After hearing of Gov. Jennifer Granholm’s plan to sell $2 billion in additional state debt to fund technological research in the name of economic development, I couldn’t help but ask, "Does every politician need his or her own personal Autoworld?" Autoworld is the now-defunct auto-themed amusement park built in Flint with government assistance during the 1980s.
Michigan is by no means the only state that grants tax credits, abatements and other incentives ostensibly for the purpose of creating jobs. According to political scientist Kenneth Thomas of the University of Missouri-St. Louis, as well as economists Peter Fisher and Alan Peters of the University of Iowa, the estimated value of state and local economic development incentives in the United States exceeds $48 billion annually.
In Gov. Granholm's 2005 State of the State speech, the governor proposed a "21st Century Jobs Initiative" that would allow bureaucrats to invest state bond revenue in university research or in corporate enterprises that might ultimately stimulate employment. The governor expects that the new spending would help diversify Michigan’s economy.
But economic diversification has long been the flag under which Michigan governors have rallied in campaigning for their own interventionist policies. In 1947, Gov. Kim Sigler, a Republican, was the first of the state's modern governors to propose a state-level economic development department. Sigler’s "Department of Economic Development" was designed primarily to collect and disseminate information in the hope that the program could encourage "growth and diversification of agriculture, industry and commerce in Michigan."
In 1963, Gov. George Romney would attempt to diversify the state’s industrial base with his own economic development program. He created the Department of Economic Expansion, which was charged with "carrying out an economic expansion program for the state" meant to "aid the creation of new job opportunities, encourage the expansion, development and diversification of industry, commerce and agriculture, and the bringing of new industry to this state."
Gov. William Milliken would pick up where Romney left off. In 1975, Milliken signed into law Public Act 301, which created the Michigan Job Development Authority. The act specifically noted, "There is a statewide pressing need for programs to alleviate and prevent conditions of unemployment." Located in the then-Michigan Department of Commerce, the development authority created under this new law enabled the state to raise money for private, for-profit businesses through the sale of industrial revenue bonds. The law reflected popular concerns of the 1970s by emphasizing wise energy use and environmental protection.
The law’s basic themes, however, were the same as those championed by Sigler and Romney. Under Milliken, the authority sought to "preserve existing jobs and create new jobs," as well as "diversify the Michigan economy" for the "public purpose of alleviating and preventing unemployment by the retention, promotion and development of industrial buildings. ..."
Despite Milliken’s efforts to get the economy going, Michigan’s unemployment rate was at 15 percent when James Blanchard was elected governor in 1982. Gov. Blanchard therefore put in place his own interventionist plans to get the economy moving. His most notable program was the Michigan Strategic Fund, created in 1984.
The fund consolidated the functions of the two previous gubernatorial efforts and was likewise "designed to aid new and expanding businesses." This end would be achieved through "loan guarantees, bond guarantees and loans to expand public works to serve business expansion."
Gov. John Engler eschewed such economic central planning early in his tenure, but then entered the fray with perhaps as much energy as his predecessors. He consolidated economic development programs into one agency and then began creating entirely new policies and programs. In 2000, Site Selection magazine gave Michigan an award for its alleged successes. Doug Rothwell, the state’s chief job czar at the time, touted the achievement: "The award is a great reminder of how far we’ve come. We’ve hit elite status among states. It is proof positive that Michigan’s stable economy isn’t a fluke."
Rothwell segued from this statement to one about "technology companies and Internet races [that] are responsible for a flourishing economy that’s here to stay." He cited as evidence Traverse City’s All Outdoors Inc. Ironically, All Outdoors went out of business the following year.
More than 50 years of economic development history in Michigan should be enough to convince us that the emperor has no clothes. If these programs actually worked, we’d be fully diversified by now. Instead, we continue to lose the race for jobs while politicians concoct new economic chimeras. Indeed, since December 1995, when the state most recently boosted its development efforts, Michigan ranks 50th among the states in percentage employment growth.
Lansing bureaucrats suffer from what Nobel Memorial Prize-winner F.A. Hayek called "the fatal conceit." This is the notion that economic central planners can survey a complex economy, grasp it in all its nuance and detail and then improve it in a way that produces a better result than if they had just left everything alone. History and evidence suggest that this new spending program being promoted by Gov. Granholm, however bold it may be, will fall far short of achieving its intended purposes.
Rather than relying on the tired programs of the past, today’s state leaders should consider a tack that follows a simple but proven prescription: protecting economic liberty. Cut taxes across-the-board, pass a "right-to-work" statute and roll back onerous regulations.
After six decades of interventionist schemes promising to diversify the economy and create jobs, it is time for politicians to admit the truth: These efforts don’t work. If they did, there wouldn’t be a chronic need to add yet another program to Michigan’s dubious state economic development history.
Michael D. LaFaive is director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.