27 May 2009

Warren And Ann Arbor: A Tale Of Two Economies

Separated by 50 Miles but Worlds Apart, Michigan Cities Embody the State's Ailing Industrial Core and a Potential Road to Rebirth
Story from the Wall Street Journal

Michigan's economy is the worst in the country, dragged down by its dependency on an ailing auto industry. But in a lab at Accio Energy in Ann Arbor, engineers Dawn White and David Carmein are driving in a different direction.

They have built what they call an "aerovoltaic" device, a two-inch loop of piping that generates electricity -- without moving blades or turbines -- when air flows through it. The engineers' next step: linking a series of these loops into screens that they see eventually generating wind electricity where windmills are too big, dangerous or noisy to go.

Innovative companies like Accio are common in Ann Arbor, home to the University of Michigan, where a highly educated population has created a burgeoning economy, and a street-corner conversation can develop into a company and create jobs.

Michigan's economic future rests on making the state look more like Ann Arbor, and less like Warren, 50 miles to the northeast, where factory buildings and warehouses built on the riches of the Big Three auto makers bear signs saying they are "priced to sell." The latest blow came earlier this month, when Chrysler LLC shut down its two plants in Warren as part of its bankruptcy filing.

It won't be easy. Much of the Michigan economy has been shackled to Chrysler, Ford Motor Co. and General Motors Corp. Yet even after years of watching the auto industry decline, the state has struggled to free itself from dependence on the Big Three.

"The old economy made Michigan rich and it made its work force get wages and benefits that were beyond anybody's dream," says Donald Grimes, a University of Michigan economist who paid his way through college in the 1970s by working summers at Ford and GM plants. "There is absolutely nothing that is going to replace those jobs."

The divide between Ann Arbor, with a population of 116,000, and Warren, population 126,000, is large and widening. Ann Arbor's unemployment rate of 8.5% in March trailed the nationwide rate of 9% and was well below Michigan's overall rate of 13.4%, based on nonseasonally adjusted figures. By contrast, Warren's unemployment rate of 17.3% is among the highest in the state. The average family income in Ann Arbor was $106,599 in 2007, compared with $69,193 nationally and $60,813 in Warren.

That economic gulf wasn't always there. In 1979, the average family in Warren made $28,538 annually, not much below Ann Arbor's average of $29,840. But in the past 30 years, the U.S. economy has undergone a sweeping transformation that has benefited cities like Ann Arbor and hurt manufacturing hubs like Warren.

As transportation and communication costs fell, and countries like Japan and, now, China, increased their manufacturing capability, Michigan's advantages have faded. Those same forces of globalization benefited educated workers -- an area where Michigan largely fell short.

Except in Ann Arbor.

Over the years, the city developed the types of schools, cultural institutions and amenities that made it an attractive place to live and work. Google, whose co-founder Larry Page attended the University of Michigan, opened an Ann Arbor campus in 2006. About 70,000 people commute to this city, about 40 miles west of Detroit, each day.

Accio Energy got its start in 2007, based on plans two of the founders hatched at Zingerman's Deli, Ann Arbor's renowned gourmet-food destination.

Accio got some of the seed money for the three-person start-up from Mary Campbell, an area venture capitalist who met Ms. White in a running group. Jeffrey Basch, a former General Electric automotive development worker, is Accio's general manager. Ms. White met him while helping shuck corn at an organic produce company that Mr. Basch's wife, another former Ford engineer, started and Ms. White helped fund.

In Warren, which has the largest concentration of auto workers in the country, job transitions are more difficult to make. Just one in five of Warren's workers between the ages of 25 and 64 holds a bachelor's degree or higher, a relic of the days when a college degree wasn't necessary to find a job that paid well. By comparison, three-quarters of Ann Arbor's work force has at least a college degree.

"I got out of high school and went right into it," says Arthur Kupiec of the Chrysler job he started in 1972, when he was 18. "Back then, jobs were all around and the economy was booming."

Mr. Kupiec worked at Chrysler's truck plant in Warren until last year, when he took an early retirement package. "Believe me, I didn't want to leave, but I said, 'You know what, I have to get something while I have something,' " he says. "I'm only 55 years old, and I'm just at home putzing around."

Ann Arbor's burgeoning start-up culture hasn't fully shielded it from the economic downturn. The city's shops and restaurants are a weekend destination for many in Michigan, but with the state in trouble, they have seen business drop.

And despite Ann Arbor's educated work force, employers here find Michigan's reputation as a failing manufacturing economy can deter potential hires from moving to the state.

At HandyLab, an Ann Arbor firm that makes a DNA-analysis device, Chief Executive Jeffrey Williams says he has had a hard time finding Ph.D.-level workers with highly specialized skills. His company, which has doubled to roughly 60 employees in the past year, has 10 job openings.

"It's definitely gotten much harder with all the stigma around Detroit," he says. "Somebody tries to pigeonhole us as Detroit, we say, 'No, it's Ann Arbor, it's a completely different environment.' "

In another blow to Ann Arbor, Pfizer Inc. in 2007 announced that it was closing its research facilities in the city, where 2,100 people worked. But unlike idled auto workers, who often find there is no market for the manufacturing skills they have honed over the years, Pfizer's researchers generally found work elsewhere.

While some of America's once-dominant industrial centers, including Pittsburgh and, a generation earlier, New York City, have been able to make the transition away from a manufacturing-dependent economy, others, such as Cleveland and Buffalo, have floundered. Warren, for its part, does have well-trained engineers and designers -- GM's technical center is there -- and Wayne State University is building an advanced technology education center in Warren. Web design, internet marketing, and Michigan SEO companies thrive in a strong tech sector.

Meanwhile, with the automotive industry's latest troubles, more people in Michigan are breaking with the past and coming to see a college education as an economic necessity.

Treashure Banks, 20, is studying business at Macomb Community College and working at the school part time. She still isn't sure what sort of company she wants to work for, but there is one thing the Detroit native has always been clear on when contemplating her future career.

"It was never automotive, never," she says. "We need to have some new ideas. We need something new."

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