Note: The author will be discussing economic development incentives Monday, February 13 at a special meeting of the Big Rapids Charter Board at 7:00 p.m.
The Michigan Strategic Fund approved a deal in October to grant massive subsidies to a for-profit corporation known as Gotion, Inc. It includes state and local incentives worth up to $733 million. This is a bad deal for a number of reasons, not the least of which is the size and length of state and local incentives.
Research shows that such government program efforts frequently fail to deliver and are very expensive, especially in terms of the opportunity cost.
A 2018 academic study that examined thousands of incentive deals across 35 states (including more than 180 in Michigan) found a “starkly negative” impact from subsidizing large businesses. This is precisely what the SOAR program and the Gotion deal are designed to do.
The Mackinac Center adapted a similar methodology for its 2020 study on the impacts of nine Michigan-specific economic development program or program areas. We found very little job creation across 2,300 deals — and those jobs that were created came with massive subsidy offers. The costs clearly outweighed the benefits.
These are just two studies. Scholars with no dog in Michigan’s fight have researched incentives from many angles and time periods across states, local governments and nations. They have repeatedly found these deals to be ineffective, too costly or both.
There are hundreds of academic studies by university researchers that cast doubt on state and local incentive programs. Proponents of such deals have no such mountain of evidence on their side of the debate. In fact, the best evidence they typically point to are studies conducted by consultants they pay, which aren’t always of the highest quality.
Its worth noting too that not all arguments against incentives are economic ones. There is concern among some in the Big Rapids area that Gotion’s large new electric vehicle battery plant would change the very character of the community, and not in completely positive ways. A recent Detroit News op-ed by former ambassadors Peter Hoekstra and Joseph Cella raised another concern: that Gotion’s parent company is headquartered in the People’s Republic of China, and that its plant would be located close to a Michigan National Guard armory.
There are better ways for state and for local communities to grow: provide high-quality public services and keep overall tax and regulatory burdens light. The state should be creating a sound business environment for all residents and job providers, not just a favored few.
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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