Hearings Should Focus On Reforming Economic Development Policy, Mackinac Center Says

For Immediate Release

MIDLAND — Two Senate committees examining Michigan’s efforts to spur economic development should take action to abolish the state’s two primary development agencies, the Michigan Economic Development Corporation (MEDC) and the Michigan Economic Growth Authority (MEGA), and redirect the state’s development strategy, the Mackinac Center for Public Policy said today.

"The state government should get out of the business of picking economic winners — something even Wall Street mavens can’t do consistently — and focus on fixing the fundamentals: schools, infrastructure, a lower tax burden, and a generally improved business climate for everybody," said Michael LaFaive, fiscal policy analyst for the Mackinac Center.

The Commerce and Labor Committee and the Appropriations Subcommittee on Labor and Economic Development are holding a series of joint hearings, beginning today, on the future of the MEDC, MEGA, and the Michigan Strategic Fund.

LaFaive said that in their deliberations, senators should note that not only the Mackinac Center, but also Michigan’s Office of the Auditor General has called into question the effectiveness of state programs for creating jobs. In August, the Auditor General released its review of MEDC job-training programs, which compared claims made by recipients of state funds with actual employment numbers reported by the Michigan Employment Service Agency (MESA). The final report of these seven grantees stated that there had been a combined increase of 635 employees. Yet, when compared to the records of MESA, the Auditor General discovered that there was actually a net loss of 222 jobs at these seven firms.

"Two-hundred years of study and experience prove that the best policy for creating jobs and economic development is a fair field and no favors," said Michael LaFaive, director of fiscal policy for the Mackinac Center. "The MEDC and MEGA embody the fatal conceit of central planners — the belief that bureaucrats can pick winners and losers in the marketplace."

The MEDC is the state’s chief "jobs" department, tasked with keeping "good jobs in Michigan and attracting more of them," according to the agency’s mission statement. MEGA, a 1995 creation of the Engler administration, is a program designed to grant targeted tax relief to firms identified by state officials as economic winners.

To abolish the MEDC would require a new bill passed by the Legislature and signed by Gov. Granholm. But MEGA is subject to a "sunset" provision, which, if not repealed, will

effectively end that program on Dec. 31 of this year. The Mackinac Center has been a consistent critic of state directed economic development efforts since 1989, under both Republican and Democratic administrations, preferring instead a policy that improves the business climate for everyone, not just a few select firms.

"Taking tax dollars from a thousand businesses to give economic advantage to one allows the one to hire and produce more, while the thousand are placed at a disadvantage," said LaFaive. "Add the impact of an expensive bureaucracy taking its own cut, and the result is likely a net loss for our state economy."

"Policy-makers need to realize that the false ‘short cut’ of state-directed economic development programs only takes us further off the road to prosperity," said Mackinac Center President Lawrence Reed. He added that abolishing the MEDC and related programs should be the prelude to a more far-reaching free-market approach to government economic policy. "Lawmakers can better serve Michigan by cutting taxes for all job providers, reforming regulation, protecting rights to contracts and property and nurturing a free labor market," he said.

The Mackinac Center has established an economic development web module where all of its work on this subject can be found. It is located at www.mackinac.org/depts/ecodevo/