A couple of weeks ago at the annual Michigan Tourism Outlook Conference we presented our forecast for the performance of Michigan’s tourism industry for 2003.  What we expect is not especially encouraging.  Travel activity, will likely inch ahead by a percent or two over last year, but tourists' spending is expected to continue to slide as it has over the last couple of years.  Spending is expected to decline by 2% but, when coupled with an expected modest 2-3% rise in operator costs, is likely to result in a profit decline in the order of 5%.  International events as they unfold over the next few weeks, especially in Iraq and North Korea, are likely to have the greatest bearing on whether our forecast proves to be on or off the mark.  As this column is being written, news reports indicate that the US forces are on the move on Iraq’s borders, so we may soon have information to better project the short-term impacts of a war in Iraq. 
 
At the conference this year, we deviated from our traditional short-term focus and began a discussion of long-term prospects for Michigan’s tourism industry.  Until recently, Michigan’s tourism industry has been growing at an average annual rate of 4-5% in volume terms and at a slightly faster 5-6% rate in terms of tourists' spending.  Nonetheless, Michigan holds a negative balance of trade in travel, which approaches $3 billion annually.  Closing a gap of this magnitude will not be a quick or simple undertaking.  Significant progress will depend to a considerable extent on the health of the overall Michigan and US economies.
 
The events of 9/11 have sparked changes that have had a profound impact on the U.S. economy and it’s future prospects.  This shift was captured well by Jeffery E. Garten in his commentary in the March 17, 2003 issue of Business Week magazine.  He noted that: “ America’s foreign policy and it’s economic policy [are] on a collision course… Financing foreign wars and boosting homeland security [are] bound to erode U.S. economic vitality.”  He goes on to state that the administration’s strategy to “…cut taxes and [expect that] the subsequent higher economic growth will create more than enough tax revenues” is controversial and a “reckless gamble.”  Garten’s point is not that we shouldn’t respond to the threats to U.S. security that have been imposed upon us, but rather that we should not forget the guns vs. butter lesson taught in Economics 101.  In a world where resources are scarce, what a nation invests in military ventures (i.e., guns) reduces what can be invested in domestic programs (i.e., butter.)  He warns that, “…we could have the politically paralyzing guns-or-butter debate that characterized the Vietnam era.”  He also warns that the fates of nations have historically been linked to an inability to finance extended military operations.
 
We can assume that the current disconnect between foreign and economic policy will be resolved and soon.  However, we will not escape many of the consequences of the guns vs. butter balancing act that will be taking place over the next several years.  What only a short time ago was projected to be a long-term federal government budget surplus has turned to a deficit for years to come.  This nation’s air transportation system is in shambles.  And, here in Michigan, balancing state and local government budgets will require painful reductions.  
 
If we can’t count on the return of robust economic times to return Michigan’s tourism industry to a state of healthy growth, which is needed to substantially reduce Michigan’s travel trade deficit, must we abandon reduction of the deficit as an economic policy goal?  We think not and would argue that it is more important now than ever before to vigorously attack our travel trade deficit.  We need the jobs, business profits, and tax revenues being lost to competing travel destinations to dampen the negative impacts of a need to sacrifice butter for guns in the interest of our nation’s national security.
 
Reducing Michigan’s travel trade deficit during the challenging economic environment that we are facing can be accomplished if we boost the return of what is invested in tourism and develop new sources of investment capital.  There is ample evidence that demand for travel will continue to grow even if the overall domestic economy continues to sputter along over the next few years.  The challenge then is to develop and implement a plan that will allow Michigan to best its competition in capturing a bigger share of a growing travel market.  The most promising core elements in such a plan are 1) to better align our tourism product offering with consumer demand and 2) to invest wisely in promoting it to the traveling public.