Governor Engler has led Michigan to stellar economic success in the first four years of
his administration, a feat accomplished by pursuing an ambitious policy of government
streamlining and downsizing aimed at lowering the overall costs of doing business in
Michigan. MEGA is a departure from this proven free-market economic development approach
toward an industrial policy model of government economic planning, with political
appointees picking the winners and losers. If passed, MEGA would not only fail to achieve
its primary objective, but also increase the size and cost of state government, subject
the state to litigation, discriminate against certain types of business, hinder future
efforts to reduce the overall tax burden, cause economic dislocation and inefficiency, and
set a poor precedent of state-level discretionary tax policy.
In order to attract and retain industry, state government should concentrate on
creating an environment that produces the specialized infrastructure and human capital
that will make it unreasonable for firms to even think about locating in another state.
Good infrastructure, a highly skilled labor force, and a reasonable business climate will
retain high-wage, high-skill jobs in this state and countervail lowball subsidy packages
from states that have to buy jobs. Other states' project-specific incentives will not
overcome the disincentives associated with a poor business climate or an unstable tax
environment; nor will they do so in Michigan.7
Politicians don't create jobs, and they shouldn't count them either. The objective of
economic activity is the accumulation of wealth and an improved standard of living, not
just jobs. Everybody in the Soviet Union worked: unemployment was a crime. It is not
enough to have jobs as the objective of a development strategy.
The State of Michigan does not have to micromanage economic development through
legislative committees or economic development agencies. Government should create an
economic policy environment that fosters overall productivity growth, technical change,
and high quality private capital accumulation rather than subsidize particular
labor-intensive ventures. Government also supports private enterprise by supplying
long-term public goods. The free-market economy has built-in incentives for job creation
and wealth accumulation, and doesn't require government meddling. Economic prosperity
depends on a free economy, not on government industrial policy.
Today, with Michigan unemployment at a 25-year low of 4.1 percent and a track record of
sound and courageous fiscal management, Michigan is heading in the right direction. The
1988 Engler report properly noted, "Incentives are ephemeral. Efforts to improve
business climate, and tax climate in particular, on the other hand, are more intrinsic and
tend to work."
MEGA is not "state of the art" economic development strategy as its
proponents claim. It is a giant step backward on Michigan's road to a world competitive
free-market economy. Making Michigan more competitive by reducing the business tax burden
is a laudable goal, but we don't need a new state bureaucracy to do it.