News Story

There Is No Good Reason the MEDC Should Exist

There is only one conclusion to be drawn from a broader analysis of Michigan’s place in the world in the year 2001 — never before have we been so economically strong. Never before should we be so confident about our future. – Doug Rothwell, then president and CEO (and current Chair of MEDC Executive Committee) of the Michigan Economic Development Corp., March 2001.

This might be called Mr. Rothwell's, "Prosperity in Our Time," speech (or perhaps his "Blown Away" one): Over the following 153 months, Michigan's unemployment rate was never lower than the 4.7 percent rate prevailing on the day he spoke.

Instead, the trend was decidedly bad with unemployment eventually topping out at 14.2 percent in 2009. Today, Michigan's unemployment rate remains a troublesome 8.4 percent.

This state's corporate welfare complex has gone through various permutations in past decades, but the more it appears to change the more it seems to stay the same. The bureau in charge of selective business favor-granting — the Michigan Economic Development Corp. — still takes money from very many people and gives it to a tiny few. The systematic empirical evidence that exists (none from the MEDC) offers little evidence that this generates any net gains in employment.

So why do it? The reality of government "economic development" programs is that they are in fact political development programs — gaudy public relations exercises mainly intended to let politicians boast about a steady flow of shimmery but ultimately meaningless job promises. Seen through this lens, MEDC operations make far more sense. The agency is essentially a publicity machine for politicians.

Nothing illustrates this better than the grand promises made over the years by the state's "jobs" program apologists, including many variations on Mr. Rothwell's prediction above.

For at least 19 years, the Mackinac Center for Public Policy has examined the promises and the reality of this operation. Year after year, the gap between the two is simply stunning — as is their ability to get away with it.

The Mackinac Center has frequently documented this discrepancy (see: "Transparent Failures"). The recent 10-year anniversary of a wonderfully illustrative series of high-profile legislative hearings on the subject provides an opportunity to add to this record. Here’s a taste:

In this clip, MEDC Executive Committee member Paul Hillegonds argues that the Legislature should keep the MEDC and the Michigan Economic Growth Authority intact. MEGA selectively granted special tax breaks to particular companies, which Hillegonds described as the state's most important incentive program.

Ironically, Hillegonds was reappointed to the MEDC's executive committee in 2012 by the man who killed MEGA — Gov. Rick Snyder. (The program was promptly replaced by a scaled down version that skips the "tax credit" device and simply writes checks to companies, which at least is more transparent.)

Those hearings were triggered by a September 2003 Detroit News expose by Mark Hornbeck titled, "Tax breaks shortchange state: $1.4 billion business program gets minimal payback in jobs." In response, Lansing's political class orchestrated a public review to defend their political development programs.

Altogether, 28 speakers were supposed to give testimony during the four weeks of hearings. Many were brought in by the MEDC itself, not to bury the agency but to praise it. Of those 28, I was the only one opposed to state corporate welfare programs.

I did not speak, however — my slot was canceled for lack of time. Scheduling conflicts prohibited a second three-hour round-trip to Lansing and so I submitted testimony in written form. Sessions held after my testimony was submitted strongly suggest it was pre-emptively delivered to MEDC officials so they could prepare rejoinders.

The event more than justified suspicions that it would be mere political theater rather than an honest effort to assess the state's jobs programs. Recordings of the event show one participant after another describing the doom that would befall Michigan if the MEDC were not preserved and or even expanded.

It was preserved and expanded and Michigan's ensuing "lost decade" shows what happens when politicians substitute "economic development" PR and spin for public policies that actually make Michigan an attractive place to invest and grow a business.

To put it bluntly, the Michigan Economic Development Corp. presided over what was arguably the most significant decline in the state's economic fortunes in its history. From 2000 through 2009, when the MEDC and its programs were in full flower, Michigan was the only state in the union with a negative economic growth rate, as measured by state Gross Domestic Product.

With this as backdrop, and with countless examples of bad choices — not to mention scholarly empirical evidence demonstrating program failures — it's worth asking why this counterproductive and expensive bureaucracy still exists. It persists even though corporate welfare is unpopular with the public. You will never hear any candidate for public office proclaim: "If elected, I will protect and expand our precious corporate subsidy programs."

Given all that, it doesn't take Sherlock Holmes to induce the influence of countless special interests who want to keep the money flowing regardless of whether the MEDC is actually effective.

Consider all of the developers and corporate insiders who enjoy special treatment in the form of discriminatory tax breaks and cash subsidies (plus the well paid consultants and lobbyists who guide them). Add to their ranks the political appointees and bureaucrats who get paid to redistribute other people's money. And of course the politicians themselves, who benefit from the MEDC's spin machine while the press plays into their hands.

Naturally, none of those politicians or political appointees ever land cushy jobs with the companies they helped obtain favors. Like gambling in Rick's Café, that sort of thing would be shocking.

Those four weeks of political theater in the fall of 2003 were recorded, complete with their full cast of political actors. They provide a valuable window on the true nature of government "economic development" schemes. If any are interested, this record provides today's lawmakers with plenty of good reasons to draw the curtain on this production’s long and failed existence.


Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in part or in whole is hereby granted, provided that the author and the Center are properly cited.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.