. In 1970, Texas had 11 million people. In 2010, it had 25 million. In 1970, Detroit was the nation’s fifth-largest metro area. Today, metro Houston and the Dallas-Fort Worth metroplex are both pressing the San Francisco Bay area for the No. 4 spot, and Detroit is far behind.”

“Michigan is an extreme example of what has afflicted the industrial Midwest. Big corporations were replaced by big government as the leading employer, and public-employee unions replaced industrial unions as the chief financiers of the Democratic Party. In effect, public-employee unions have been a mechanism by which taxpayer money, in the form of union dues, permanently finances a lobby with a vested interest in higher spending and less accountability.”

“This Midwestern model is unraveling before our eyes.”

“The repudiation of the Midwestern model has played out most dramatically in Wisconsin…Despite the unions’ huge financial advantages, Gov. Walker’s Republicans held on to their majorities in the state Supreme Court and state Senate in hard-fought judicial and recall elections”

“with low taxes and light regulation, has been producing nearly half of America’s new jobs. The Texas model may be sweeping the Midwest, not vice versa.”

http://online.wsj.com/article/SB10001424053111903392904576509992605316426.html?KEYWORDS=midwest

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13 COMMENTS

  1. Yeah the Texas model, just what we need. Insert sarcasm. Texas is a toxic polluted mess. Soon Texas will need so much environmental clean up it will make the superfund look like chump change, we will need a TARP size fund just for Texas alone, and guess who will pay for this “economic miracle” you and I the taxpayer.

  2. “with low taxes and light regulation, has been producing nearly half of America’s new jobs. The Texas model may be sweeping the Midwest, not vice versa.”

    Thanks CCO. This is an excellent example of laissez-faire in real time for the summer of 2011. The jury has returned the verdict.

    • No, not at all. The job base created there is pretty well balanced with the good tech jobs in the cities of Austin, Dallas, and Houston and manufacturing in San Antonio, Fort Worth, El Paso, etc. Don’t you remember that the Toyota pick-up trucks that were made in Princeton were moved to San Antonio? Caterpillar put a giant transmission plant in Sequin choosing it over an expansion in Peoria. Those are all $20 per hour and higher for labor based jobs with good benefits. There is no comparison that would place Detroit over any of these cities in the last 40 years. People who criticize Texas like to point to Mexican farm workers who are paid low just like farm workers in the Midwest are. Did you know the meetings held to finalize the deal to put the AT&T call center in the old Sam’s Club here were nearly all held in Dallas? They outsourced those jobs to Evansville. Texas has allot going for it including a great public university system and no income tax. It is more worthy copying than Detroit is.

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