In 2003, the state of Michigan enacted a law starting the “Venture Michigan Fund.” This was a venture capital program where managers made investments backed by taxpayer funding. By all measures, it was a failure. It had no measurable effect on the economy; the 2004-2015 period saw Michigan lose more than 150,000 jobs, the worst performance among the 50 states. A 2018 Auditor General report found that it spent $450 million on 52 companies for 734 jobs — a dismal $613,000 per job “created.”

And yet the Michigan Legislature is trying to revive it. Why would they try to put in place a program that has been shown to be an abysmal failure?

One key reason: Concentrated benefits and diffuse costs. This is a concept in political science and economics that explains how government policy can lead to the overrepresentation of minor interests and the underrepresentation of majority interests. In sum, the costs of a policy are spread out among many people, while the benefits are concentrated on a smaller group. Because many people pay a small amount, they have little incentive to spend time and money lobbying against a policy, while the small group receiving enormous benefits has a strong incentive to lobby for it.

The attempted revival of the state’s failed state venture capital fund is a case study in how this works – and it helps explain why lawmakers regularly vote for bad public policy.

When the package for House Bills 5651-5653 came up for testimony in a legislative committee in June, the Mackinac Center for Public Policy was the only group to take a position opposing the bill.

Here’s the list of groups which testified or submitted a card in support:

• Alerje, Inc.
• aLlight Sciences
• Ann Arbor Spark
• Arcascope
• Ashling Partners
• Auricle, Inc.
• Automation Workz
• Bioscience Navigators
• BlueConduit
• Brightwater Tools
• Center Electric
• City of Detroit
• Clara Technologies
• Cogrounded
• CubeWorks
• Decimal Code
• Detroit Regional Chamber
• Eberg Capital
• Economic Development Leaders for Michigan
• Ecovia Renewables
• 86 Repairs
• Farmish
• Fifth Eye
• First Ignite
• Fusion Coolant Systems
• GreenMark Biomedical
• Grounded RVs
• HealthBar
• Housing North
• Iaso Therapeutics
• Invest Detroit
• iReprogram
• Kall Morris
• M3D
• Michigan Central
• Michigan Regional Council of Carpenters and Millwrights
• Middle Third
• MediCool Technologies
• MemryX
• Mercury Fund
• Michigan Black Business Alliance
• Michigan Venture Capital Association
• Michigan State University Research Foundation
• Michigan Translational Research & Commercialization
• Motion Grazer AI
• Motivation, Inc.
• Mountain Pass Solutions
• Movellus
• New Enterprise Forum
• NewHaptics
• NX Fuels
• On It Solutions
• 100k Ideas
• Opnr
• Pearl Edison
• PhotosynQ
• PlayBooked
• Poás Bioenergy
• Quantitative Collectors Group
• Red Cedar Ventures
• Refraction AI
• Ripple Science
• Spartan Innovations
• Student Achievement Systems
• Tandem
• Taza Aya
• Tech Stars
• TechTown Detroit
• The Patient Company
• TheraB Medical Products
• Ulendo Technologies
• University of Michigan
• Upkara
• Venture Catalysts
• Viewpoint
• Washtenaw County Commission
• Western Michigan University
• Western Michigan University Biosciences Research and Commercialization Center
• Workit Health

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