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investing in the great lakes

Investing In The Great Lakes: The Upper-Midwest Economic Revival is Gaining

Editors’ Note: John C. Austin is director of the Michigan Economic Center in Ann Arbor and a nonresident senior fellow at the Brookings Institution (brookings.edu). He is also a nonresident senior fellow at the Chicago Council on Global Affairs and a former president of the Michigan State Board of Education. Austin’s work has appeared in the New York Times, Washington Post, The Economist, The Wall Street Journal, The Atlantic, the BBC, Voice of America, Financial Times, and other local, national, and international media. He is the author of, among many other articles, “Michigan’s Blue Economy: Making Michigan the World’s Freshwater and Freshwater Innovation Capital” (Michigan Economic Center, 2015).

Austin was interviewed in November 2023 by David M. Freedman, a business journalist since 1978 and a frequent contributor to Financial Poise.

Climate migration over the coming decades will be one of the greatest macroeconomic forces the world has ever seen, and it would be difficult to overestimate its economic and financial impact. Consequently, long-term investors would be wise to take the time to understand it. Financial Poise is pleased to present this exclusive interview about its already-accruing impact on the Great Lakes region of the United States.

Freedman: When I think about investing in a region, I’m looking for signs of economic revival, first of all. A few months ago, the Federal Reserve Bank of St. Louis said, “In recent decades, many Midwestern cities have struggled to retain population and improve economic prospects for their residents, while many cities in the South and West have experienced rapid population and income growth.” Do you see signs of a turnaround in the Great Lakes region?

Austin: We have lots of communities, large and small—including all the major metros from Minneapolis to Pittsburgh—that lost much of their industrial factory-town anchor employers 30 to 40 years ago and have been building something new to replace those opportunities. They’ve turned an economic corner.

Minneapolis-St. Paul, for example, was once the flour milling capital of the world, and now it’s a diverse medical and financial center with a shining, beautiful downtown. And Pittsburgh, after a total collapse of its steel industry, is now growing again. It’s attracting top talent in AI, computer science, robotics, and medical; it’s an innovation center for all the coming technologies that are ruling our world. It lost thousands of people when steel collapsed, and now it is attracting thousands of talented people back—it’s a beautiful location, too.

Freedman: And, of course, Ann Arbor is not only a college town but the headquarters of the Great Lakes Commission, which has autonomous authority over the management and protection of freshwater resources in the Basin.

Austin: A lot of the Great Lakes affinity organizations are based in Ann Arbor, for whatever reason. The Great Lakes office of the National Wildlife Federation and the Nature Conservancy for the region. Also, the League of Conservation Voters, which has been coming on as a political force in Michigan. Some Great Lakes research labs are here, too.

I can’t tell you how many people I meet who are retiring to Ann Arbor or some of the other very dynamic university town communities because there’s so much going on: arts, culture, restaurants, interesting places to live.

It’s a spotty transition regionally, because we still have many communities like Saginaw or Bay City that lost a lot of their industrial base and haven’t built back up with new opportunities yet. Some are still losing population, losing their young people. But I’m trying to encourage investments and accelerants to economic growth not only in the cities that have turned the corner but particularly in the small and medium-sized communities that haven’t turned the corner yet.

Detroit is the most extreme case of this trend. There’s a tremendous fascination globally with Detroit, a sort of phoenix from the ashes. It’s coming back, and people want to participate in it. I’ve taken a lot of visitors from Europe and elsewhere through Detroit, and it’s pretty mind-blowing. The city was basically a bunch of factories and machine shops surrounded by middle-class workers’ houses spread all over. When the industrial base declined, half of those single-family-house neighborhoods were abandoned, some of them are left burned out, and one or two are still standing with a tidy yard; that is spooky poverty.

Freedman: What is driving the economic turnaround in the Great Lakes region?

Austin: We have two things going for us that are economic drivers. One is the amazing innovation horsepower that we have in talent generation in our universities and colleges, of which we have dozens. We have the biggest, baddest axis of top-tier, globally competitive research universities and talent-generating institutions on earth. Twenty, and 22, if you count the Canadian side, that are ranked in the top 200 in the world – the Big 10 plus – and these are huge institutions that kick out more intellectual property and new technologies that produce more talent, from engineers to MBAs to educators to scientists, than any place on earth. And combine that with our companies and their R&D, no place can match the innovation horsepower to create the industries of tomorrow and drive the new tech-driven economy.

The second thing going for us is that we have this amazing quality of life, particularly as we’ve been cleaning up the mess we made during our dominance of the industrial era. We have lots of older manufacturing communities sprinkled along our Great Lakes and our rivers that did a lot of damage as they produced stuff. But now we’re cleaning up all those communities and the cities around the Great Lakes.

Freedman: Last July, I went on a bicycle trip up the eastern shore of Lake Michigan, around Holland and Grand Haven and Muskegon. I was amazed at how well they’ve cleaned up and upgraded those communities and are attracting tourists.

Austin: Muskegon used to be a timber town, then a chemical and factory town, where that harbor was toxic and polluted. They built a hotel there 50 years ago on the waterfront that didn’t have windows overlooking the water because it was such a mess up there. And now they’ve cleaned it all up, and it’s beautiful. There is so much coastline; there are restaurants and, hotels and bike trails.

Now, these lifestyle communities we have all around the Great Lakes, like Marquette and Traverse City and Duluth, are growing again, they’re outdoor lifestyle communities, but they’ve got universities, they’ve got much more in terms of culture and arts and outdoor living opportunities.

Freedman: Is the abundance of fresh water in the region a driver of economic growth and prosperity?

Austin: Milwaukee is a community that recognizes how much water matters to their economy, what I call the blue economy, which is a real opportunity around our region. But it was not just the traditional ways in which water matters: how we use it to grow things, make stuff in industry, ship things on the lakes, or pull fish out of it. It’s the smart water technology, too. Businesses and firms like Johnson Controls (NYSE:JCI) out of Milwaukee, which makes smart building technology, housing and office systems, and manufacturing systems that use less water and energy. This is the work of tomorrow, that is, to make everything work more sustainably.

Milwaukee said, “Hey, we’ve got a bunch of water tech firms. How do we help grow that cluster of companies that are solving world water problems? We’ve got a great location on Lake Michigan. We cleaned up the mess on the lakefront and our river, and now it’s a beautiful, attractive downtown and outdoor gathering place on Lake Michigan. Let’s grow our research institutions and water science and research solving water problems.” And that’s what they’ve set about doing.

Other institutions around the Great Lakes are doing similar things. The work to come is that the world needs sustainable food systems. They need smart medical technologies and products; they need smart water technologies; they need clean energy systems and solutions. And we’ve got institutions and companies in the vanguard of all those emerging, fast-growing global markets for solving global problems.

Freedman: Is the relatively stable climate also a driver of prosperity in the region?

Austin: That is a factor in quality of life. We are the only place on earth with a long-term, sustainable platform with available fresh water that we’re not going to run out of, that’s relatively climate-change advantaged. We’re not going to have the kinds of droughts and hurricanes that are destroying the ability to live in lots of geographies around the world.

Many people can now work and live anywhere in the world. Why not do your thing, if you’re wired, from a beautiful Great Lakes or Midwest city? Or an attractive, quaint small town, which we have a lot of.

So, the quality of life, which is a magnet for talent, combines with the innovation horsepower that drives new businesses and job creation, to drive this economic turnaround.

Freedman: Is it important for urban revival to have enlightened immigration policies?

Austin: We can benefit from more immigrants because it’s a huge driver of entrepreneurial growth and population regrowth for those cities that have lost population. We have an opportunity to signal that we welcome migrants, whether they’re climate migrants from elsewhere in North America or immigrants fleeing violent or economically depressed countries.

The Office of Global Michigan, Global Detroit, and the International Center of Flint, for example, recently put together programs to welcome more immigrants to drive southeast Michigan’s rebirth, particularly in communities hardest hit by dramatic declines in employment in their traditional auto industries. Immigrants have been the only source of population growth in Michigan and hardest-hit communities like Flint and Detroit, over the past decade.

You’ll see on Global Detroit’s website: “Research shows that when communities welcome immigrants, they create strong neighborhoods, a productive workforce, and successful businesses.” And by the way, according to the U.S. Census, four out of ten immigrants in Michigan have a bachelor’s degree or higher.

Freedman: Let’s talk about how we all can participate in this turnaround economy. Where can investors find good opportunities in the Great Lakes region today?

Austin: Venture funding hasn’t caught up with the innovation that is pouring out of our universities and companies. So, there are many opportunities, including young venture capital firms and fairly new tech hubs that are partially funded by the states, looking for private growth capital.

We do have one of the nation’s big venture capital firms here in Ann Arbor, Arboretum Ventures (arboretumvc.com). Arboretum focuses on medical devices, life sciences, and tech-enabled health care, with a lot of it coming out of the University of Michigan. You want to see Jan Garfinkle, the cofounder of Arboretum.

You want to talk to Dug Song, founder of Duo Security (duo.com), the cybersecurity firm that he sold to Cisco for $2.3 billion in 2018. He’s still in Ann Arbor, and now he is a board member of the U.S. Economic Development Administration (eda.gov). Duo minted about 20 new tech millionaires in Ann Arbor who are working on new stuff here.

You want to go to Cleveland and see Baiju Shah, president and CEO of Greater Cleveland Partnership (greatercle.com), which is the largest metropolitan chamber of commerce in the nation. Baiju was an entrepreneur in the biotech industry, and he can steer you to investment opportunities in the region, including innovations coming out of Case Western Reserve University and Cleveland Clinic.

The folks behind Drive Capital (drivecapital.com) left Silicon Valley in 2012 to start a VC firm in Columbus, Ohio, which just had its first IPO last year with Root, in the auto insurance industry. Drive invests mainly in fintech, AI, edtech, health care, cybersecurity, and robotics, some of it emerging out of Ohio State University.

Microsoft president Brad Smith is from near Green Bay. He helped raise $25 million to start Titletown Tech (titletowntech.com), a venture capital firm which is a local innovation catalyst organization, and Microsoft is partnering with the Green Bay Packers to seed early-stage startups in the area. Their investment verticals are sports and entertainment, digital health, agriculture, water and environment, manufacturing and construction, supply chain and logistics, and cross-industry technology.

If you want to invest in Pittsburgh or southwestern Pennsylvania, look up Innovation Works (innovationworks.org), which is a member of Ben Franklin Technology Partners. Their portfolio includes life sciences and robotics, with amazing technologies pouring out of Carnegie Mellon and the University of Pittsburgh.

There are other good “sherpas” now in many Midwest metro regions who can guide outside investors on where to find promising technologies and new startups in which to invest and make a lot of money.

Freedman: For someone who wants to invest in water tech, isn’t the Great Lakes region the center of the universe?

Austin: Milwaukee has emerged as a leading center of innovation in the freshwater sector, as I mentioned. The Water Council (thewatercouncil.com) is a nonprofit in Milwaukee with a post-accelerator helping to develop later-stage companies in the water tech industry. Their mission is to promote more sustainable use of water worldwide.

One of the organizers of the Water Council, and a great example of the coming work in smart-water technologies tech work, is a public company, Badger Meter (NYSE:BMI), which makes water monitoring systems for municipalities, utilities, and industry worldwide. Leaky faucets will cost you now. The best way to reduce waste is to make it more expensive to waste water.

There is a growing financial market around water risk. For example, if you’re going to locate a new facility, what’s the risk that you’re going to run out of water in that area? Peter Adriaens, Ph.D., at the University of Michigan, is pioneering this field; his startup is Equarius Risk Analytics (equariusrisk.com).

Freedman: You mentioned state funding for tech hubs.

Austin: Illinois started a Growth and Innovation Fund in 2015 (ilgif.com). Indiana started its Next Level Indiana Fund in 2017 (nextlevelindianafund.com). Those can be catalysts for growing the innovation early-stage capital ecosystem. With government seed funding, investment vehicles have a greater ability to attract private capital.

At the national level, as a result of the CHIPS and Science Act of 2022, the government will direct $280 billion over the next 10 years to tech hubs around the country relating to semiconductors, quantum computing, AI, clean energy, nanotechnology, STEM education, and innovations that boost U.S. competitiveness and national security. The CHIPS and Science Act stimulated a lot of development and investment activity by public companies:1 Primary source https://en.wikipedia.org/wiki/CHIPS_and_Science_Act.

  • In 2021, Global Foundries Inc. (Nasdaq:GFS), with headquarters in Malta, NY, announced plans to build a new $1 billion semiconductor fabrication plant in Upstate New York.
  • In 2022, Intel (Nasdaq:INTC) announced an initial $20 billion investment in eight fabrication plants in Ohio, which will generate 3,000 jobs, with plans to grow to a $100 billion investment.
  • In 2022, SkyWater Technology (NYSE:SKYT), based in Minnesota, announced plans to build an advanced $1.8 billion semiconductor manufacturing facility with the government of Indiana and Purdue University to pursue CHIPS funding. And Purdue launched the nation’s first comprehensive semiconductor degrees program in anticipation of the CHIPS Act.
  • After the CHIPS Act passed in 2022, Micron Technology Inc. (Nasdaq:MU), headquartered in Idaho, announced it will invest $20 billion in a new chip factory in Clay, New York, to take advantage of the CHIP subsidies, and said it could expand its investments to $100 billion over 20 years. The state of New York granted the company $5.5 billion in tax credit as an incentive to move there, if it meets employment promises.
  • In June 2023, the French company Mersen (us), a subsidiary of Le Carbone Lorraine, announced it will spend $81 million on an expansion project in Bay City and Greenville, Michigan, banking on Michigan’s implementation of the CHIPS and Science Act.

In the Great Lakes states, here are the tech hubs that Congress will consider for that CHIPS funding. This information comes from the U.S. Economic Development Administration, a bureau of the Department of Commerce:

Freedman: John, I want to ask you also about investing in farmland in the Great Lakes Basin, but we’ll have to cover that in another article, soon. This has been quite enlightening, and I thank you for taking the time to talk with me, and for digging up all this information.

Austin: OK, thanks, Dave.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

  1. Earning Green By Investing Green
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About David M. Freedman

Dave Freedman has worked as a journalist since 1978, primarily in the fields of law and finance. He is a co-author of Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms (Wiley & Sons, 2015). He currently analyzes turnaround stocks for DailyDac.com. Dave has also written extensively…

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