We are likely to hear in the coming weeks that restoring the Michigan Economic Development Corporation (MEDC) to its pre Granholm incarnation is a key to the state’s economic turnaround. Don’t believe it! In the 30 months prior to Granholm’s election – when the MEDC supposedly was one of the nation’s best economic development agencies – the state lost more than 200,000 jobs.
That’s right, the state’s lost decade started years before the election of Governor Granholm. And how the state organized and delivered its economic development programming in the Granholm years had almost nothing to do with the decline.
This is one area where we are in basic agreement with the Mackinac Center. They too believe that providing special incentives to nurture, retain and attract business investment yields little. In an interesting column the Center points out that Michigan is regularly cited as “leading the nation in business expansions” at the same time that our economy lags the nation.
The Kalamazoo Gazette did a terrific story on the MEDC and local incentives that have been given to the life sciences company MPI Research. The commitment was for 3,300 new jobs. So far, the company has shed jobs. Market forces – not state and local incentives – determine whether a company add jobs or not.
Our lost decade overwhelmingly was caused by the collapse of our dominant industry – the Detroit Three. And, more broadly, on our lagging the nation in the transition away from a factory-based economy to one that is knowledge-based. Our prosperity in the past century was anchored by high paid, largely low education jobs, an economy that no longer exists.
So to reposition Michigan for economic success in a flattening world requires that we focus on the fundamentals. We can debate whether that means lower business taxes and less regulation or more investments in education and quality of place. Our guess is that it is some combination of all. But those are the public policy levers that matter most. Getting our economic development programming right is at best the icing on the cake. Fix that and ignore the fundamentals and we will continue to lag the nation.
This Post Has 4 Comments
Lou – I usually support your reports and viewpoint but have to question you on this one.
There are certain areas where Michigan clearly has a strategic advantage and I see no reason why we should not try at least to a limited degree to help these become even more successful. Capitalize on Michigan’s natural strengths….so to speak. One that comes to mind is the auto industry and battery technology. EV’s powered by batteries will be a big part of our future as we recognize the limits to fossil fuel availability. Advanced manufacturing is another strategic area. We are surrounded by water and that is a strategic business opportunity for Michigan. Renewable energy is important given forthcoming energy security issues. For example, there is an opportunity to take advantage of our huge offshore wind natural resource in Michigan too. The Chinese are assisting businesses in key strategic industries such as advanced manufacturing, renewable energy, etc. and will continue to eat our lunch as they become market leaders in these areas. This type of economic development support is working well for them.
Energy security is going to be a huge issue going forward and every state should have a focus on how they are going to handle this. After all, energy is what really powers our economy….not money which has no intrinsic value and can be printed or created with the stroke of a pen. And, we need to begin investing some of our depleting fossil fuel resources (think fossil fuel energy bank account) in creating new renewable energy facilities that will supply an annuity stream of energy for our economy into the future.
Also, markets often do not price in all of the costs which can lead to us in the wrong direction. We need to encourage “full cost accounting” which will help the markets function better.
As a business owner, I understand how important it is to have competitive business taxes and business friendly regulations. However, we cannot just assume that if we have low business taxes and business friendly regulations, new businesses will beat a path to our door. There are lots of other places they can go too. Yes, this is helpful but should not be our only strategy.
Jim, Thanks for the thoughtful response. You have laid out well the case for providing special incentives for industries where we have a possible competitive edge. This assumes that state’s are good at figuring out where we really have a competitive edge. But assuming we can then the central question is whether those incentives are more effective in growing the economy than other options. You can’t do everything. The state, when the battery credit fully kicks in, will be spending more in project based tax incentives that the MBT surcharge. More than a half billion per year. Is the state better of eliminating the surcharge or keeping those incentives? A second trade off question might be are we better of with spending something like $125 million per year on film projects while we zero out state support for the arts or zeroing out the film subsidies and supporting the arts? Not to mention the broader issue that these and other tax cuts enacted over the last decade or so have led to big cuts in higher ed and support for local government. If nothing else we need a process where granting the tax incentives is explicitly weighed along with these and other options. My guess is if policy makers were forced to make these choices the incentives would be much smaller and long term the state’s economy would be stronger. Lou
Lou – good comments, as always. You are right, we can’t afford to do everything. We have to be very careful in identifying and choosing areas where the state has a competitive edge. While, admittedly, it is difficult to “pick winners and losers” I can say we do that all of the time in business and carefully making key strategic bets has helped us to remain successful. I am certainly with you on the importance of education but we must slim down local government, especially given the huge number governmental units in this state. I am not close enough to the film industry to answer if that one makes sense as a “natural competitive industry” for Michigan….but my gut feel is that it is not. Your point on policy makers being forced to make choices is a good one and we do that all of the time in our annual capital budgeting process where we put everything on the table for discussion. This is a very healthy process to look at the opportunity costs. I am not opposed to your points about the MEDC but think it needs to be tempered a bit to allow at least some carefully thought out strategic bets on industries where our state has natural advantages.
i agree. this isn’t all or nothing. but much more cautious and strategic about when we use incentives.
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