Gov. Jennifer Granholm’s plan to sell $2 billion in additional state debt to fund research in the name of economic development, leads to the question "Does every politician need their own personal Autoworld?" Autoworld is the now-defunct auto-themed amusement park built in Flint with government assistance during the 1980s.

More than 50 years of economic development history in Michigan should be enough to convince us that the economic development emperor has no clothes.

Watch the implosion of a government economic-development project

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 was the first modern governor to propose a state-level economic development agency. Sigler’s "Department of Economic Development" was designed to 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 meant to "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 the Michigan Job Development Authority. The development authority 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 "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 by signing a law in 1995 creating the Michigan Economic Growth Authority. Between 1995 and the end of 2004, however, Michigan ranked 50th among the states in percentage employment growth.

In January, residential moving company United Van Lines released data indicating that in 2004 Michigan was one of only 11 states in which at least 55 percent of moves were outbound. Ultimately, it is not a good sign that, despite the state’s economic development programs, Michigan’s outbound traffic reached its highest level since 1982, when it exceeded 60 percent. People are voting with their feet and they are not voting for Michigan; The Great Lakes State was the only state in 2004 to lose jobs, according to federal statistics released in March.

More than 50 years of economic development history in Michigan should be enough to convince us that the economic development emperor has no clothes. If these programs actually worked, Michigan would be fully diversified by now, or at least performing better than other states. Instead, the governor has developed yet another interventionist scheme that will prove to be no more successful than all those tried in the past six decades.

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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.

Summary

Gov. Granholm’s proposal that the state borrow $2 billion to invest in technological research is merely the latest example in a long and unsuccessful history of state-directed economic development efforts in Michigan.

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