Friday, February 21st, 2014

The Great Urban Divide, Michigan Edition

I’ve said many times that it is predominately larger metropolitan regions of 1-1.5 million people or larger that are best positioned to succeed in the global economy. This is in effect the minimum viable scale to compete. These cities have bigger talent pools, thicker labor markets, the right infrastructure (e.g., major airports) and amenities, bigger local markets, more specialized suppliers, and more entrepreneurial ferment. Smaller places that don’t have a unique asset (such as a major university) are going to struggle.

We see that on display again in Michigan, where Battle Creek based Kellogg’s is opening an operations center in Grand Rapids. This will employ 300-600 people, including some transferred from the headquarters. As the company put it:

Kellogg CEO John Bryant told The Grand Rapids Press/MLive they chose Grand Rapids for the new center after looking at nine possible locations around the U.S. as part of a new corporate restructuring initiative dubbed “Project K.”

Bryant said the company chose Grand Rapids because 40 other corporations have created similar service centers in the area, creating a labor pool from which Kellogg hopes to draw.

“We’re very excited about the Grand Rapids location. There’s a good population base for this sort of activity,” Bryant said.

Leaders in Battle Creek are angry about the company choosing to open in nearby Grand Rapids:

“This was a unilateral action by the Kellogg Company,” [former Battle Creek mayor and U.S. congressman Dr. Joe] Schwarz said Monday, “blindside, if you will. And that’s not the way people in Battle Creek, especially those that have been here a long time and worked with Kellogg on so many issues like myself, that simply is not the type of behavior we’ve come to expect from the company.”

At the time, Jim Hettinger was CEO of Battle Creek Unlimited. In a column for the Battle Creek Enquirer, Hettinger expressed his frustration over Kellogg’s announcement, saying the city has continually gone to great lengths to accommodate the company’s needs.

I understand the frustration, but at the end of the day, this is the reality of the modern world we live in. We see similar business decisions every day. Kellogg’s is in Battle Creek for historical reasons. There’s no way the company would ever choose to locate there today. The changing demands of the global marketplace create a need for skills that are easier to find in or lure to a place like Grand Rapids (metro population one million) than Battle Creek (metro population 135,000). That’s reality.

Note here that cost is simply not the issue. Both Grand Rapids and Battle Creek are lower cost locations. It’s clearly about being in a place that has better scale to serve the needs of a business serving upwards of 600 white collar employees.

This divergence understandably fuels resentment and bitterness within states, as I noted in a recent column in Governing magazine. I frequently find that to locals it’s particularly galling when a company does something like this within the state boundaries. Had Kellogg’s opened in Austin, Texas, I strongly suspect Battle Creek wouldn’t be nearly so bitter. I’ve long noted the same thing in Indiana, where smaller towns and cities would far rather see an out of state company buy their local bank or whatever than have an Indianapolis company come in. (Though I’ve also noticed this has changed for the better in the last 20 years). The reality is these jobs could have left the state entirely. Had Grand Rapids not been there, they probably would have.

This is one reason I have pounded the table for more expanded regional thinking by the likes of Grand Rapids. It’s not an easy problem, but if they can’t demonstrate that there’s a win-win in here somewhere for regional metros like Kalamazoo and Battle Creek, resentment will become entrenched. This can be difficult because the answers aren’t obvious and places like Grand Rapids – which itself is of marginal scale and what’s more not on the trade routes in the way a place like Columbus, Ohio is – are pedaling hard to just to make sure they themselves can make it. But longer term I think it’s imperative.

In the meantime, it’s important for state leaders to understand and respond to these realities. If they don’t, they will only drive business out of the state completely, just like effectively Indiana’s entire banking industry got gobbled up with little to show for it.

PS: One exception I’ve noted to this rule: Chicago. I didn’t seem to hear the same anger from Decatur over ADM that we see here. I think in part it’s because they understand Chicago is just a far different place than them. It’s such a unique city that losing a small executive headquarters doesn’t even seem like genuine poaching. Plus the entire leadership of the state is Chicago-centric, and and their top priority is building up global city Chicago.

33 Comments
Topics: Economic Development, Globalization, Public Policy, Strategic Planning, Talent Attraction
Cities: Grand Rapids

33 Responses to “The Great Urban Divide, Michigan Edition”

  1. pete-rock says:

    This is bad for Battle Creek, yes, but good for Grand Rapids and good for Michigan, for all the reasons you cite.

    I like Grand Rapids. Been there a few times. I’ve often wondered why it hasn’t grown in economic prominence the way that either Indianapolis or Columbus has over the last 30 years. I realize Indy and C-bus are both state capitals and larger than GR. But GR is in a unique position in Michigan that is similar to Indy or C-bus — it does not have the industrial legacy that other large cities in its state has, and that offers advantages.

    Twenty-five or thirty years ago I would’ve put Grand Rapids, Indianapolis and Columbus a little closer in class. Mid-sized metros aching to be in the big time, and the ability to get there. Maybe like a Midwest version of Charlotte. Aggressively attracting major employers and corporate HQs. Going after pro sports teams. But that didn’t happen.

    I think a lot of effort was made to make GR a pole to Detroit’s dominance in MI. GR is conservative to Detroit’s liberal, service-oriented to Detroit’s manufacturing. But again, it didn’t take off in that way.

    Maybe it’s because Grand Rapids has been scrapping with Kalamazoo/Battle Creek for the title of capital of western Michigan, or because GR still remains a relatively out-of-the-way locale on the Interstate Highway network. Or because GR’s conservative leadership decided to take a less aggressive growth path.

    However, I agree with you. GR is definitely better positioned for a company like Kellogg’s than Battle Creek. Quick personal note: my sister-in-law is a VP with a major corporation in the Chicago area who once was recruited to a similar position in Kellogg’s. She turned it down in favor of the one in Chicago. I bet Kellogg’s got that a lot.

  2. John Morris says:

    There is something a little silly about the “winner vs loser” model. A lot of Michigan is rural and tourism oriented and would benefit from healthy, large in state metros.

    This is the core problem. The political class feeds on retaining people (voters, power) rather than than allowing them to make rational choices.

    “GR remains a relatively out-of-the-way locale on the Interstate Highway network.”

    Right, to me the story is why it’s doing as well as it is. Both Indy & Columbus are endowed by geography and probably should be doing even better. Grand Rapids seems like a bit of a model- or at least worth examining more.

  3. pete-rock says:

    I don’t think GR has much of an economic model worth examining; I actually think it’s gotten this far without a true one. I think being a regional center in western MI has gotten it where it is today. A true model could have propelled it to higher levels.

  4. John Morris says:

    Sort of grading on a curve here- given the huge problems the state as a whole had/has, GR is probably doing a lot of things right.

    Art Prize alone is a reason to look at Grand Rapids. What other regional city created a nationally known event without massive fixed investments?

  5. It’s not an event, but the Kalamazoo Promise started a national movement.

  6. Derek Rutherford says:

    Pete-rock: the reason GR hasn’t expanded like Indy and Columbus is that GR isn’t a state capital and doesn’t have a major public university. Therefore, it isn’t vacuuming in state taxes from the rest of the state, and (in comparison to Columbus) doesn’t have the top high school grads in the state cycling through and occasionally staying.

    In areas experiencing stagnation or decline, the last area to decline is the one getting the tax money, which for US states means state capitals and big college towns. That is why in the Midwest, a disproportionate number of the cities doing well are those with one or both of the above (examples: Columbus, Indy, Madison, MSP). Most of the old industrial cities (Detroit, Cleveland, Milwaukee, STL, etc.) are in decline and as they are net-tax-payers (not net-tax-recipients), recovery is even tougher than it already is. The health of the state capitals and college towns is in part based on bleeding the old industrial cities of their money and the brightest of their children.

    Of the non-capital/college cities in the Midwest, only Chicago and KC are really doing well. GR is actually doing better than most of the rest, which is particularly impressive considering the loadstone that Detroit is for the rest of Michigan both in terms of reputation and sucking up state resources.

    BTW, I agree with the article. I have been to Battle Creek on Kellogg’s business and while a fine little town, it suffers from exactly the lack of scale that Aaron describes. MI is lucky they are only going to (relatively nearby) GR.

  7. Derek, I can’t speak to Columbus, but Indianapolis is a net tax exporter to the state of Indiana, not a recipient of state investment.

  8. John Morris says:

    “the Kalamazoo Promise started a national movement.”

    I forgot about that but the “promise” (unfunded promises are called lies)- is a massive and very open ended investment.

  9. Matthew Hall says:

    I think that all metro areas of a certain size are net tax exporters within their states and nationally. Rural areas are heavily subsidized in America.

  10. Chris Barnett says:

    Aaron, I understand the economics, but I think there is a way in which Derek’s point is true: to the extent that all those state-level administrative jobs are paid out of state taxes AND the job incumbents live in the state capital metro, the rest of the state is indeed contributing to its capital apart from the budgeted line-item cap-ex and op-ex for roads, sewers, main streets, state cops, colleges/universities, trains, and subsidized housing.

    Indirectly, the presence of the capital calls for the “service class” (lawyers, lobbyists, and statewide organizations) to be concentrated in a capital city, and those are not low-paying jobs.

    On the other hand, we build and pay for wonderful stadiums, zoos, and museums in Indianapolis and share them with the rest of the state, along with our public safety and other infrastructure.

    When considering second and third-level effects, it’s a bit trickier. It would take a pretty sophisticated economic analysis to suss it out. Clearly Indianapolis and Columbus, both “created and planned” capitals, grew from their special status within their respective states. (Lansing, similarly created in a “central” location, and home of Michigan’s A&T university, is a serious contrast its neighboring-state capitals.)

  11. John Morris says:

    I do think the growth of Indy & Columbus transcends the normal college town/ state capital advantage. Both cities are also distribution hubs better adapted to train & car based transport. Lansing might be centrally located in Michigan, but its off the beaten track for the country as a whole.

  12. Chris Barnett says:

    From a transport point of view, Michigan does look like a cul-de-sac or a dead end, wedged between lakes and tacked on to Ohio and Indiana.

    But Michigan, including Lansing, is on the highways that provide important trade routes to the heavily populated parts of Canada.

    I-94 connects Chicago and points west to eastern Canada through Detroit, and I-69 through Lansing connects the US Midwest and mid-South (and eventually Texas and Mexico) to the other major Michigan border crossing at Port Huron. Border crossings, even post-NAFTA, create a need for logistics and service businesses.

  13. myb6 says:

    Aaron,

    With good enough transportation, could the various metros of Western Michigan perhaps mimic one, larger conurbation? Sort of how the smaller metros of the Randstad collectively punch above their weight?

  14. 08mms says:

    As a 20-something who grew up in Michigan and followed the great youth expatriation from the Mitten to Chicago and places beyond, I will say most of those I grew up with who stayed behind ended up in Grand Rapids and that I know a handful of fellow expatriates who are considering moving back there. Beyond the Art Prize, the city has done a great job in fostering community activities (see, e.g. http://www.youtube.com/watch?v=ZPjjZCO67WI) and has retained a viable urban core with some very attractive draws to young professionals (e.g., the craft beer scene with Founders and Hopcat). I think it also helps that the city is close enough to benefit from the Chicagoland orbit (like a slightly more distant Milwaukee) with a regular mass transit connection and that Chicagoland generally has strong ties to the region given how much of the population escapes to south-western Michigan in the summer. The area has also done fairly well with a push into bio-tech and health science research thanks to heavy investment by the Amway families (even though it lacks a true research university as core), which complements the existing base of manufacturing and distribution to create a health mix for good jobs.

  15. John Morris says:

    I really wish there was an in depth post about Grand Rapids on here. Columbus, Indy & to a large extent Ann Arbor were handed strong hands- GR has played their weaker hand better.
    Yes, it had/has a good number of large homegrown corporate hq- but it’s done a lot better at sustaining that base.

  16. I wrote something up here:

    http://www.urbanophile.com/2009/09/20/other-michigan-cities/

    One thing you can’t overlook is cultural heritage. One reason the Twin Cities run Scandinavian policies is because Minnesota was heavily settled by Scandinavians. Western Michigan, like New York City, had a huge Dutch influence. And as with New York, the Dutch commercial culture and such left a positive legacy there.

  17. Joe says:

    I grew up in the greater Grand Rapids area and the one thing that always seemed to set it apart from other places was the size of its philanthropic community. They give often and they give a lot….museums, concert hall, convention center, arena, campus buildings, hospitals, research institutes, a hotel. The amount of private investment through donations and the commitment by these families to the local community is astounding and may be somewhat attributed to the region’s strong religious background. It would be an interesting academic study to analyze and compare the philanthropic community of Grand Rapids to other Midwestern cities.

  18. John Morris says:

    Thanks, Aaron & Joe. This confirms what I generally know/ think about Grand Rapids.

    About the philanthropy, in many old cities like Pittsburgh, & Cleveland old money foundations can reinforce insularity. Art Prize is great example reaching out in a very open ended way.

    Art Prize as a whole, points out the natural limitations Grand Rapids has going against it. In spite of being by far the largest; most exciting public art contest and actively recruiting “big city” critics like Jerry Saltz, few artists from major art centers like NY & LA participate.

    That said, Grand Rapids shows that even a city with fewer natural assets and a central location can still become noticed.

    An interview with Art Prize founder, Rick Devos would make a an awesome post on here.

    http://online.wsj.com/news/articles/SB10001424127887324009304579042812665917786

  19. John Morris says:

    I tweeted @RickDevos linked to the thread. Hopefully he may comment.

    When Art Prize first showed up, I predicted it could be a game changer for the Midwest. That hasn’t quite happened, but it’s still been very important.

    Amazing that so few cities regionally moved to copy or adopt the concept in spite of obvious success. Clearly, it rubbed against the more insular top down structure of most. Same reason, no city has tried to compete with Burning Man.

  20. AIM says:

    “Art Prize as a whole, points out the natural limitations Grand Rapids has going against it. In spite of being by far the largest; most exciting public art contest and actively recruiting “big city” critics like Jerry Saltz, few artists from major art centers like NY & LA participate.”

    I doubt this is an issue of geography. More likely, it’s a matter of how many artists view Art Prize and the publicity contest nature of the selection of finalists.

  21. Todd Herring says:

    Sorry I’m a little late to the conversation, but thankful ArtPrize is reconized as an asset to Grand Rapids and Michigan as a whole. I would like to address a few common misconceptions that have shown up in this thread.

    “…., few artists from major art centers like NY & LA participate.”

    In 2013, 31% of our 1524 Artists were from outside Michigan with Chicago, New York and LA being the top 3 contributing cities. I suppose “few” is relative to ArtPrize scale, but if you were to put the 200+ New York and LA artists showing at ArtPrize into a single exhibition, it’d be larger than most shows happening in New York or LA.

    As to why no other cities have replicated our model, there are plenty of theories, but lack of trying is not one. Attempts have been made in Brooklyn with the Brooklyn Museum’s “Go” event, in LA with The Hammer Museum’s Mohn award and in Chicago with the short-lived ArtLoop Open.

    We consulted on each of these events, but all of them eventually got cold-feet on the ArtPrize fundamentals of a public vote and decentralized, independently organized curation. Instead, they each opted for a centralized curation process and a hybrid juror/public vote model for their awards.

    John and AIM are both correct. The public vote and the lack of an insular top-down curation process were too disruptive for others to commit to. Exchanging control for mass participation in a crowd-sourced model isn’t for everyone, but it is precisely what excites and disturbs the art world.

  22. John Morris says:

    I’m not familiar with all the Brooklyn & Hammer Museum events. The Chicago Loop project was only open to Chicago area artists. Little surprise it fizzled. The other 2 projects hardly seem like things that go beyond the museums.

  23. John Morris says:

    “They each opted for a centralized curation process and a hybrid juror/public vote model for their awards.”

    Honestly, none of these projects seem like serious attempts to imitate Art Prize at all. I think the Loop project at least used public spaces.

    BTW- I think Art Prize should consider taking this concept to the next level with music, performance and fashion prizes.

  24. John Morris says:

    “In 2013, 31% of our 1524 Artists were from outside Michigan.”

    I think this demonstrates the limitations of geography on Grand Rapids. It is off the beaten track. My guess is that if Columbus had done this, it would have gained much more buzz.

    It’s pretty interesting that one of the most dynamic, inventive events in the Midwest popped up there and not somewhere else. Rick Devos obviously seemed to be the driver.

  25. Todd Herring says:

    I’m interested in the data that suggests 31% non-resident participation is low for an open-call event, and thus evidence of geographic inadequacy.

    Columbus would likely draw more from the east coast, but the speculation that it would translate to increased “buzz” is a curious presumption. Would you suggest that Burning Man would create more buzz if it benefited from trade route geography? Or, is it possible that the unlikely location actually drives the unique, unreplicated success?

  26. John Morris says:

    Burning man sort of has both things going for it- not that far from Silicon Valley/Tech/Hollywood energy & a unique, challenging location.

    Also very interesting that Art Prize isn’t overrun with Chicago area artists. This fits with the general view that Chicago also sees the region as fly-over country.

    I mean- artists as a whole are often an eager and desperate lot in terms of trying to get their foot in the door. Even with the significant prize money –Most “big city artists” consider the concept not worth their time.

  27. John Morris says:

    That said– If Detroit did something like this- the buzz could be huge. Detroit combines a big airport, good location & mental mind share as an “edgy” exciting place.

    One idea might be for Art Prize to become a floating event like the Olympics.

  28. Eric Fazzini says:

    It should be noted that they’re not moving to an urban office in GR. They’re going to be in a suburban office park just like Meijers and Steelcase. What advantage is that?

  29. Derek Rutherford says:

    Eric, you misunderstand Kellogg’s’ objective. They are not going to GR because GR has a great downtown (if that was critical, they probably would have gone to Chicago). They are going to GR to access its deeper talent pool, greater attractiveness for potential hires and presence of a relatively larger airport. All this while still being very low cost and within a 90 minute drive of HQ in Battle Creek. These are the components of “scale” that Aaron is talking about in his piece, of which Battle Creek is lacking, GR is on the bubble and Chicago has in spades.

  30. AIM says:

    “BTW- I think Art Prize should consider taking this concept to the next level with music, performance and fashion prizes.”

    It’s already there. They’ve had musical and performance entries since at least 2011.

  31. Eric Fazzini says:

    Derek, that’s why I said that it should just be noted.

    I have a friend from Germany who was interning at Meijer’s HQ in nearby Ada and decided to take a job in downtown Cincinnati with Kroger because he liked downtown GR, but wanted to be car free. Exact location matters to companies and employees. Isn’t Motorola moving from the suburbs to downtown Chicago?

  32. Derek Rutherford says:

    Eric, for someone who wants to live car-free, GR will never be a contender (I’m pleasantly surprised to hear your German friend was happy with Cincinnati in this regard). GR is selling a well run, convenient city with low costs and most (but not all) big city amenities. Downtown is only a small piece of the puzzle, as it is for practically all cities smaller than Chicago. If someone is absolutely set on being car-free in the big city, they have already left for Chicago or elsewhere. A short internship will not change anyone’s mind (and apparently didn’t in the case of your German friend)

    Let’s not get too down on GR – it is probably the healthiest city in MI and doing better than most cities of it’s size in the Midwest. It’s combination of traits works for many people and will likely serve Kellogg’s and its employees quite well.

  33. Eric Fazzini says:

    He was not completely car free in GR but it was an inconvenience going from downtown where he lived to Ada. Kroger’s HQ is downtown, along with their main marketing contractor Dunnhummby, as well as P&G, Fifth Third, PNC, and others. It’s more like Chicago when it comes to clustering of Fortune companies but it’s only slightly larger than GR.

    I’m not down on GR, I’m from there. I grew up across the street from Steelcase’s global HQ on 44th st, Meijers is in Ada, GM was in Wyoming, and Herman Miller is in Zeeland. I just think this whole employee move is being overblown. A company from a one horse town is moving some pieces around.

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