Eliminate the Michigan Economic Development Corp.

Ending the MEDC and its programs would conceivably save tens of millions of dollars annually to help balance the budget, stave off tax hikes or even reduce tax burdens. For example, the state Senate has approved $26.3 million in general-fund dollars for the MEDC in fiscal 2010 alone.[205] Other resources, such as the expected $30 million from Indian gaming revenues,[206] or the $75 million suggested by the governor for the 21st Century Jobs Fund,[207] could be redirected to the general fund.

Eliminating the MEDC would also end dozens of development programs that have probably transferred wealth from more productive to less productive uses. The resulting economic gain would be further boosted by a reduction in the amount of economically counterproductive rent-seeking activities by Michigan businesses and public officials.

Perhaps the greatest advantage, though perhaps the hardest to quantify, would be an opportunity for policymakers to refocus on the fundamentals. Recall the words of Peters and Fisher, cited earlier:

"We need to begin by lowering [policymakers'] expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself."[208]

And remember the discussion by Mintrom and Ramsey:

"[S]tate politicians use business incentives primarily to signal their commitment to supporting business in their states and, thus, to signal to the electorate that they are committed to job creation. Such policy signals would be sincere if they were reinforced by credible commitments to establishing or maintaining other policy settings that support a healthy business climate in the state. But securing systemic changes that would improve the business climate is typically extremely difficult, because of the range of political considerations involved, and the uncertainty this raises for securing desired outcomes. Meanwhile, policy signals such as direct financial incentives for business can be readily introduced."[209]

Taking steps to "support a healthy business climate" and "providing the foundations for growth" will indeed be politically challenging. There will no doubt be disagreement over exactly which policies should be pursued to achieve these goals.[*] Regardless, it will significantly advance the process of reform if policymakers can agree that targeted economic development programs are not the way to improve the state's economy.

The result will be more uniform taxes for all businesses, with no firm able to gain a cost advantage over its competitors simply by appearing more attractive to economic development officials who grant subsidies and tax credits. Such a "fair field and no favors" approach would mean that the most economically productive businesses would be the most likely to survive and expand. It would also provide a more just business climate.

[*] Research in this paper and elsewhere suggests that at least part of achieving a better economic climate must include regulatory and tax reform. For example, in 2008 and 2009, the Mackinac Center for Public Policy published two short documents detailing a Michigan-specific study of migration authored by Mackinac Center scholars Michael LaFaive and Michael Hicks. Their statistical model found that for every 10 percent increase in the state and local per-capita tax burden, an additional 4,700 citizens leave the state each year thereafter. The report also concluded that people were more attracted to states with more flexible labor climates (and better weather too). See Michael LaFaive and Michael Hicks, "Point of Departure," Mackinac Center for Public Policy, http://www.mackinac.org/article.aspx?ID=10097 (accessed August 27, 2009).

[205] "Senate Substitute for Senate Bill 245."

[206] Pratt and Tyszkiewicz, "Tribal Gaming Issues in Michigan."

[207] "Detailed Decision Document: Governor, Senate, House, and Conference — Michigan Strategic Fund."

[208] Peters and Fisher, "The Failures of Economic Development Incentives," 35-36.

[209] Mintrom and Ramsey, "State Policy Signaling and Firm-Level Employment Decisions," 3.