Does Economic Development Work II

Good series of articles in the Free Press on the state’s 21st Century Jobs fund. Worth reading. The lead article by Katherine Yung is titiled Bold Experiment Produces Few Jobs. Which raises again the question “is this kind of economic development effective?”  We are skeptical.

The fund was to be Michigan’s latest big effort to diversify the economy. A billion dollars over ten years. It was to jump start new enterprises and investment in four so called industries of the future: advanced manufacturing, alternative energy, life sciences and homeland security and defense. Four years in and the state claims its investments have created a little over 1,000 jobs. Egads!

My guess is the disappointing results are not a matter of incompetence. That Michigan state government is less able to run this kind of program than other states. Or that the Granholm Administration is worse at this than the previous three administrations – all of whom tried something similar. Almost for sure neither is the case. It’s that the assumptions behind the program – which is replicated in some form in just about every state– are wrong.

First, there is a widespread belief that companies commercializing new technologies are the main generators of jobs growth. Not true. Most of the job growth in America the last decade have come from health care and education, not high tech.  Beyond that states assume they can identify future growth industries and in those industries pick the right technologies and then the right companies that will be the winners in commercializing those technologies. There is no evidence they are good at any of the three. And even if states were good at this, they never have enough money to make a difference at scale.

So if picking industries is not the way to grow the Michigan economy, what is? As I wrote in a previous blogIts time to, at least, think about a new strategy. … The better option may well be to focus on human capital development. That the most prosperous places in the future will be those where talent concentrates. That means making the foundation of your economic growth strategy preparing, retaining and attracting talent.

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