In 2005, Gov. Jennifer Granholm announced in her “State of the State” address that she wanted to amend Michigan’s Constitution to “allow the state to invest $2 billion in bond money to create 21st century jobs[.]” Under her plan, the state would borrow money, loan and invest in companies providing jobs to Michigan residents and use the return on investment to repay the bond proceeds. Only if those investments did not provide returns would the state’s general fund be needed for bond payments.
Gov. Granholm’s speech stated that the plan would make the state “a world-wide center of research and innovation.” The initial legislation covered targets “includ[ing], but not limited to” research, development and building infrastructure for “competitive edge technologies” and “world class centers of excellence.”[*] This new job creation plan would also sponsor endeavors to keep individuals working in select industries within the state, commercialize certain activities and provide matching grants to targeted projects eligible for federal funding.
The goals of the program were two-fold: targeted economic development and return on investment. But these dual goals make the program’s success difficult to achieve — in fact, they can at times be in conflict with one another. Money spent to produce a return on investment may not create any jobs or may even reduce jobs, and money spent on creating jobs may produce a negative return on investment.
Furthermore, by limiting the investments to targeted activities in targeted industries — “life sciences technology; advanced automotive, manufacturing, and materials technology; alternative energy technology; and homeland security and defense technology” — the state may forgo the greatest opportunities for return on investment or job creation. In other words, unless the targeted industries the state invests in also happen to be the most profitable investment opportunities and create the most jobs, this two-fold goal will limit the possible success of the program.[†]
The governor’s legislation clarified that the return on investment was a secondary objective compared to economic development. It stated that the program intended to “diversify the economy of this state, encourage long-term economic growth and full employment, and to create jobs.”
[*] “Competitive edge technologies” were defined as “life sciences technology; advanced automotive, manufacturing, and materials technology; alternative energy technology; and homeland security and defense technology.” Elizabeth Pratt and Maria Tyszkiewicz, “Jobs for Michigan Fund S.B. 488: Committee Summary” (Michigan Senate Fiscal Agency, May 12, 2005), https://perma.cc/5Z43-ACNX.
[†] There’s also no indication that policymakers considered the profitability of the industries it selected to be eligible for these taxpayer-funded investments. In fact, there’s evidence that at least some of the industries were chosen for political reasons rather than economic ones. The industries targeted for grants and loans were not likely chosen at random, but no explanation was made for selecting these industries and not others.