MEDC's Priority: Defend Its Budget

When faced with criticism, it's discredit first, read the critique second

The Michigan state agency in charge of government programs to attract and subsidize businesses, the Michigan Economic Development Corporation, runs a “Pure Michigan” ad campaign with annual spending of $33 million. The program has been criticized as a pure corporate welfare handout to the Michigan travel and leisure industry.

The MEDC's response has been to seek to refute the criticism, suggesting that its own budget, rather than an independent evaluation of its programs' effectiveness, is the key consideration of its officials.

As described by previous articles in this series, the MEDC has granted several no-bid contracts to a Canadian company called Longwoods International to produce papers claiming extraordinary returns from government spending on out-of-state tourism ads. (The 2014 campaign review claimed the program delivered a $6.87 return to state government for every tax dollar spent.)

The validity of these claims cannot be confirmed because the company’s methods and data are secret. While the agency and its hand-picked vendor strive to give the latter’s products a scientific veneer, the combination of implausible assertions and a lack of transparency creates a presumption that its reports are not valid economic research but mere pseudoscience.

This presumption is reinforced by Longwoods' business model. It has been paid by government agencies in at least eight other states to produce reports that make similar claims, for what the company once forthrightly characterized on its website as “budget justification” purposes.

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Challenge and Response

The spin-not-science presumption is also supported by the actions of agency officials described below, which resemble those of politicians, not stewards of taxpayer dollars seeking independent evidence for whether a program they manage provides any real value.

The Mackinac Center for Public Policy, Michigan’s free-market think tank, has published a number of empirical studies that provide evidence that the MEDC’s programs are not only unfair to most businesses but ineffective as well. Some of this ongoing research focuses on Pure Michigan and the dubious PR campaigns used to defend it.

In June 2015 the Mackinac Center released a preliminary finding from an upcoming study. It found that the accommodations industry saw a puny increase in economic activity as a result of the Pure Michigan campaign and that the net effect for Michigan as a whole was a large loss. This directly contradicted claims by the MEDC and Longwoods that the campaign provides an extraordinary return on the dollars spent. If the Mackinac Center study is correct, it completely undermines the rationale for continuing to spend taxpayer dollars on Pure Michigan.

What happened next provides a good illustration of why the public’s trust in government is so low.

Most people hope that if presented with evidence that a particular government program is spending millions of taxpayer dollars with no benefit, the officials in charge would want first and foremost to discover whether it’s true, and if so, shut the program down. Citizens and taxpayers would be dismayed to learn if instead, the officials’ first actions were to attack the messenger and seek to discredit the evidence.

Yet according to emails from the MEDC obtained in response to a Freedom of Information Act request, this is exactly what MEDC officials and vendors did within days of the May 29, 2015 release of the Mackinac Center finding.

The Emails

Lori Langone was an MEDC staffer whose job title at the time was "research specialist." She initiated an email thread with a June 2, 2015 note to Adam Sacks, with copies to several others. Sacks is the president of another hand-picked MEDC vendor hired in a no-bid process, a consulting company called Tourism Economics.

One section of this email was labeled “Advice from our public relations firm,” and outlined several recommended steps.

The first was, “Discredit findings and pitch.” At this point, the agency and its vendors had not yet even seen the full report from the Mackinac Center, just one of its findings.

The device also employed another popular political gimmick, offering a speculative counterfactual claim involving unemployment that cannot be either verified or falsified. Agents of the Michigan tourism industry have used the same trick in a somewhat more sly and sophisticated manner to defend their subsidies.

Most of the recommendations from the MEDC's unnamed public relations firm were to recycle earlier positive reports and claims made by Longwoods and by Sack's firm.

Elsewhere in this email, Langone thanked Sacks and another agency contractor for “providing the 3rd party validation that we need when the effectiveness and impact of our work is challenged.” Third-party validation is something the MEDC has sought before in its attempt to validate Longwoods' nontransparent methods and implausible claims (see “Pure Flummery: Seeing Double on Corporate Welfare Spin”).

The email chain continued with a response from Sacks. His first sentence labeled as “spurious” a Mackinac Center study he had not seen. Sacks then challenged details of the unseen study, not surprisingly getting several key items wrong. And along the way he made several curious assertions about the nature of economic research and statistical analysis.

In addition to all of this, one email had Vice President of Travel Michigan David Lorenz offering up a quote for use should anyone ask about Longwoods International and the Mackinac Center's criticism of it. “Now that I have met with and understand their techniques, I’m even more confident of the efficacy of the report and see the value in budgeting for it.” That says nothing except that the head of the bureau overseeing the campaign believes his bureaucracy's own self-promotion.

Curious Assertions

In support of his statement that the Mackinac Center's work is "spurious," Sacks offered the following: “It is simply not possible to estimate the impacts of an ongoing advertising campaign with a statistical (read: econometric) model. Controlling for other factors sounds intelligent but makes a major assumption — that the model could predict, with an extreme degree of accuracy, what would have happened in the absence of tourism marketing.”

This is a very odd thing to say, because using statistical methods to “control” for outside factors whose direct effects can’t be measured is at the heart of most economic research. In fairness to Sacks, he guessed wrong about the nature of the Mackinac Center research, which did not examine one particular ad campaign but looked instead at government tourism promotion spending in the 48 contiguous states. His claim would deserve scrutiny even if he had guessed right on this detail, however.

The statistical method at issue here is called “regression analysis.” When the author of a scholarly study says he “controlled for” the effects of a certain factor, this is almost always the tool that was used. Indeed, the Mackinac Center study described several peer-reviewed tourism marketing studies published in respected academic journals that use this very method.

It does not appear that Sacks has ever previously made the claim that it is impossible to estimate the effects of a promotional campaign with a statistical model, much less offered evidence to support it. These econometric and statistical tools are used extensively in economic and other social science research, although they are not used by Sacks’ company.

Conclusion

In assessing the MEDC’s actions, it’s worth considering how the managers of a for-profit business would respond to evidence that one of the firm’s divisions was wasting millions. Their first goal would be to discover whether this is true, and if it were confirmed, to change or close the division.

Similarly, the first response of a scholar whose work was questioned would be to discover the details, and if the questions were valid then re-examine his own work to find where he went wrong.

In neither case would the first response be to attack the messenger, let alone participate in schemes to “discredit” the findings of research sight unseen. Those are the actions of a politician, not someone whose primary interest is to seek the truth or provide value for shareholders.

The actions underscore the true nature of the MEDC and other government economic development agencies: They are not about economic development, but political development. They exist to help elected officials spin their own records on job creation and the economy, and collect chits from well-connected special interests.

MEDC’s actions here and more generally are perfectly consistent with this mission. The agency’s officials are not concerned with whether their programs do what they promise but only whether they are perceived to do so by the public — and by the legislative appropriations committees in charge of their budget.


Related Articles:

Study: Pure Michigan a Poor Investment

State Not Transparent with Effectiveness of Multi-Million-Dollar Program

Pure Flummery: Seeing Double on Corporate Welfare Spin

The State Claims ‘Pure Michigan’ is Worth Tens of Millions. It Isn’t.

Pure Michigan’s ‘Budget Justification’