Has the state's economy hit bottom yet, or will it decline further?

I think that we'll lose, still, some manufacturing jobs, but we will soon be at a point where we'll have net job gain. We just happen to have the largest footprint of automotive manufacturers. We have 700 percent more than the other states. So obviously when that sector's hit, we're hit harder than anybody else. The gross in other sectors has been at or above the national average, but we've been swallowed by the loss of almost 300,000 manufacturing jobs.

Granholm

So, when are we completely at the bottom? That depends on Ford and GM and Chrysler and how their turnaround plans go. And we're all certainly very hopeful that they're reaching an equilibrium. But it's not just them, of course, it's the suppliers to them. They continue to squeeze the suppliers, and we've seen more bankruptcies of suppliers in Michigan as a result of that squeeze. So I think there may be a little more shedding that will happen, but the economists are saying that by the end of 2008 we will have reached the bottom.

And if we've positioned ourselves right, which is exactly what we're in the process of trying to do, Michigan can be at the top again.

We need to recalibrate as a state where we're putting our money. I've got a 50-point agenda of cuts, reforms, and revenue. A lot of them relate to public employee benefits, making sure that we pool health care benefits to be able to make sure that we achieve the best cost for the taxpayer.

Everyone seems to agree that getting rid of the "hated" single business tax — and it seems "hated" had become a part of its official name — and replacing it with the Michigan Business Tax was a critical first step in overhauling the state's revenue structure. How significant an impact do you expect for that change to have on the state?

Last year, because of the uncertainty surrounding having eliminated the business tax and not replacing it with anything, there was a real slow down in investment in Michigan, which was exactly what we warned was going to happen. Businesses are pragmatic, and they are not going to make decisions when there's uncertainty.

So we've provided this certainty in a way that really drives both diversifying the economy as well as helping the businesses who are here. Manufacturers in Michigan see a 65 percent personal property tax cut because we really wanted to provide relief for those who are still here, who are getting so hammered in this global economy. And yet, we also wanted to diversify, so there are significant credits associated with research and development companies coming in and with those who are choosing to move into areas that we know we want to diversify into.

It's very exciting because it was a very big deal in this tough time to be able to get a revenue-neutral business tax. But it's revenue neutral in a way that is really beneficial to the businesses that are here, and the businesses who choose to locate here.

Speaking of diversification, what are you doing to prepare Michigan for an economy that's more knowledge-dependent and less manufacturing-dependent?

First, by upping the standards. We did it for K-8 three years ago; we did it last year for high school. We now have among the highest standards in the nation. We adopted a $4,000 scholarship for every single child in the state of Michigan, the Michigan Promise, through our tobacco settlement money. We have created high schools that are relevant to the economy, called "middle colleges." In partnership with the health care system, high schools have developed curriculum in a five-year capacity. A kid that enters 9th grade gets out in grade 13, but with an associate's degree, and is placed into a health care profession in the local hospital.

And then for adults, No Worker Left Behind is our way of restructuring the workforce training system so that it's responsive to employers. No Worker Left Behind is a one-time offer for all those who are unemployed or underemployed. We're going to take the first 100,000 in the door, with retooled federal workforce training money, so that we can place people in training that is relevant to the region where they live, to the employers in that region. We've canvassed employers in 25 local workforce areas, and we can see exactly what the vacancies are.

So we will pay for their tuition on a one-time basis for up to two years, but they've got to agree to take something that is relevant to the needs of employers. It's completely flipping workforce training on its head. We will pay for training only if it's responsive.

You've been quoted questioning the relevance of the big-government/small-government dichotomy to the contemporary political landscape. What relevance, if any, does that conversation have to Michigan's current situation?

I think that the paradigm has changed, and it's not about big government/small government.

Perhaps in the last century, this issue of being the cheapest place to do business and therefore having the smallest government was the way that you were able to attract job providers. But in this new world, nowhere in this country you will find the cheapest place to do business. It will always be China, Vietnam or some other country. So the question for us as the state of Michigan is, "What is it that is going to make us competitive?" If it's not going to be price, then perhaps it's going to be quality, and that means investing in your talent. If you have class sizes of 37, then you're going to be uncompetitive.

So the old stuff is really baggage from a pre-global era. What is going to make us competitive in this nation is our ability to invest in our talent. That means that you're going to have to pay for it.

© 2007, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc.