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Michigan Governor’s Cup Rankings and State Economic Growth

Michigan: "A+" for Public Relations, "F" for Economic Growth

In the face of their failure to reverse an economic decline that's been underway for an entire decade, Michigan politicians are perennially desperate for ways to show they're "doing something" to fix the problem. The approach they've mainly adopted is a massive expansion of discriminatory tax breaks and subsidies for particular firms selected by state bureaucrats or political appointees. Perhaps the most public face for this strategy is provided in the "Upper Hand" advertisements from the Michigan Economic Development Corp., featuring actor Jeff Daniels.

The failure of such programs has created another political need, which is a way to demonstrate that this approach really isn't a massive waste of time and money.

Enter the annual Governor's Cup ranking by Site Selection magazine, which is considered the "company paper" for economic development bureaucracies around the country.

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A leader in creating such bureaucracies — if not in actual economic growth — Michigan has done very well in these rankings, placing in the top 10 every year, and our politicians are often eager to spread the word. For example, here's Gov. Jennifer Granholm trumpeting Michigan's second-place ranking in the 2005 Site Selection, as reported by the Gongwer news service (subscription required):

"This is a remarkable showing for Michigan that speaks directly to the effectiveness of our strategy for attracting new business and new jobs to the state. Although it is great to be recognized as a national leader, what's truly important is that these expansions result in thousands of jobs for Michigan workers."

The only problem with this outstanding record is that it generates a sense of cognitive dissonance for taxpayers, who wonder, "How can we be doing so well if we're doing so poorly?" The source of the dissonance is clearly illustrated in the accompanying chart.

It's easily explained, however: It all depends on what you measure. If it's economic performance, Michigan can't get much lower; throughout this decade, Michigan placed at or near the bottom in employment and gross domestic product growth, and at the top in unemployment rate.

However, if what you measure is how energetically bureaucrats hype big facilities — a relatively tiny handful of such facilities compared to the size of this or any state's economy — Michigan ranks right up at the top: Site Selection proves it!

Awarding selective tax incentives is more about giving politicians stories of good economic news. Real reform would focus on changing the overall tax, labor and regulatory climate to promote growth for all businesses, not just those few lucky enough to get Lansing's blessing.

This issue of The Lowdown was written by James M. Hohman, a fiscal policy analyst at the Mackinac Center for Public Policy. He may be reached at hohman@mackinac.org.

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