Published in Economic Development

Infrastructure problems drag on Michigan’s entrepreneurial economy

BY Sunday, April 28, 2019 06:04pm

Problems with Michigan’s infrastructure go beyond deteriorating roads and bridges.

Michigan also ranks poorly — 42nd among the 50 states — in terms of digital connectivity, according to an annual report on entrepreneurship in the state.

Brian Calley, President, Small Business Association of Michigan

The scorecard issued annually by Michigan Celebrates Small Business and the Small Business Association of Michigan ranks the state 28th in the U.S. in broadband connections, 33rd in broadband coverage based on high-speed internet providers per 100,000 residents, and 43rd in next generation internet.

The best ranking in digital connectivity was for rural broadband, where Michigan ranked 25th nationally, a status bolstered by the use of emergency services infrastructure to make it more available.

“Available and inexpensive broadband is becoming vital to economic competitiveness,” according to the 2019 Michigan Entrepreneurship Score Card.

“For the entrepreneurial world, access to the digital world is certainly not a luxury anymore, it’s an absolute must,” said SBAM President Brian Calley. “There’s no question there are parts of our state that may be wonderful places to live, but there’s only so much you can do with the entrepreneurial economy when you don’t have solid broadband coverage.”

The connectivity findings were among dozens of metrics contained in the 2019 Michigan Entrepreneurship Score Card, which specifically cited infrastructure issues as a threat to the state’s economic future.

Michigan’s infrastructure — consisting of roads, bridges, sewer and water systems, air transportation, and connectivity — ranked 40th nationally as of 2017, according to the report. The state was 48th in highway quality and 35th for the quality of bridges.

The worsening state of Michigan’s already poor infrastructure threatens to derail business growth and act as a competitive drag on the state, according to the report. That finding comes amid Gov. Gretchen Whitmer’s proposal to increase the state gas tax by 45 cents per gallon to raise $2.5 billion annually for roads.

Senate Republicans are working on their own plan.

'Not top 10 yet'

The annual scorecard, authored by Graham Toft, president of Sarasota, Fla.-based GrowthEcomonics Inc., and Loch McCabe, president of Ann Arbor-based Shepherd Advisors, examines more than 200 factors that affect the state’s business climate and entrepreneurial activity.

Authors crunch the data to compile indexes and ranking for three key areas: entrepreneurial climate, entrepreneurial change, and entrepreneurial vitality. The 2019 edition, which uses data from 2017, shows further gains for the state, although progress has been slowing, a finding that was noted in the scorecard a year ago.

In entrepreneurial climate, which measures factors that support the entrepreneurial economy, Michigan ranked 18th in the U.S. as of 2017, up from 22nd the year before and far better than its ranking of 40th in 2007.

“Overall, the business climate in our state continues to improve relative to our neighbors, but we are not top 10 yet. We want to be top 10. That’s our purpose and our goal,” said Calley, Michigan’s former lieutenant governor who joined SBAM in January after he left office when his term expired.

“The trend line looks really good,” he said.

Michigan ranked 24th for entrepreneurial change, which measures the direction and momentum of growth in the entrepreneurial economy. That compares to 31st in the prior year and dead last a decade ago.

Despite Michigan’s strong improvement in the rankings over the last decade, state policymakers need to make further improvements in the state’s business climate, Calley said.

“Our business climate is much, much better and moving in the right direction,” he said. “There’s a lot of improvement, but still we can’t afford to take the foot off of the gas. That’s the overarching message that we’d love policymakers to understand.”

Signs of slippage

In the third ranking that’s the most complex and hardest to move, Michigan ranked 41st in entrepreneurial vitality, just one spot better than a decade ago and down from 36th in last year’s report.

Entrepreneurial vitality measures the level of activity relative to other states and requires strong performance in entrepreneurial climate and change “for a very long time” to “really move” significantly, Calley said.

“Unfortunately, that’s one where we’ve seen a little bit of slippage relative to the other states,” he said. “While we see some growth in a lot of the measurements, we see more growth in other places, so it’s caused our relative ranking to decline when it seems like things are generally going in the right direction.”

The report’s authors described the decline in the entrepreneurial vitality ranking as “almost a sign of a strong economy,” said SBAM CEO Rob Fowler. The ranking, as a single measure, could take several years to register sustained improvement “because of the legacy of large companies in Michigan,” which results in fewer people taking the leap into entrepreneurism, he said.

Moving backwards

The 2019 report noted that after strong gains at the start of this decade when Michigan began to emerge from the Great Recession and when it reformed its business tax code, each of the three key indexes has moderated or started to decline. That suggests that while Michigan is still growing, “its entrepreneurial economy has been and continues to slowly lose ground relative to other states,” according to authors.

“We have to be cautious and not take for granted that our economy is good and growing. That’s the big blinking yellow light out of this report,” Calley said. “We really have to work at this. The world is a very competitive place, and if you’re standing still, you’re falling behind.

“While our economy is still moving in the right direction, it’s not moving as fast as it was before and we have to know and understand that our competitors around the country and around the world, they’re not resting. They’re not coasting.”

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