Corporate Welfare Isn't 'Essential' to a Vibrant Economy

Economists who have carefully studied the job- and economy-growing impacts of government "economic development" programs conclude that they range from marginal to not effective. Small businesses who don’t get any special favors think it's unfair. Citizens regard it as political cronyism, and lawmakers are increasingly put off by the arrogance and exaggerations of the officials who run the programs.

But MLive columnist Rick Haglund has discovered a group who says the practice plays a “vital role” in Michigan and is “essential” if citizens “want to continue the economic and job growth we are experiencing today.” They are people employed by an economic development agency.

Perhaps the strongest evidence that such programs are not essential comes from statewide "job churn" statistics. To cite one three month period, during the third quarter of 2014, 205,613 Michigan jobs evaporated, and 192,391 new jobs were created.

In the three months before that, 226,224 jobs were produced and 192,512 lost. Every quarter similar numbers are reported by the federal Bureau of Labor Statistics. Over the past several years, job creation here has outweighed job destruction, resulting in a net gain of 316,400 Michigan jobs from 2010 to 2014.

The officials in the economic development agencies can’t say where those lost jobs went, or where the new jobs come from. What they can do is arrange subsidies for a tiny number of companies and developers who promise to create a fraction of the jobs that continuously rotate in our big economy. But the magnitude of their operation is a small fraction of the regular job churn. 

For example, during the first three month period cited above, state officials made subsidy offers to 32 companies who promised to create 5,477 jobs, or around 2.5 percent of the job churn for the same period. The record shows less than half these promises are likely to be realized, and it’s probable that many of the new jobs would have appeared without the special treatment.

These programs probably account for less than 1 percent of the jobs in this state. Their current operations consume hundreds of millions of taxpayer dollars annually, and past programs have added hundreds of millions more in obligations coming due. It's an expensive enthusiasm.