Michigan Will Win Business from Right-to-Work Switch
Michigan Republican Gov. Rick Snyder and a Republican-dominated legislature have pulled off a breathtaking political move and made Michigan the 24th right-to-work state. But it remains unclear what difference this will make over the long term for the state – and whether it will boost Michigan’s lowly 46th place in Chief Executive’s annual survey of CEO perception of the Best and Worst States in which to do business.
December 20 2012 by Dale Buss
In the short term, the state is likely to experience a union-led backlash in future elections similar to the reaction in Wisconsin that nearly toppled Republican Gov. Scott Walker and his rollback of the power held by public-sector unions in that state. And that uncertainty alone is likely to be enough to hold off a lot of immediate new corporate commitments to location or expansion of jobs in Michigan.
But there’s no denying that Michigan’s leap onto the slow-growing roster of right-to-work states changes the picture immediately by adding a second outpost of “workplace freedom” in the industrial Midwest with Indiana, which flipped to right-to-work last year.
The changed status of both locations could be especially attractive to automotive suppliers that are already clustered in the region. But Michigan also is making an increasing bid for other types of businesses, including technology outfits that can take advantage of the strong engineering and manufacturing base in the state that is still being expanded by auto companies both foreign and domestic.
“Companies will be more seriously inclined to look at a state if it’s right-to-work,” Mark Arend, editor in chief of Site Selection, a corporate-real-estate magazine, told the Wall Street Journal. And once a state passes a right-to-work law, nearby states must worry about becoming relatively less appealing.
Despite national election results that accelerated a trend toward liberal hostility to business at the federal level, CEOs are looking more closely at what’s going on at the state level and whether the more favorable trends there can endure. Tax-hostile Republicans continue to advance more company-friendly approaches through governors and state legislatures, and it’s their policies and attitudes that are much more relevant to corporate siting decisions than anything the federal government does.
And in Michigan, there’s great reason to believe that the employment-starved state will continue to demonstrate more friendliness toward job creators and so trend more like neighbors Wisconsin, Indiana and Ohio.
As recently as a few months ago, Snyder, the former CEO of Gateway Computer, was overhauling the state’s attitude toward business deliberately but without directly confronting Big Labor. He did away with a raft of targeted subsidies such as one for film production, for instance, and chopped down the state’s harmful Michigan Business Tax in favor of a flat rate of 6 percent for most corporate entities. Snyder also has targeted an onerous level of personal property taxes. Fittingly, Michigan rose to No. 7 from No. 48 in the Tax Foundation’s ranking of state corporate-tax burdens.
But he was loath to take on Michigan’s unions directly, even after they tried and failed to get voters to approve a ballot measure in November that would have enshrined collective-bargaining rights in the state constitution and outlawed right-to-work.
Snyder’s stance changed abruptly only a couple of weeks ago after the lame-duck Republican-led legislature decided to leverage the 15-point defeat of Proposition 2, the unions’ ballot initiative, into a right-to-work push. This time – also assured by election results of continued Republican control of the state legislature — Snyder indicated that he would sign the legislation.
There’s close and immediate precedent for Snyder believing that right-to-work status will make Michigan a bigger lure for business. Two years ago, in a survey by the state’s big-business group, Wisconsin Manufacturers & Commerce, only 10 percent of employers through the Badger State was “headed in the right direction.” By early 2012, that number was up to 94 percent.
“Constantly and consistently, when I talk with businesses across the state, they take a big sigh of relief and say, ‘Thank God we got past this,’” Walker told me about his survival of a union-forced recall election in June. “Many say that if things had gone the other way, they were actually seriously considering whether to continue operations in the state or go somewhere else.”
And in Indiana, the Hoosier State has added many new employers and 43,300 jobs so far in 2012, while Michigan has lost 7,300, according to the Mackinac Center for Public Policy in Midland, Mich. Caterpillar, for instance, announced shortly after Indiana’s right-to-work decision last year that it would move its London, Ontario, plant to Muncie.
Overall, as right-to-work advocates note, total employment in right-to-work states grew by 71 percent between 1980 and 2011, while employment in non-right-to-work states grew by only 32 percent. And employment in Michigan rose by only 14 percent during that time.
Similarly, since 2001, right-to-work states added 3.5 percent more jobs, while other states decreased by 2.6 percent. Compensation actually grew more as well, rising 12 percent, inflation-adjusted, in right-to-work states but just 3 percent in others.
The other side will point out that many factors affect companies’ siting decisions and that right-to-work states have tended to be “newer” provinces in the south and west that also have presented other advantages from the git-go, including lower prevailing wages, lower costs of living, geographic centrality for the fastest-growing parts of the country, and more favorable weather than the industrial East and Midwest.
But here’s the bottom line: The preponderance of evidence shows that right-to-work status is an important marker of a state’s direction, of a line in the sand drawn by a representative government which indicates a determination to move away from union-imposed suffocation of business efficiency and initiative. Clearly, Michigan’s biggest industry already has suffered over the decades from union domination.
And in that regard, Michigan is sure to be a winner with business as a right-to-work state. Exactly how, time will tell.