Rod Thomson: Mozambique vs. Michigan: A lesson for us

Rod Thomson: Mozambique vs. Michigan: A lesson for us

Michigan and Mozambique are going in opposite directions. They offer lessons to Gulf Coast business leaders.

"Underlying most arguments against the free market is a lack of belief in freedom itself."

- Milton Friedman

Segments of our society seem never to retain - if they ever learned - the lessons of more freedom, less regulation and lower taxes equaling a strong, vibrant economy that raises everyone's boat. Hence, there is the need to remind people constantly of this simple, successful, critical formula.

We have two examples of this economic law.

One, is Michigan, my home state. Once one of the economic powerhouses of the nation, Michigan has become an economic basket case. The ailing auto industry is only part of the problem - more a symptom. It has been struggling for 30 years. But with 6.6% unemployment - twice that of the Gulf Coast - an out-migration of people, particularly skilled and talented people, and the departure of giants such as Pfizer and Comerica Bank, Michigan is demonstrating its economic impotence.

Here's how bad it is: The Michigan Unemployment Insurance agency recently closed nine branches, making more than 8,500 unemployment employees unemployed. Obviously that was the not result of low unemployment but a sign of the overall decline of the state.

How did the envy of the world in the 1950s come to such a pitiable point? Plump with the revenues of a strong economy, Michigan political leaders continually tried to be all things to all people 30 years ago. Everyone knew that unemployment benefits and all forms of welfare were tops in Michigan. The fat years were even passable with the institution of a state income tax. But the seeds of economic havoc were being sewn as a largely Democratic-run state government in Lansing became bloated.

When difficult times came with the 1970s oil embargo and the introduction of true competition from Japanese automakers, the foundation was in place to make a tough situation vastly worse. Yet with the exception of the Gov. John Engler years, state leaders continued to raise taxes and do more for people doing nothing.

In terms of regulation of private enterprise and the relationship between employee and employer, along with taxes that are many times higher than those in Florida, Michigan has done everything wrong to right the economy. Apparently they never read Milton Friedman.

In the chart above, you can see the results of Michigan's regulatory and taxation policies. Unemployment consistently remains above the U.S rate. And even that is misleading; Michigan is losing a net number of workers. The state had nearly 4 million people employed in 1990. It has dropped to 3.7 million now. If those workers were still in town, unemployment would be ridiculously high. Many of them are on the Gulf Coast.

And the wrong-headedness continues. The Legislature is intent on raising yet more taxes on the remaining companies to raise money to attract - that is, give money to - government-approved companies. Gov. Jennifer Granholm wants to enact a 2% tax on services and implement a new tax on wealthy estates.

It doesn't take an economic genius to see that Michigan will continue to slide into economic disintegration. It's heartbreaking.

Then there is Mozambique. After decades of Marxist control and the typical violence that ensues, this poor African nation on the Indian Ocean side of the continent witnessed an 8% average annual growth rate during the past 10 years - the strongest of any non-oil-producing African nation. Compare that to Michigan's ongoing decline over the same period.

While the rest of the African continent generally continues to spiral into the abyss, Mozambique has taken a different approach. Call it the inverse-Michigan-method.

Mozambique scrapped most of the Marxist-induced social policies by cutting subsidies to companies (while Michigan is raising taxes on companies to give to other companies) and generally decentralized the economy. Companies that had been nationalized under the Marxists were privatized. The country's leaders also opened up their markets to foreign investment and competition at the same time they were taking down governmental life support. And overall government spending was curbed.

Unemployment numbers are generally not available or not trustworthy for Mozambique, typical of a third-world nation.

And not all is perfect and free. HIV/AIDS remains a massive problem and the ruling party is not a great lover of political freedom. It dominates the media and the court system is weak, at best. That party also gives all government jobs to party members only and is winning elections with suspiciously high percentages. Oh, and only 7% of the country has access to electricity.

Mozambique is in a deep hole, right in line with some of the poorest African countries. But it is moving in the right direction. These are the types of economic reforms Friedman taught and cajoled for his entire life. They are bearing fruit in a corner of Africa known only for wrenching poverty.

The Gulf Coast of Florida teeters philosophically between the direction of Michigan and that of Mozambique, but seems inexorably pulled toward the economic black hole of more regulation and higher taxes.

Michigan is our object lesson. Leaders there thought their economy never would be weak, no matter how big government became. Leaders here give the same impression as those in Michigan from the 1960s forward, that no amount of increased government burden will really hurt the economy.

It is a dangerous illusion. If we build a gold-plated government infiltrating every area of life, we will all pay a steep price when a big economic hit comes. We'll never be Mozambique. But we could become Michigan. And I declare, as a Michigan native and Michigan State University grad, it's not a pretty economic picture.

Rod Thomson is executive editor of the Gulf Coast Business Review and can be reached at [email protected].

BY THE NUMBERS

Michigan employment,

GDP statistics

Michigan U.S.

Year Number Employed Unemployment

2006 3,671,400 6.9% 4.6%

2005 3,716,200 6.8% 5.1%

2004 3,715,000 7.0% 5.5%

2003 3,728,100 7.1% 6.0%

2002 3,800,600 6.2% 5.8%

2001 3,876,300 5.2% 4.7%

2000 3,995,300 3.7% 4.0%

1999 3,917,700 3.8% 4.2%

1998 3,858,100 4.0% 4.5%

1997 3,791,900 4.3% 4.9%

1990 3,946,500 7.7% 5.6%

1980 3,442,800 12.0% 7.1%

Sources: Michigan Department of Labor and Economic Growth

U.S. Bureau of Labor Statistics.