Recovery gives Midwest time to adjust for coming economic challenges

The Midwest is at last beginning to bounce back from the recession. Sales of its new cars, appliances, and homes are once again on the rise. But the recent economic hardship has been particularly sobering and unforgettable for many in the region, where unemployment remains well above the national average.

The lessons learned may prove especially valuable as the Midwest wrestles with more severe long-term economic problems: a declining industrial base and the loss of population, jobs, and federal aid.

The Great Lakes states alone have lost close to 2 million factory jobs over the last decade and rank near the bottom of the list in federal tax dollars returned to the region.

To compensate for deep cuts in federal aid, which have hit this region the hardest, and for tax revenue reduced by high unemployment, most Midwestern states have passed major tax increases in the last few months.

Michigan Gov. James J. Blanchard (D) championed a temporary 38 percent income tax hike to stave off what he says was imminent state bankruptcy. But disgruntled taxpayers responded two months ago with a Recall Blanchard Committee , headquartered in the Detroit suburb of Roseville.

''The governor's campaign platform was jobs, jobs, jobs, but there's been nothing but taxes, taxes, taxes,'' explains committee office manager Pat Mento. So far well over half of the 760,002 signatures required to put the issue on the ballot have been garnered.

''You have to take anything like this seriously, but it's not dictating our agenda,'' says Sue Carter, Governor Blanchard's press secretary. ''The governor inherited serious financial problems - he was left holding a wet paper bag.''

There is also a drive in Michigan to recall 12 of the Democratic legislators who approved the tax hike and an independent move for an amendment to roll taxes back to 1981 levels. In Ohio, a group called Stop Excessive Taxation is leading an initiative drive to repeal the tax increase there and require a three-fifths vote of both houses of the Legislature to approve any future increases.

Yet few political analysts think any of the recall efforts will succeed.

''They're a reflection of more participatory democracy, (but) I have the feeling that the recession has changed the political environment,'' says Kenneth Howard, executive director of the Advisory Commission on Intergovernmental Relations. ''People realize governments are having trouble and that there isn't any free lunch.''

Mr. Howard says that shift is also evident in labor's willingness to negotiate such work practices as the length of time spent on breaks. ''I think there's more of a realization that if there's going to be any salary increase, it has to be a reflection of increased productivity.''

''I think there's a growing appreciation on the part of union members that it isn't all gold out there right now,'' agrees David Merkowitz of the Northeast-Midwest Congressional Coalition. ''Industries are going to have to modernize and keep at it just to exist and remain competitive. They will probably be less labor-intensive. But better a modernized and more productive operation with a smaller labor force than no operation at all.''

There have been increasing signs in recent months that Midwest governors see more to be gained economically by banding together than standing alone. At a May meeting in Cleveland, Great Lakes states governors took the unprecedented step of agreeing to draft a code to regulate recruiting of out-of-state businesses within the region.

The idea was first proposed by Minnesota Gov. Rudy Perpich (D), whose state has long been the target of intensive business recruiting by neighboring South Dakota. Many other states have experienced similar ''raids.''

The ''no raid'' agreement was softened in Cleveland at the suggestion of Indiana Republican Gov. Robert Orr. In the end it amounted to a pledge to work together cooperatively to resolve economic issues.

But it was persistently referred to in media reports by the stronger ''no raid'' terminology, and in Indiana, taxpayers objected strongly to the pact. Governor Orr responded by writing Wisconsin Gov. Anthony S. Earl (D), council chairman, asking to bow out of the agreement. ''Competitive economic development among the Great Lakes states is impossible to control,'' he wrote. There were also objections to the agreement from Illinois.

But the Democratic governors of Minnesota, Wisconsin, Ohio, and Michigan remain committed to the agreement. According to a spokesman for Governor Earl, prior to the agreement Wisconsin had a recruiting contingent scheduled to go to Illinois. But later the state restricted the group's travels to companies that had branches in Wisconsin.

As an attempt to work cooperatively on a touchy economic problem, the Great Lakes agreement is unquestionably a first.

''Several regional groups have been formed to try to protect their areas from federal cuts, but they haven't tried a 'don't steal my business' approach,'' says Carol Weissert, a spokeswoman for the National Governors' Association.

''It's a novel, exciting idea,'' agrees the Congressional Coalition's David Merkowitz.

But Kenneth Howard says a national no-raid agreement would be more effective than one at the state level.

''I'm terribly suspicious of the effectiveness of government promotional efforts anyway,'' he says. ''I think there's been some giving of tax or interest rate subsidies (by states) to firms which would have come anyway and didn't need them. The major factors in industrial location are access to trained labor, transportation, and quality of life. But politically you almost have to offer (tax breaks and subsidies) - one government after another caves in to this kind of blackmail.''