If those newly elected members of Congress who want to cut back or abolish the federal Department of Commerce need evidence to support their view, they should look no further than Michigan. Our state's recent experience proves that fewer subsidies to business and economic growth can indeed go hand in hand.
The federal Department of Commerce manages a lengthy list of programs and activities designed to promote American business. It throws money at schemes to increase exports. It entices politically favored technologies with awards and grants. It will spend $4.2 billion this year, a whopping 28 percent more than it did just two years ago. It is a sacred cow to many big businesses, who collect the lion's share of the subsidies the department doles out in various forms every year.
As the new congress explores ways to reduce the burden of government on the average American, this corner of federal spending should be high on the list. Senate Budget Committee Chairman Pete Domenici told NBC's "Meet the Press" in December, "Frankly, I don't know why Commerce couldn't be dramatically reduced." Big businesses are allying themselves with the Clinton administration to stave off reductions in their subsidies, arguing that without them, the nation's economic growth would suffer.
Michigan had its own Commerce Department Christmas tree of goodies for business by the time John M. Engler was elected Governor in 1990. State auditors in 1988 had put a magnifying glass to the Michigan Department of Commerce and found that the department's "efficiency evaluations generally addressed only the number of activities performed, without consideration of cost." Reports to the Legislature by department officials routinely addressed only the "quantity of activities," not their effectiveness. Many of the jobs the department's schemes were supposed to create, the auditors found, either never materialized or would have been created whether or not the companies had been given state money.
A long-time skeptic of government-directed economic development schemes, Governor Engler chopped the Michigan Department of Commerce's general fund budget by 47 percent in his first six months in office. He reduced or eliminated scores of programs and subsidies that were little more than thinly disguised boondoggles for the benefit of special business interests. Figures obtained by the Mackinac Center for Public Policy show that through the end of 1995, the cumulative savings from those cuts in 1991 will approach $400 million.
Among the hardest-hit were specialized services provided by state government to businesses in such areas as technology deployment, workforce development, and market analysis. Contractual services for "economic development promotion" in the print and broadcast media were drastically cut. One scheme the Governor axed was the utterly preposterous "Growth Margin" program, which was started late in the Blanchard administration . It was designed to subsidize rapidly-growing firms in Michigan with below-cost consulting services so they could better manage their growth
At a time when most other states were increasing their assistance for business, Michigan went from being one of the most activist industrial policy practitioners to one of the least. No more handouts for white elephants like Flint's now-defunct AutoWorld or the failed Vixen Motors company in Pontiac. Governor Engler repeatedly declared it was unwise for government to "try to pick winners and losers" with taxpayer money. Making the overall business climate friendlier and less burdensome to all businesses would be a more fruitful policy, he argued.
Four years of spending restraint have left Michigan's general fund budget smaller, in real terms, than when Governor Engler took office. The Michigan economy has benefited from a net tax reduction of more than $1 billion in the last two years alone. Replacing much of the old activist, subsidy approach with "a fairer field and fewer favors" did not result in economic stagnation. In fact, Michigan began generating new jobs and businesses at a breakneck pace, producing an average unemployment rate in 1994 that was below the nation's for the first time since 1966.
Keeping the demands for special-interest subsidies at bay is a never-ending challenge. In recent months, even the Engler administration has shown signs of buckling under the pressure in spite of robust economic expansion. Still, the Governor's assessment of 1994 in light of his first- term economic strategy ought to be ample encouragement to the Commerce Department budget cutters in Washington: "For the first time in almost 30 years, Michigan's economy outperformed the nation across the board. Whether you look at jobs, income, or economic growth, Michigan is turbocharging the national economy. . . . Our representatives in Washington should follow Michigan's example by cutting taxes, limiting government, [and] balancing the budget."
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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