Ann Arbor and Warren: A Tale of Two Economies

From the Wall St Journal | May 26, 2009

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

ANN ARBOR, Mich. -- 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.

Paul Zahka

A start-up culture buoys Ann Arbor, Mich.

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.

Bloomberg News

Warren is suffering from its reliance on the auto industry.

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.

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."

Write to Justin Lahart at justin.lahart@wsj.com