According to the Citizens Research Council of Michigan, at least 58 separate types of "economic development" entities or programs are currently operating in Michigan.[*] The scope of this activity is broad and includes grants; discriminatory tax breaks; direct and indirect subsidies; subsidized loans and loan guarantees; financing authorities; "enterprise zones" and "incubators"; job training programs; and more. Probably a majority of Michigan's 1,859 local governments participate to some degree, plus most or all state universities and community colleges.

In addition, there are literally hundreds of economic development boards, local and state authorities, councils and more (the CRC identified 277 such "special purpose units" back in 1998, and the number is certainly higher today). Their powers vary and may include taxing (or "capturing" taxes), borrowing, lending, spending or some combination of these. In every case, they include the power to grant special favors to a particular company, developer, industry or area.

Economic history, scholarly research and independent analyses of particular programs all point to the same conclusion: At best, such programs do nothing to grow the economy of a city, state, region or country, and in many if not most cases, they are actually counterproductive. In numerous posts, articles and studies Michael LaFaive has explained the reasons for this and documented the failure of specific programs like the Michigan Economic Growth Authority, which is considered this state's "flagship" economic development program.

If these programs don't work, why do lawmakers keep expanding them? I think there are three reasons.

First, there's a "seen and unseen" problem: It's easy to see a particular firm offering to invest and create jobs in one community if the government will only grant it some special favor not available to other firms. Harder to see are the negative effects of such activity on the rest of the economy, including the additional tax burdens carried by the non-favored firms.

Second, while all this activity does nothing for real economic development, it's a highly effective tool for political development. Doing the things necessary to foster real economic growth — cutting government spending, lowering taxes, reducing regulations and modernizing labor laws — are hard because they all make politically powerful special interests angry. Expanding economic development programs lets lawmakers pretend to be "doing something" to help the economy, regardless of whether they really are. Plus, every favor handed out to a particular interest in return for an investment generates opportunities for glowing press releases and ribbon-cutting ceremonies.

Finally, perhaps the most important reason is suggested by the multiplicity of state and local entities empowered to grant favors: political careerism. The primary goal of members of our current political class, including almost every one of Michigan's 148 legislators, is to remain on a government payroll for the rest of their working lives, and hopefully retire with a generous government pension and benefits. Prior to becoming a senator or representative, the vast majority of current legislators had been elected or appointed to some local government position, including in economic development entities.

When these members of the political class face a choice between serving the people or serving "the system," they'll almost always choose the latter, because that's how to attain their real goal: avoiding private sector employment with all its "hard" accountability for actual performance.

Expanding the economic development empire in this state represents opportunity to term-limited lawmakers. All the special favors may do nothing to expand jobs for the people, but the growing number of entities with the power to grant them creates hundreds of potential job opportunities for the political careerists who populate Michigan's term-limited legislature.

 

[*]The actual figure may be larger, because these programs have been rapidly proliferating in recent years, and new ones are being proposed every week: A MichiganVotes keyword search for the term "tax breaks" discovers 95 bills entered so far this year, and 126 with the word "subsidy;" most but not all of these propose new economic development programs or expansions of existing ones.