LAFAIVE AND MCHUGH: Corporate welfare’s strange allure for politicians
By Michael D. LaFaive and Jack McHugh
It’s not coincidence or bad luck that causes government economic development programs to so reliably fail to meet their promises — there are good reasons to expect this. So why do politicians keep returning to this dry well?
Sadly, even an unconventional, non-careerist politician like Michigan Gov. Rick Snyder is taking a turn with an executive order that appears to embrace the flawed economic central planning vision that inspires such programs. He is doing so despite having expressed skepticism about such programs in his first election campaign and reducing their scale after he was elected.
The governor’s executive order creates a new “21st Century Economy Commission.” It is given the task of planning this state’s economy for the next 20 years. It would be in addition to the massive subsidy-granting agency already at the governor’s disposal, the Michigan Economic Development Corporation.
The executive order assembles an unoriginal list of standard plays from the central planners’ playbook of the past century. One example: “Identify priorities over the next twenty (20) years, with short-term and long-term action items to achieve the vision of Michigan’s economic future.”
Twenty years? One wonders how serious the governor really is, given state officials’ track record in this area. Consider this: In 2000 the state granted the retailer Kmart its second big tax incentive deal, a mere 17 months before the company filed for bankruptcy. The reorganized company ultimately moved its headquarters out of Michigan.
How can planners imagine they can peer as much as 20 years into the economic future when they couldn’t see just 17 months ahead for a single deal in which they were deeply involved?
That flub is hardly unique: During the go-go dot-com boom of the 1990s, the state offered a startup called Webvan a tax incentive package to operate in Michigan.
The online grocer was bankrupt 13 months later.
In 2003 Gov. Jennifer Granholm said of one incentive deal, “My administration wants to make Michigan a magnet for economic growth — Plastech’s expansion is evidence that we’re making it happen.”
The marketplace thought differently. Plastech closed its doors in 2008.
The list goes on, and some of the failures implicate the poor incentives of central-planning bureaucrats who have no skin in the game. Even basic due diligence can get left behind. In 2010 state economic development officials offered $9.1 million worth of tax breaks and subsidies to Richard Short, a convicted embezzler. Well attuned to the political and ideological fashions of the day, Short created a shell company he called “Renewable and Sustainable Companies LLC (RASCO).” He even appeared at a press conference with Granholm. Short was busted only because his parole officer saw him on television.
The bad forecasts, flawed assumptions and sloppy performance of state efforts to plan the economy make for a long and dreary list. Scholarly analyses typically show zero to negative impacts from Michigan’s (and other states’) activities in this area. (See “Main Forecast: Hoping for a Broken Clock Moment” and “Déjà Vu All Over Again For Auditor General Report On Select Subsidy Programs.”)
Indeed, the academic literature provides little evidence that these schemes ever succeed. There is, by contrast, much more evidence supporting the conclusion that these are at root political programs, not economic ones.
Literally billions of tax dollars have gone down the tube in failed economic development “investments” over the past decade in this state. Yet now, another governor wants to go back to the playbook, looking for doomed plays.
In the end, it’s a curious departure for Snyder. The veer toward economic central planning could almost suggest that his team has run out of ideas.
So here’s one with a proven history of success: Enact a great big job-and-growth-generating personal income tax rate cut. Planners can’t grow this state’s economy, but an across-the-board “incentive package” like that really would kick it into overdrive.
Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy, where he has worked since 1995.
Jack McHugh is the Mackinac Center for Public Policy’s senior legislative analyst and editor of MichiganVotes.org, a unique Web site that puts the activities of the Michigan Legislature at citizens’ fingertips.