Against a backdrop of walloping state budget deficits and job losses, particularly in the manufacturing sector, Governor Jennifer M. Granholm and her advisors are steadily unveiling a new economic development strategy that is based on rebuilding cities, marketing the state’s skilled workforce as a competitive advantage, encouraging universities and their graduates to be more entrepreneurial, and conserving Michigan’s countryside and natural beauty.

The approach, which emphasizes growing Michigan’s economy from within, departs from past administrations that relied heavily on expensive and revenue-draining tax incentives, subsidies, and other publicly financed inducements to lure businesses from outside Michigan.

Speaking last week in northwestern Michigan at the first Seeds of Prosperity farm conference, David C. Hollister, who leads the governor’s innovative effort, said the administration is drawing the various pieces of its economic strategy together under one roof — the governor’s new state Department of Labor and Economic Growth. The new department comes amid a serious decline in the state's economic health. The Granholm administration and Republican Legislative leaders thought last summer that they'd closed a $1.7 billion deficit only to discover that Michigan would face another $920 million revenue shortfall next year. The state's unemployment rate is 7.6 percent, higher than at any time since 1992, according to state statisticians, and 69,000 jobs have been lost since this time a year ago. In the past three years Michigan has lost 170,000 of the 2.7 million manufacturing jobs lost nationwide, according to the Granholm administration.

Mr. Hollister, the former mayor of Lansing, said that the new department would assume the existing programs and staffs of the Department of Consumer and Industry Services, which he currently directs, and the Department of Career Development. The new department will also house the work of 11 commissions, councils, and oversight boards from five other state departments. With 4,225 staff members and an annual budget of  $1.13 billion, according to state budget analysts, the Department of Labor and Economic Growth is scheduled to open on Dec. 8 and will be the fifth largest in state government.

Grow The Economy, Don’t Raise Taxes
Ms. Granholm has periodically revealed facets of her novel and untested economic strategy, most recently earlier this month in Grand Rapids when she announced the administration’s priorities for slowing sprawl and investing in cities and town centers. She and her aides say achieving both goals will help transform Michigan into a “magnet state” for profitable homegrown companies and their talented executives and staff in order to produce “mitten envy.”

Mr. Hollister described more of the administration’s economic strategy in his address to a group of 180 farmers, executives, civic leaders, and state officials gathered in Thompsonville for the Seeds of Prosperity conference. “We have to grow our base; we cannot raise taxes,” Mr. Hollister told the conference, which was convened by the Michigan Land Use Institute to discuss ways to use entrepreneurial activities to make agriculture more profitable. “We have to protect our base industries as we diversify. We have to invest in infrastructure and technology. We have to nurture diversity to attract and retain our knowledge workers.”

Insightful Instincts, Bipartisan Support
The governor’s economic program reflects several emerging themes in her administration, and Ms. Granholm’s political instincts as a centrist Democrat. Instead of behaving as though the billions in red ink are overwhelming her, the governor is deftly using the state’s deepening budget deficit as an unlikely political ally. The budget crisis is providing the urgency needed to rally public support for new business development approaches that she is convinced will expand economic opportunity without reducing state revenues.

In addition, the governor’s support for urban development that directs state investments for roads, sewers, and jobs to downtowns instead of out to the countryside, and her allegiance to preserving natural places indicates how deeply Smart Growth economic principles have penetrated the administration, and to some extent the state Legislature.

The Republican-led state House and Senate have approved measures to encourage regional planning and increase funding for cleaning up old urban industrial sites. The state Senate also is considering a proposal, already approved by the House, to speed up the sale of condemned and tax reverted properties — most of which are located in cities — and another that would reduce agricultural property taxes to help family farms stay in business.

The governor’s strategy also is a logical response to the concerns of the coalition of urban Democrats desperate for new development and moderate suburban Republicans fed up with congestion that swept Ms. Granholm into office a year ago.

In-Depth Look At Administration’s Approach
In his conference address, Mr. Hollister outlined four themes basic to the governor’s economic development strategy. He also explained how the administration’s core principles on the economy were shaped, and made it clear that he has been an intellectual force within the administration in helping the governor develop her ideas about jobs and business, and her program for encouraging more of both.

Mr. Hollister, a former high school history teacher and Democratic member of the state House of Representatives, made his reputation as an economic development specialist as mayor of Lansing. During his 10-year term that ended earlier this year, Mr. Hollister helped to revive Lansing’s downtown, prompted nearly $3 billion in new investment, and convinced General Motors to build a new auto assembly plant on an old industrial site near the city center. Gov. Granholm recognized Mr. Hollister’s achievement, admired what she has described as his “inclusive” approach for galvanizing public support, and asked him to draw up a formal strategy for reaching similar economic and quality of life goals at the state level.

Uppermost in the Granholm administration’s economic strategy, he said, is reviving Michigan’s cities as centers of good jobs, great neighborhoods, marvelous entertainment, and sound public education. The administration has dubbed it the “Cool Cities” initiative and Mr. Hollister said it has attracted tremendous support in big and small cities statewide. He also said the administration is so committed to strengthening cities that it briefly considered adding “urban policy” to the name of the new department. “But being sensitive to the mischief that acronyms can create I didn’t want to endure the grief that it would it cause,” he said.

Another priority for economic development, Mr. Hollister said, is implementing recommendations made last summer by the Michigan Land Use Leadership Council, a bipartisan panel appointed by the governor and Republican leaders that recommended an approach to economic development  that revives city and town centers while protecting green spaces. This week, Gov. Granholm issued an executive order that directs state departments to locate new state facilities and buildings in urban areas whenever possible. It was the first of seven specific executive actions the governor said she will take in the next few months to put the council’s work into effect.

“The Land Use Leadership Council put forth several recommendations that I plan to pursue with our legislative partners as well,” Gov. Granholm said in a prepared statement. “Land use has been a divisive issue in our state, but good land use decisions are also often good economic decisions for communities and businesses. In order to make Michigan a magnet state for new business development and jobs, we must make a conscious effort to invest in our already existing infrastructure. The Land Use Leadership Council gave us the blueprint to build a better Michigan, and today we are starting to put down the foundation through this executive directive.”

Not Just Getting a Job
A third economic development priority, Mr. Hollister said, is to encourage more entrepreneurial activity in Michigan. He noted that Michigan invests more per capita than any other state — a total of $1.7 billion — in higher education and that Michigan’s universities rank in the top 10 in attracting federal and philanthropic dollars for research. “But we rank 47th in commercializing that research,” Mr. Hollister said. He noted the administration has already convened meetings with presidents of the state’s universities — whom he called the state’s intellectual leadership — and the Michigan Economic Development Corporation to talk about teaching students to embrace entrepreneurial activities and “making universities more entrepreneurial.”

“How do we encourage children to create jobs, not just get a job?” he asked. “That’s a shift in mindset.”

A fourth priority for the administration is protecting and expanding what Mr. Hollister called Michigan’s “base industries,” including agriculture. The governor earlier this year announced a “Select a Taste of Michigan” program to promote homegrown food and increase sales to “keep families in farming, preserve farms, and save our green spaces,” said Mr. Hollister. He noted a new trend among farmers to “embrace a new entrepreneurial paradigm in agriculture” that is producing new food companies, products, and farm practices that are helping to stabilize mid-size family farms, which make up the bulk of the state’s 46,000 farms.

Mr. Hollister said that Michigan State University and the Michigan Economic Development Corporation, a business and job promotion group that will come under his oversight, would become more involved in helping entrepreneurs in agriculture. John B. Czarnecki, vice president of community services for the development corporation, echoed that view during a panel on entrepreneurial agriculture at last week’s conference.

“Five years ago we were really involved in promoting manufacturing,” he said. “We were really driven by manufacturing. But we began to realize how important agriculture was to Michigan’s rural economy and how important the rural economy is to Michigan. It is not just manufacturing.”

Mr. Hollister concluded his conference address this way: “We want people to say, ‘Oh, hi, you’re from Michigan. That’s where I want to go. That’s where I want to send my kids to college. That’s where I want to live. It’s got great cities, a great quality of life.’ Ten or 20 years from now we want people to look back and say, ‘Something happened in that state that made life better.’”

Keith Schneider, a journalist and editor, is deputy director of the Michigan Land Use Institute. Reach him at keith@mlui.org. For more of the Institute’s coverage of the Granholm administration and Smart Growth, see the group’s award winning Web site at www.mlui.org. For the state's best coverage of the proceedings and results of the Michigan Land Use Leadership Council see the Institute's Turning Point special report.