“MEGA” Failures in Economic Policy

The Michigan Economic Development Corporation (MEDC) touts the so-called success stories of their efforts today to the tune of 11 new projects slated to generate $179.1 million in new investment and create and retain 3,900 jobs, reports the subscription based MIRSNews.com on June 18th. This of course begs the question; “why do we need an economic development corporation in the first place and what exactly do they do.”

The main way the MEDC “saves” or “creates” jobs is through the “M.E.G.A.” (Michigan Economic Growth Authority) targeted tax incentives. The MEDC offers the incentives to business that are considering leaving the state as an incentive to stay or to businesses that are looking to relocate or expand as an incentive to chose Michigan. In doing this, the MEDC is basically picking “winners and losers” among Michigan businesses. For all intents and purposes, business that are forced to consider leaving the state or are not considering starting their business in Michigan because of our 50th place ranking among the states for our economic business climate, are now bribed with what amounts to a lower tax burden in real terms. Mackinac Center senior legislative analyst Jack McHugh offers a great analogy in a current comment Bad Food at a Good Price!:

As an analogy, imagine a restaurant with second-rate food, surly waiters, slow service and high prices. When the manager sees a customer getting restless, he rushes over and offers a 15 percent price cut. He also stands on the sidewalk offering discounts to potential customers who look like they might walk on by.

At the end of each day this manager sends glowing reports to the owner describing how many sales he “saved” by offering “incentives.” He spends his free time thinking up new incentives that might persuade underwhelmed customers to buy mediocre meals.

Isn’t it obvious that this is not a viable business plan, and that this manager shouldn’t spend another minute dreaming up new “incentives,” but instead should focus on making the food better, the service more pleasant, and the prices lower for everyone? The restaurant’s owner, employees and diners would be much better off if the place were so attractive that customers stood in line to get in, and the thought of targeted discounts never entered the participants’ minds.

The same applies to Michigan’s use of targeted tax breaks to prevent particular employers from leaving, or entice a handful of new ones to come.

So if some business must be bribed via tax credit to keep from leaving, to expand their business or move to Michigan in the first place by what amounts to a lower real tax burden, and these bribes are creating all of these jobs & economic growth, imagine if businesses across that state and entrepreneurs around the world had access to these same tax burdens without being chosen by the MEDC as a “winner”. If every Michigan business or entrepreneur who is looking to create or relocate their business had access to a tax burden of this type, how many new jobs & dollars bills would we have in this state? Unfortunately, it doesn’t look like we will know anytime in the near future.

(Hat Tip: James Hohman)

William L. E. Freeland ~ MCPP Intern (9/1/07-Current)


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