Posted: Dec 21, 2010 at 2:20 AM [Dec 21, 2010]
By David Nacht
Michigan requires a new direction in order to produce economic growth. We have an awfully large number of capable manufacturing and electrical engineers, a number of whom are looking for work. But, government is not good at bribing companies to come here to hire them. If you want a nice relationship with someone; you don’t pay them to go out with you. Instead, you make yourself attractive.
However, both Governor-elect Snyder and his economic development point-person, Mike Finney, while well-meaning, have been past leaders in the failed effort to use taxpayer funds to try to stimulate economic development. They claim that they want to try new strategies rather than "pick winners and losers." Let us hope so, and I respectfully offer 8 ideas for their consideration.
Under both Governors Engler and Granholm, Michigan’s Economic Development Corporation has now spent over 1 billion dollars trying to improve our state’s economy. They get the cash from taxing the casinos. Then, they use it for corporate welfare to lower taxes for selected businesses and direct subsidies of cash for other businesses that a committee of politically connected bureaucrats selects.
The MEDC under both Republicans and Democrats claims to distribute funds based on “merit”, and yet large law firms and lobbying firms have people you can hire to help your company get a grant. Every time the state issues a grant or a tax break, MEDC and its affiliates issue a press release telling us how many jobs they are saving or bringing to Michigan. I dare you: find a press release that accurately predicted anywhere close to the number of jobs that came to the State.
Remember Aernnova – the big Spanish aeronautic company? The big news story that ran in Ann Arbor in September, 2007 stated “The Spanish aerospace company Grupo Aernnova has selected Pittsfield Township as the site for its first foreign engineering center, an operation that could eventually have 600 employees….Aernnova received a tax credit worth $18.5 million over 15 years from the state and is expected to receive a 12-year, $400,000 tax abatement from Pittsfield.” This past April, a news story ran that the Company had only 15 people based in Pittsfield Township. One wishes that examples such as this are outliers; but they are typical. The other type of typical economic development incentive is to eliminate the tax burden on companies that are already here, such as big GM factories. The net effect of all of this “economic development” is to raise the tax burden on the remaining businesses and other taxpayers that are not politically or bureaucratically well-connected.
Any fair-minded citizen of either political party will tell you that Government should do its job: fix the bridges, roads and transit; educate and protect the citizens, provide necessities for the poorest and the mentally ill and then stop spending our money on boondoggles.
While I agree with conservative Republicans about the boondoggle of MEDC, they are simply wrong that tax policy drives economic growth, or Silicon Valley wouldn’t be in California and biotech wouldn’t be in Boston.
Sure: lowering taxes on businesses and reducing regulations might help on the margins, but it won’t yield significant economic growth, unless growth also comes in the form of low wage jobs. That has been the formula in parts of the South: which has transformed a moribund agricultural economy with the lowest wages in the country to include low wage manufacturing and service sector jobs.
A quick example. I am 45. When I was a boy, they still used to make clothes in small factories in New York. Then, when I was a young man, the jobs moved South, and they made clothes in South Carolina. Then, when I got married, they made clothes in Mexico, and when my children were born, they made them in China. But now, they make clothes in Pakistan and Vietnam. The point is, economic growth strategies predicated upon low wage; low skill manufacturing or service sector jobs are short term solutions at best and are, frankly, unpersuasive to companies that associate Michigan as a pro-union state.
So if bribing companies doesn’t work, and neither does turning us into a banana republic of low wage manufacturing and service jobs, then what should Government do? It should make us more attractive by working on our strengths and, to the extent possible, reducing our weaknesses.
The real barriers to economic growth are fairly clear.
1. Michigan is located in a bad place – we are not close to where other economic development is occurring: (a) not the high technology and venture capital corridors in Silicon Valley, Boston, or Utah; (b) nor the warmer climates in the south-east and south-west where people have been moving ever since air conditioning became ubiquitous. Nothing we can do about that.
2. Our populace, particularly in Detroit – but including many in the Metro Area, is poorly educated. The Detroit Public Library reports functional illiteracy in the city at about half the population.
3. Detroit and Wayne County have reputations as corrupt places to do business where you have to “pay to play.” By the way, this practice grew dramatically under prior Wayne County executives – in the form of campaign contributions that were expected for those who sought to obtain County business, -- long before Kwame Kilpatrick was a mayor committing felonies.
We have three strengths:
What should we do?
Build on the strengths.
1. Enhance rail transport of goods between Toronto and Detroit. Baltimore, for instance, has lost much of its manufacturing, but continued to remain vibrant because of its port. A new Port Authority of Windsor and Detroit should exist to facilitate trade and commerce between the nations and to increase the wealth of both metro areas, and should be delegated power over decisions concerning what bridges and tunnels are needed.
(2) Turn the baby-steps efforts of commercialization of technology from the UM and MSU into a more wild-west, less regulatory environment. The Universities are too concerned about controlling the intellectual property developed in their laboratories. As a result, entrepreneurially-minded professors struggle to get their research into companies past bureaucrats. In essence, the Universities should step out of the way, and the State should hire a team of patent attorneys to work for free for professors who wish to create Michigan-based businesses.
(3) Create a one-month high quality intensive entrepreneur-training program at low cost to people with engineering degrees so they can learn the basics of finance, marketing, management, and the other things engineers don’t know in running businesses. We need to stimulate people who always thought they would work for one company their whole life to imagine and learn how to start and run small companies.
Work on our weaknesses:
(4) Improve Detroit. Use state powers to condemn and clear pivotal buildings that prevent Detroit from redeveloping; provide complete indemnification for environmental liability for developers who are willing to build in Detroit. Put many more state police troopers inside Detroit to catch killers rather than catching speeders on the interstates.
How many times must one drive past the old Michigan Central Station and say, “when is someone going to do something with that building?” It has been abandoned since January 1988! It is privately owned, and obviously a nuisance and an eyesore, yet no governmental entity has required change. Nothing is more symbolic of the failure of our state to confront and arrest the disintegration of Detroit.
(5) Provide a better-educated, healthier workforce. Any serious effort to teach adults how to read – such as through early release programs in juvenile detention and prison for adults who learn how to read will help. The State should strongly consider setting up alternative public schools in Detroit who report directly to the State Board of Education. The City’s Schools have failed the children, and no serious person believes the Detroit Board of Education is capable of meaningful improvement.
(6). Make sure that roads, bridges and transit systems move people and goods quickly, safely and reliably and depoliticize allocations. A quick example. The rural county road commissions are much better funded proportionately than urban ones, and therefore, in recent years, county road commissions in the well-populated southern counties outside our cities have cut budgets for snow removal on roads due to budget constraints. This slows commerce, closes schools, and causes accidents. Such a policy is, quite simply, reminiscent of the Third World.
(7). Eliminate the opportunities for corruption or sweetheart deals in local government – and that goes beyond Detroit to include County contracts; airport contracts, etc. -- by establishing a high profile independent citizens’ board with subpoena power that has authority to explore all public contracts in the state. Let future politicians make their name by rooting out corruption instead of learning the game.
(8) Force local governments to consolidate services and cooperate in planning major purchases and land use or they will lose a portion of their funding. “Home rule” has created too much democracy at the expense of good governance.
In conclusion, I remain skeptical that Government can do a great deal to improve our economic health. But we can surely do better than the past two administrations. As the owner of a business that employees ten people and the father of two children, I wish Governor Snyder well.
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David Nacht worked for the US Senate Committee on Governmental Affairs for Senator John Glenn in Washington DC in 1987-89. He founded the Ann Arbor law firm now known as NachtLaw fifteen years ago. He is an honors graduate of Harvard College and the University of Michigan Law School.
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