The Michigan Economic Development Corporation, which administers the state’s business subsidy programs, gets plenty of skepticism from policymakers these days. A House Oversight subcommittee on corporate subsidies and state investments has been hearing objections to the deals the state organization makes. Attorney General Dana Nessel is investigating the office over its involvement in a grant to a Democratic political supporter’s organization and has asked legislators to stop funding the group.
It would be good if state legislators stopped handing out taxpayer money to select companies. Without that, there wouldn’t be much left for the MEDC to do.
Lawmakers give the organization taxpayer money, the ability to authorize tax abatements, and other bits of favoritism to make deals in order to lure companies to the state. Yet the money often goes to companies that would have done the same thing without taxpayer money, and the deals don’t create the jobs that are announced. While the state spends billions of taxpayer dollars on business subsidies, the small number of jobs involved does not approach the scope necessary to have an effect on the state’s economic trends.
This is why economists who use sophisticated methods to study the economic effects of business subsidy programs do not find that they have an impact on the state’s economic trends.
Elected officials bluster when they say that their latest deal secures the state’s economic future. They exaggerate at best and mislead at worst. Despite having “economic development” in its name, the MEDC is not required to develop the economy. It’s just for show.
The show often ends poorly. The organization itself has made a number of awful deals that did not turn out well for taxpayers. The latest SanDisk attempt left taxpayers out $259 million to prepare land for a project that isn’t going to happen.
Beyond the mistaken strategy, business subsidies are an inappropriate task for the state. The idea is that the business will generate enough economic activity to benefit the people who had their money taken from them. Lawmakers rarely check to see whether this theory works out in practice. But even if it did, it shouldn’t be the state’s role to take money from some taxpayers and give it to others in the name of economic development. As state supreme court justice Thomas Cooley put it, “The state can have no favors. Its business is to protect the industry of all, and to give all the benefit of equal law.”
Lawmakers these days have plenty of favorites and offer plenty of favors. These include subsidies for corporate giants as well as district grants administered by the MEDC and other state agencies. The state constitution is supposed to protect people from these bad tendencies. That’s why the Mackinac Center for Public Policy is challenging legislators’ pork projects in court. The constitution requires that spending for local and private organizations be approved by two-thirds of legislators in both chambers. The billions in district grants in the last two budgets have not met that level of support.
The state should simply get out of the business of favoritism and eliminate the MEDC. It’s been ineffective, it is inappropriate, and the state would do better without it.
