This article originally appeared in Crain’s Detroit Business March 13, 2023.
The choice between a top-down or bottom-up economic approach is becoming clear as Lansing politicians prepare for two important debates.
Legislative Democrats are considering a bill to repeal the state's right-to-work law, while also supporting plans backed by Gov. Gretchen Whitmer to use billions in state funds to subsidize a handful of rich corporations. One such plan, according to published reports, may add nearly $750 million in fiscal favors to a state incentive package for Ford Motor Co. and would raise the value of its incentive deal to nearly $1.8 billion.
The verdict is in on such top-down economic development efforts. They don't work.
Unfortunately, politicians and special interests have strong incentives to promote these counterproductive policies. Just don't be fooled by promises that they will invigorate Michigan's economy or arrest the exodus of Michigan residents.
As if offering up $1.8 billion to just one company wasn't bad enough, there is yet another plan to put $1.5 billion over the next few years into the state's Strategic Outreach and Attraction Reserve fund. Lawmakers are heralding these subsidies as essential for the state to thrive, but the data tells a different story.
The Mackinac Center studied a database of 2,300 Michigan-specific subsidy deals across nine programs or program areas going back to 1983. The 2020 study compared companies and their performance with similar establishments that received no subsidies, tracking employment at each.
In five of the nine state subsidy programs, there was no meaningful hiring difference between subsidized and unsubsidized companies. In one, subsidized companies actually hired fewer net workers than their unsubsidized counterparts.
In the three that showed job creation, the cost per job created was stratospheric. The now-defunct Michigan Economic Growth Authority program offered up to $125,000 per year per job. That's not a sustainable way to build an economy, and it's a slap in the face to unsubsidized employers.
Why do governments hand these subsidies out? Because they are powerful political tools for elected officials who want to take credit for creating jobs. Governors are twice as likely to increase subsidy spending when they are running for reelection. Companies that make political donations are four times more likely to get subsidies than those that don't.
The same mechanism plays out in the Democratic leadership's drive to repeal Michigan's right-to-work law. Unlike many labor laws, right-to-work is not about the power balance between workers and employers. Rather, it's about the relationship between union members and union bosses. The law prevents contracts that require employees to join and pay a union as a condition of working.
Just as corporate welfare deals are politics dressed up in rhetoric about job creation, the right-to-work repeal effort dresses up in the rhetoric of worker's rights. The description doesn't agree with reality.
Two former United Auto Workers presidents pleaded guilty in 2020 to conspiring to steal more than $1 million in union funds. Members discovered union leadership had routinely been spending their dues on golf, swanky vacations, booze and other luxuries. More than a dozen top union officials were found guilty on corruption charges.
This is a textbook case of the rot that results when workers have no choice about union membership. But until federally mandated changes to the UAW's election process, members had no direct say about who their leaders would be.
Right-to-work gives employees a choice in whether to support a union, creating a pro-worker environment in which union bosses are forced to pay more attention to the interests of members or risk losing them entirely. Some union leaders concede the benefits of the law.
"This is something I've never understood, that people think right-to-work hurts unions," former UAW secretary-treasurer Gary Casteel told The Washington Post in 2014. "To me, it helps them. You don't have to belong if you don't want to. So if I go to an organizing drive, I can tell these workers, 'If you don't like this arrangement, you don't have to belong.'"
There is clear economic power in freeing both workers and businesses from centralized, top-down control. The share of manufacturing employment in Michigan is 26 percent higher in a given county than it would be absent our right-to-work law.
The history of Michigan is one of bottom-up success. The entrepreneurs who built the state were not seeking subsidies or following union dictates. They invested in Michigan for what was then a positive business climate.
How our state's elected officials handle corporate subsidies and right-to-work in 2023 will tell us whether Michigan remains addicted to outdated top-down models or is ready to move toward a brighter, freer future.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
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