Selective subsidies are a losing strategy for Michigan

Michigan is falling behind. Jobs nationwide are up 3.0% from pre-pandemic levels; Michigan has yet to recover all the jobs it lost in the pandemic. Its 0.7% decline is seventh-worst among states. The response from lawmakers was to spend billions on selective business subsidies. It won’t work.

The states that have been growing the most are not the ones writing the biggest checks to the biggest companies. They are Idaho and Utah, the states that spend the least on selective business subsidies.

Handing out favors is no way to get ahead. The states leading the pack do the least of it.

In contrast, Utah and Idaho score highly on what matters: economic freedom. The Fraser Institute measures and ranks states based on their economic freedom, and it puts the two states in the top 10.

Utah and Idaho protect property rights, only have regulations where they protect the public, and keep taxes low. The formula works.

It works because basic rules affect everyone, while favoritism is only granted to the few.

Most job creation happens without politicians getting involved. Michigan businesses added 214,600 jobs in the first three months of 2023 and lost 187,400 jobs over that period. Businesses created one job for every 18 that were in the state and lost one out of every 20 jobs.

The state’s economic development agency issued press releases that it had awarded 18 businesses $293 million in taxpayer money to create 4,200 jobs during the same period.

Job announcements are not the same thing as jobs — Ford Motor Co. already said it’s scaling back a project that was part of the state’s releases — and the state’s record of turning announcements into employment is pretty bad.

Still, even if things went according to plan, administrators would not be able to replace 2% of the jobs lost in the economy.

Michigan is a leader in handing out special deals, but not at the scope necessary to make a dent in the state’s job picture. Economic fundamentals matter, as demonstrated in the states growing the most.

Favors exist because politicians love job announcements. It makes it seem like they are doing something to create jobs.

Gov. Gretchen Whitmer adds a quote to all the press releases.

“Michigan is on the move, and we have an extraordinary opportunity right now to create thousands of good-paying manufacturing jobs and bring supply chains home,” Whitmer said in one.

It makes it sound like handing out money to companies will help grow the economy.

But there is a difference between appearance and performance. In the ways that matter, Michigan continues to fall behind.

Corporate welfare has three basic problems.

First, it’s an ineffective way to create jobs. Second, it’s unfair to the businesses that don’t get handouts. Third, it is expensive to taxpayers.

There are several possible reasons why selective favors are ineffective. Many companies that get cash could have done the same thing without deals from the state. And there are real costs to the handouts, money that could be put to productive uses elsewhere.

Time and again, economists find that handing out favors is no way to drive the economic growth that politicians say they deliver with their deals. Michigan won’t be “on the move” because Whitmer hands out subsidies to the right companies.

Businesses only ask for favors when they think they can get politicians to approve them. They’re happy to play states off each other to get more from cash and tax breaks.

Instead of offering hundreds of millions to the next big company that asks for favors, lawmakers should be working across state borders to agree to stop handing out favors. They can agree to an interstate compact to drop their favoritism, and such things have been introduced in the past, and there is a bill to do so in Michigan at present.

Michigan should trash its selective subsidy programs. It’s a huge expense for a failing strategy.

James M. Hohman is director of fiscal policy at the Mackinac Center. Email him at hohman@mackinac.org.