NCPA - National Center for Policy Analysis


December 16, 2009

At least 58 separate types of "economic development" entities or programs are currently operating in Michigan, according to the Citizens Research Council of Michigan.  The scope of this activity is broad and includes grants; discriminatory tax breaks; direct and indirect subsidies; subsidized loans and loan guarantees; financing authorities; "enterprise zones" and "incubators"; job training programs; and more.  Probably a majority of Michigan's 1,859 local governments participate to some degree, plus most or all state universities and community colleges. 

At best, these programs do nothing to grow the economy of a city, state, region or country, and in many if not most cases, they are actually counterproductive, says the Mackinac Center.  If these programs don't work, why do lawmakers keep expanding them?  There are three reasons.

First, there's a "seen and unseen" problem:

  • It's easy to see a particular firm offering to invest and create jobs in one community if the government will only grant it some special favor not available to other firms.
  • Harder to see are the negative effects of such activity on the rest of the economy, including the additional tax burdens carried by the non-favored firms.

Second, while all this activity does nothing for real economic development, it's a highly effective tool for political development:

  • Doing the things necessary to foster real economic growth -- cutting government spending, lowering taxes, reducing regulations and modernizing labor laws -- are hard because they all make politically powerful special interests angry.
  • Expanding economic development programs lets lawmakers pretend to be "doing something" to help the economy, regardless of whether they really are.

Finally, perhaps the most important reason is suggested by the multiplicity of state and local entities empowered to grant favors -- political careerism:

  • The primary goal of members of our current political class is to remain on a government payroll for the rest of their working lives.
  • When these members of the political class face a choice between serving the people or serving "the system," they'll almost always choose the latter, because that's how to attain their real goal: avoiding private sector employment with all its "hard" accountability for actual performance.

Source: Jack P. McHugh, "Political Careerism the Root of Growing "Economic Development" Empire," Mackinac Center, December 8, 2009.

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