Since the new deal, the economic model of Big Companies, Unions and a regulated economy dominated the Midwest. The belief was that big companies can absorb the high costs of labor and regulations. As we have seen the last 11 years, that model has collapsed not only in the Midwest, but in the northeast and California. The higher costs pushed employers to relocate to the South or even out of the US. The result has been an economic catastrophe with Detroit as the example of the failure of this economic model.
President Obama has kicked off a three-day bus tour of Minnesota, Iowa and Illinois, where the corn is high and at least some factories are spewing smoke. He’s holding town-hall meetings on the economy, putting the unemployed back to work and “growing wages for everyone.” He won these Midwestern states handily in 2008, but he’s not taking anything for granted these days. The Midwest is the region with the largest number of target states. The president’s latest Gallup job approval there is 39%, the same as the nation as a whole.
To understand the political economy of the Midwest, it helps to put it in historic perspective. Originally the Midwest’s economy was built on its farms, then later on its factories. The long farm-to-factory migration lasted from roughly 1890 to 1970. At the end of that period, when I was working on the first edition of “The Almanac of American Politics,” 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.
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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
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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.
Adversarial unionism is one reason the Midwest slumped. It turns out that the 1970 assembly line, with union shop stewards always poised to shut it down, was not the highest stage of human economic development. When you make labor more expensive, you create incentives to invent new machines and create new jobs elsewhere. Foreign auto manufacturers built plants in a South recently freed from state-imposed racial segregation. With no adversarial unions, management and labor could collaborate and achieve quality levels the Big Three took decades to match.
The Michigan model is a failure. We need the Texas model of a friendly business environment, low regulations and lower tax rates across the nation. If not, America will turn into a national version of Detroit
