Michigan’s Strategic Fund awarded $25.5 million this week to a project at the former General Motors steering division plant in Saginaw. The deal promises to “retain 1,100 jobs” while helping what sounds like a market innovator: Motion control technology company Nexteer boasts the power to accelerate mobility in order to make it “safe, green and exciting,” according to Gov. Gretchen Whitmer’s announcement of the payment.
When legislators see announcements like this one – or just read the puff news coverage that results – they feel a competitive urge. It makes them want to hand out taxpayer cash the next time a lobbyist approaches them with a business project to sell. They imagine headlines about bringing good jobs to their communities.
In the back of many of their heads, however, are some hesitations based on basic civics and economics. That maybe they shouldn’t have to take money from some taxpayers to give it to businesses. Maybe whatever handouts they award are not as important as the basic case for the project. Maybe governments should set the rules and let everyone live by them.
It’s a real shoulder angel and shoulder devil situation.
Shoulder Devil: Think of the headlines!
Shoulder Angel: Think of the principles!
Legislators are tempted to chase headlines because they want to be popular. Voters around the country and in each party want lawmakers to do something about jobs. Employment is among the top issues that people care about.
It’s all the more tempting because stories about landing a big business project tend to be one-sided affairs. Reporters are good at mentioning that deals for jobs have selective favors, and they tend to etch those in.
Rarely do they cover the strong arguments for skepticism that such preferences are effective at creating jobs, or that they even matter to the company’s decision about where to locate its project.
It’s too much to ask that journalists question whether landing a high-profile business project translates into job growth. It gets assumed that, when a company announces it is building a factory or starting an office, the jobs show up in the economic data. If they did, the dots in the chart below would be clustered around a trendline going up and to the right. But this isn’t the case.
Headlines don’t translate into jobs because most job growth comes without headlines. The state economy added one million jobs in 2021 and lost 774,000 jobs in 2021, as it bounced back from pandemic losses. Most of this happens without a press release or media coverage.
Until people start questioning whether headlines lead to results, the temptation for elected officials to listen to their shoulder devil is too great.
The shoulder angel makes a more compelling case. States don’t succeed because they hand out favors to companies that ask for special consideration. Basic economics trumps selective preferences.
A state has policies that apply to everyone. The rules the state implements matter more than the dispensations and indulgences it offers on a case-by-case basis.
This can be seen from the states that bounced back from the pandemic. Michigan still hasn’t fully recovered from job losses, but 16 other states have. Those states are not the ones that subsidized the right companies and industries. They have good business climates. They offer better alternatives to residents than their neighbors. Policy isn’t the only thing that matters, but policy is the tool that remains in lawmakers’ hands.
Policy remains powerful. Gov. Whitmer’s decision to shut down more businesses than any other state during the pandemic didn’t help Michigan’s chances. Nor did her two vetoes of tax cuts that would have improved the state’s competitiveness. Nor her opposition to full expensing for businesses.
It also makes better civic sense to care about the rules. As Justice Thomas Cooley put it, “The state can have no favorites. Its business is to protect the industry of all, and to give all the benefit of equal laws.” This is still the law of the land, even if abuses go unchallenged.
The next time they consider transferring taxpayer cash to a company that demands favors, lawmakers should resist the temptation. And listen instead to the better side.
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