WSJ Editorial: The Michigan Example, How government investment in business failed to create jobs
A central belief in Washington and most state capitals nowadays is that government should "invest" in certain businesses—"clean tech," say, or manufacturing—to drive job creation. We hope it all turns out better than it has in Michigan.
For the past 14 years, Lansing politicians have offered $3.3 billion in tax credits through the Michigan Economic Development Corporation and spent another $1.6 billion in outlays to create and retain jobs. The subsidies have ranged from tax breaks for Hollywood, to money for new industrial plants, to millions for TV ads starring Jeff Daniels and Tim Allen talking about business and tourism in the state.
It's one of the largest experiments in smokestack chasing in American history, but one thing it hasn't done is create jobs. An exhaustive new 100-page study by the Mackinac Center for Public Policy, a Michigan think tank, has reviewed where all the money has gone and what came of it. The study finds that for every 100 jobs that were promised with these tax credits over 14 years, only 29 arrived. Dare we call this cash for clunkers?
Economist Michael Hicks, a business school professor at Ball State, calculated the rate of return on the corporate tax credits. He found that for every $1 million in tax credits awarded, there were 95 lost manufacturing jobs in the counties where the companies were located—a result that is "strongly statistically significant." There was no gain in personal income in these counties. Perhaps more jobs would have been lost without the credits, but what is undeniably clear is that the businesses that got the government loot were not magnets for other employers.
Many of these handout programs were started in 1995 by former Republican Governor John Engler, who we criticized at the time in "A Governor's Gimmick." They have since been expanded 18 times under current Governor Jennifer Granholm. Two of the most celebrated initiatives were the Michigan 21st Century Jobs Fund and the Broadband Development Authority. Ms. Granholm's vision was that these grants and credits would create 500,000 jobs and $440 billion in new investment by 2010.
Liberals cheered this "progressive" alternative to tax cutting. But the jobs lured to Michigan were so few that the programs were killed in 2007. The broadband program's legacy was $14.5 million of bad loans eaten by taxpayers. Then State Senate Majority Leader Ken Sikkema, an original supporter of the telecom program, called it "one of the biggest flops in state government."...
Read entire article at The Wall Street Journal
For the past 14 years, Lansing politicians have offered $3.3 billion in tax credits through the Michigan Economic Development Corporation and spent another $1.6 billion in outlays to create and retain jobs. The subsidies have ranged from tax breaks for Hollywood, to money for new industrial plants, to millions for TV ads starring Jeff Daniels and Tim Allen talking about business and tourism in the state.
It's one of the largest experiments in smokestack chasing in American history, but one thing it hasn't done is create jobs. An exhaustive new 100-page study by the Mackinac Center for Public Policy, a Michigan think tank, has reviewed where all the money has gone and what came of it. The study finds that for every 100 jobs that were promised with these tax credits over 14 years, only 29 arrived. Dare we call this cash for clunkers?
Economist Michael Hicks, a business school professor at Ball State, calculated the rate of return on the corporate tax credits. He found that for every $1 million in tax credits awarded, there were 95 lost manufacturing jobs in the counties where the companies were located—a result that is "strongly statistically significant." There was no gain in personal income in these counties. Perhaps more jobs would have been lost without the credits, but what is undeniably clear is that the businesses that got the government loot were not magnets for other employers.
Many of these handout programs were started in 1995 by former Republican Governor John Engler, who we criticized at the time in "A Governor's Gimmick." They have since been expanded 18 times under current Governor Jennifer Granholm. Two of the most celebrated initiatives were the Michigan 21st Century Jobs Fund and the Broadband Development Authority. Ms. Granholm's vision was that these grants and credits would create 500,000 jobs and $440 billion in new investment by 2010.
Liberals cheered this "progressive" alternative to tax cutting. But the jobs lured to Michigan were so few that the programs were killed in 2007. The broadband program's legacy was $14.5 million of bad loans eaten by taxpayers. Then State Senate Majority Leader Ken Sikkema, an original supporter of the telecom program, called it "one of the biggest flops in state government."...