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Wednesday, January 16,2013

The MSU basketball model

by Walt Sorg
How do we build the new Michigan economy? The answer to this question is our most important political debate for 2013. 

After riding on the automobile-driven wave that was our 20th-century key to prosperity, politicians and economists continue to battle over the best economic model for the 21st century.

In one corner, we have calls to use the “Indiana Model” — lower taxes, reduced regulation, lower-cost public education, privatization of more government services, reduced pay for middle-class workers, weaker unions and reduced public infrastructure funding. Some call this the “race to the bottom.”

In the other corner, we have support for the “Massachusetts Model” — world-class higher education with a high percentage of college graduates, high wages, strong unions, strong business regulation, strong public support for the aesthetics that elevate quality of life and higher taxes to support all this. Critics deride this as “tax and spend” economics that serves special interests (i.e., labor unions) rather than taxpayers.

That’s the rhetoric. What about reality?

The Indiana model really hasn’t worked well if you judge by the numbers. Lou Glazer of Michigan Future Inc. reports Indiana ranks poorly in most economic success metrics: average incomes, employment rate, percentage of college graduates, percentage of workers considered “middle class,” percentage of families below poverty level and percentage of jobs requiring a college education.

Massachusetts, with its high level of public services and higher taxes, ranks near the top of all of those lists of economic success measures.

Tellingly, cost-cutting to maximize profits is the same business model Rick Snyder championed as board chairman at Gateway, a company that built its brand based on being the low-cost alternative. Gateway did that by aggressively cutting costs and skimping on research and development.

After several years of losing money, Gateway was ultimately sold to China’s Acer Computers for just 3 percent of its peak stock price. In contrast, the big-spending manufacturer of the highest-priced computers on the planet, Apple, is now the most valuable company in the world.

So what do we do? I suggest we model a government-based business strategy everyone agrees has been hugely successful: Michigan State University basketball. 

The MSU basketball business model clearly is a high-investment strategy. MSU spends big and “taxes” big with ever-increasing prices for tickets, parking and concessions. 

MSU seemingly spares no expense in its business model of success. The best talent is hired to run the enterprise. MSU’s coaches are among the highest paid in America, helping retain the very best coaching talent.

MSU has also invested extensively in an environment designed to attract and retain the best talent in the country and then provide those “workers” with tools to perform at their highest level. They have a state-of-the-art workplace complete with industry-best technology.

Add to that great workers benefits such as first-class healthcare, private dining facilities, a recreation lounge with its own private theater, a commitment to continuing education with unlimited private tutoring in an exclusive academic center, a members only “health club,” opportunities to travel the world, business travel emphasizing results rather than saving money (generally flying chartered private jets instead of lower-cost bus or commercial flights) and even free clothing.

Playing basketball at MSU is like working for Google. There are plenty of perks, all designed to maximize the productivity of workers.

It’s a big investment, but an investment that has brought big results.

The success isn’t limited to the Athletic Department budget.

Scott Westerman, executive director of the MSU Alumni Association, says the entire university has benefited.

“Becoming a winner on any playing field — whether it’s athletics or business — requires leadership, vision and ongoing investment,” he said. The winning on the court has led directly to increases in alumni involvement and, ultimately,
fundraising.

Contrast MSU basketball’s highly successful business model with what state government is doing.

In the name of lower taxes and an improved “business climate,” the Legislature and the governor have embarked on a massive budget-cutting exercise, believing the best government is the government which taxes and does the least.

To facilitate this “pro-business” environment, they made changes to taxes on retirees (pension tax, reduced senior deductions and credits), which tend to encourage seniors to leave Michigan behind, taking their retirement spending to economically friendlier climates.

Add to that social policies like major restrictions on women’s healthcare choices and laws hostile to the LGBT community and you end up with policies that repel rather than attract many of the best and the brightest.

It adds up to being another Indiana — the state, not the basketball team.

So do we continue with the lowest-cost, minimalist model or a strategy based on government investment?

While this goes against the prevailing ideology at the Capitol, the data strongly suggests Michigan needs to embark on a new path if we truly want a prosperous future.

The debate for 2013 is whether the governor and Legislature will seriously look at the data or continue to set economic policy based on ideology, anecdotes and distorted representations of Indiana’s “success.”

Or maybe we should just elect MSU Athletic Director Mark Hollis as governor.

(Sorg can be reached at sorg@lansingcitypulse.com.)

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