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Embracing Intangibility: The Key To The New Global Economy7 December 2005
A frequent argument that I hear about the gaming industry suggests that the industry is "nonproductive," with a related implication that the industry tends to take more from the community than it gives. This myth, or stereotype, is based on the mistaken and outdated concept that economies only work when some tangible "thing" is being produced. Something that can be touched. Something that is apparent.
Under this line of thinking, the only time a local economy can flourish is when the manufacturing sector is strong. An old and familiar expression in the Midwest has been "if its good for GM, its good for the nation." The notion has always been that the key to our nation's economy is for the manufacturing sector to be producing a lot of tangible items. The more tangible and the more elaborate, the more expensive.
However, the realities of the world economy in this 21st century illustrate that this concept is truly outdated. As General Motors and Ford have struggled recently, the nation's economy has thrived. Many of my colleagues in the Midwest have been left scratching their heads and wondering how this could be.
Reality is, as a result of a variety of factors, our economy has changed. The easiest way to look at this is to examine your own family's spending. Where does the money go? How much of it is really spent on tangible items? How much of the money spent on tangible items is really spent on the intangible components? In terms of discretionary spending, is it going to buy things, or is it going to pay for the intangible enhancements to our lives brought about by the new economy?
This year's hottest gift item is the IPOD or some other form of MP3 player. These consumer electronic items are very low priced given what they are. In fact, these days, most electronic items have become so inexpensive that it no longer makes sense to spend money to repair them. The labor charges alone will normally exceed the cost of a brand new item.
But what makes these items so valuable from an economic standpoint is not the metal, plastic and glass they are made of. It is not the tangible manufacturing components. Instead, the intangible aspects of these products are what is in such high demand. With ITUNEs software (which comes with the IPOD) the consumer can buy a new song for 99 cents. The song doesn't come shipped in packaging, and other tangible coverings. Instead, it simply is transferred over the Internet from one computer to another.
Increasingly, much of the money people in our economy are spending is for intangible items, or intangible aspects of tangible items. For example, when someone buys a movie DVD, it isn't because they are interested in buying a round piece of plastic. They are buying it because they want to see the movie. In local economies, families are spending more and more on services, primarily food preparation, resulting in a huge growth in the restaurant sector of our economy.
People in the United States are also spending more than ever on entertainment. Travel has become common, and the number of hotels in our country has grown exponentially. In the State of Michigan, the number of golf courses that have been developed is staggering. All of these experiences are entertainment type experiences that the people in our society have come to enjoy and want to spend their money on.
Many of our leaders continue to talk about the need to embrace technology as a way to diversify the economy and look to the future. A lot of time is spent focusing on which technology companies can be attracted to a particular region. Not enough time is spent on understanding what needs to happen in order to "embrace" these new businesses. Often our leaders focus on how to get the manufacturing aspect of the business to "build a plant" or "create some jobs." This is akin to looking at a DVD and thinking that the value of the product lies in the plastic circle. The true value is in the ideas, the movie, the entertainment aspects.
In the meantime, our colleges and universities educate the best and brightest people teaching them how to create and develop intangible, yet valuable ideas and concepts, only to have these young progressive minds move to other parts of the country where such talents are embraced and rewarded and create jobs. We need to find ways to stop this trend, and to encourage our young talent to stay at home and develop their ideas right here.
Probably the best example of this is the company Google. Larry Page was Google's founding CEO. He is the son of Michigan State University computer science professor Dr. Carl Victor Page. Larry Page was an honors graduate from the University of Michigan, where, during his time in Ann Arbor, he earned a bachelor of science degree in engineering, with a concentration on computer engineering. Yet, Google was founded in and is headquartered in California. Google employs over 4,000 people worldwide. How did we let such a great mind and great opportunity for this region slip away?
The casino gaming industry is another example. Too often, our leaders treat the industry like it is something they are embarrassed that our state offers, rather than recognizing that over 80 percent of the people in this country view gambling as a socially acceptable form of entertainment and frankly would be more interested in our region if we proudly trumpeted the entertainment value these casinos bring to our communities.
The key to the future of Midwestern industrial states like Michigan is to ask the tough questions about what needs to be done to embrace our new economy. Entertainment facilities, such as casinos, are a key part of this. If this region is to succeed, it must find ways to keep local talent here and find ways to allow intangible ideas and concepts to be valued by our leadership. It is the intangibles that now drive our economy. Success for the future lies in realizing the rules have changed and learning how to play by the new rules.