In August, the Mackinac Center released a study on the effectiveness of economic development programs in Michigan. While doing research for it, I was reminded of how often business “winners” turn out to be losers in the marketplace. I was also reminded of the odd choices state bureaucrats sometimes make.
Consider a few examples.
Apparently, subjecting beer production to the vagaries of the open marketplace isn’t good enough for the Michigan Strategic Fund or Michigan Economic Development Corporation. Last year the state approved a subsidy, worth up to $30 million over 20 years, for a multiuse project that includes space for a beer garden, brewery museum and microbrewery incubator.
Incubators are places where entrepreneurs can nurture their business ideas, in this instance beer-related ones. Research on incubators has not necessarily been positive. A 2010 paper, titled “Boon or Boondoggle? Business Incubation as Entrepreneurship Policy,” found that between 1990 and 2009, “incubation is not associated with a major increase in the survival, employment growth, or sales growth of new ventures on average.”
The $30 million beer deal is not the state’s only foray into subsidizing the growth of breweries. Simply doing a search for the word “brew” in the fiscal 2019 report from the MSF and MEDC turns up several entries featuring incentives for breweries.
Specifically, the report shows a $2 million subsidy approved for Founders Brewing Company in 2012 and a second for that firm worth $250,000 in 2015. There is also a $286,000 grant for Cedar Springs Brewing Company, an award of $251,000 for the Cellar Brewing Company and another $330,000 for the Pigeon Hill Brewing Company. Two other breweries received trivial amounts.
In addition to these beer-related subsidies, Grand Rapids Community College received a $2.9 million grant for skilled trade equipment, a portion of which would underwrite training for the school’s 42 craft-brewing students. In addition, the report also notes that the state promoted the Lansing Art & Craft Beer Festival and a “Brew and View” screening of the iconic 2004 film “Mean Girls,” complete with craft beer available for the audience. And these are just entries from the 2019 report.
The state has also promoted beer through its now-shuttered Michigan Economic Growth Authority program. In 2009 the state offered a tax credit worth up to $723,000 to the brewery producing beers branded for Kid Rock, Michigan’s popular rock star. Things didn’t work out for the brewery, and it filed for Chapter 7 bankruptcy in 2013. Northern United Brewing Company also received a MEGA incentive deal in 2008. Other brewers — Alma Brewing, Arclight Brewing, Bell’s Brewery, Brew Detroit, Canal Street Brewing, Shorts Brewing and Tapistry Brewing — have all appeared in official reports to the Legislature under other program headings.
The irony in all this is that we have two state agencies in the MSF and MEDC that effectively promote more beer consumption while another — the Michigan Liquor Control Commission — works to thwart it. The MLCC does so by enforcing a byzantine regime of licensing and permitting and rules, much of which serves to explicitly or implicitly keep the price of alcohol higher than it would otherwise be. Its “post and hold” rule and prohibitions on volume discounts are two cases in point. Both suffocate price competition and, more than likely, beer consumption, too.
The state arranged for a $10,000 line-of-credit through its Capital Access Program in 2011 for a tattoo-related business. Fatboy’s was a tattoo art gallery that featured art, including paintings and sculptures, produced exclusively by tattoo artists. Public records suggest that the gallery was not a going concern for long.
The size of the credit line — which involved a private bank — was relatively trivial, but the lesson and principle are significant. Did some taxpayer-paid state bureaucrat at some point think, “Oh, this is a good idea. We’ve got to make sure this business gets a loan because it will enable ‘the growth of good jobs and promoting Michigan's strong image worldwide,’” as the MEDC’s mission dictates?
Years ago, the MEDC chose to offer a $1 million grant for the purpose of building a grocery store at a location where three privately built grocery stores had started and then failed. The state’s economic development wizards apparently thought the outcome on the fourth time might be different, if only they subsidized it. It was not to be. The effort failed.
This was not the only the time MEDC invested taxpayer dollars in the grocery business. A food cooperative in Marquette, which competed with other, unsubsidized grocery stores in the area, was offered a $615,000 grant and $115,000 in local tax abatements. The MEDC claimed the subsidy would create jobs, but the agency’s claims are rarely accurate.
The marketplace has been providing food and even grocers long before government thought it wise to subsidize their activities.
Not every state subsidy for private business is on the scale of the one it tried to give to FoxConn (see: its related failure). Most research, however, shows that governments do a lousy job at creating jobs through its handout programs. They should stop trying to do so.
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