Industrial Policy

MEGA PR Requires Rejoinders

Following is a letter I e-mailed to a television station on Oct. 15, 2008.

Station Manager
WLNS-TV
 P.O. Box 40226
Lansing, MI 48901

Dear Station Manager:

I am writing in response to an item posted on your Web site (“More Jobs Coming to Area,” Oct. 15) that uncritically repeats the claim in a Michigan Economic Development Corporation press release that  discriminatory tax breaks granted to several particular firms will result in 7,500 net new jobs for Michigan. The MEDC’s track record for picking winners and losers in the marketplace is poor, and the state has been in a wholesale growth retreat literally since the MEDC’s creation in 1999.

In 2005 a colleague and I produced an exhaustive 123-page review of the state’s premier tax incentive program, the Michigan Economic Growth Authority, and found it had been a complete failure. The study included a peer-reviewed statistical model that found MEGA did not improve employment, the unemployment rate or per-capita personal income during its first nine years.

To date, the MEDC has not to our knowledge refuted a single fact in the study — a point that should deeply embarrass the state’s economic development mandarins. Moreover, a review of state documents found that of the 127 MEGA site locations that should have had fully employed facilities through 2004, only 56 claimed to have any net new employment and only 10 could be shown to have “created” the number of jobs they promised in the time frame set forth by the firm and the state. Moreover, several of the companies subsequently left the state or cut employment or went belly up altogether.. Plastech is a good example. It’s mentioned in your article because another company got state assistance at a former Plastech location. But Plastech itself is one of the MEGA “winners” that turned out to be a big loser in the marketplace, having gone out of business this year.

Gov. Jennifer Granholm even praised the Plastech deal in a press release, probably just like the one you received yesterday, saying, “Michigan’s leadership in attracting new businesses and expanding our existing manufacturing sector continues today with Plastech’s commitment to the future of our state. My administration wants to make Michigan a magnet for economic growth — Plastech’s expansion is evidence that we're making it happen.”

The bottom line is that the economic development apparatus that sends you self-aggrandizing press releases is a jobs announcement program, not a jobs creation one. The 7,500 new jobs allegedly coming to the state probably won’t appear, but that is of little consequence for the MEDC, as few will remember their promises and MEDC officials face no accountability if they’re wrong.

A Man of Letters

My good friend, Don Boudreaux, who blogs over at cafehayek.com, sent this letter to the Pittsburgh Post-Gazette in response to a piece in that paper’s Sunday edition. It is worth reprinting below.

 

I would also like to take this opportunity to encourage my readers to visit cafehayek.com for a treasure trove of insightful economic commentary. The site is named after Nobel laureate F.A. Hayek, who is frequently mentioned in my own work regarding the “knowledge problem.” The charming sketch of Mr. Hayek (right) is taken from professor Boudreaux's blog.

 

Dear Editor:

 

You endorse “industrial policy,” supposing that it will somehow improve the economy (“Fighting words: It's time for Obama to talk tough on the economy,” September 14).  You're mistaken.

 

By guaranteeing that certain firms, industries, and jobs will survive, government industrial policy shields these producers from competition. Thus protected, they escape the need to find greater efficiencies in production and the necessity of diligently satisfying consumer demands. And by locking up resources in politically favored industries, industrial policy makes it vastly more difficult for entrepreneurs to start new firms and to produce new products. Pioneering and creative firms, after all, inevitably threaten the existence of older firms — by competing against older firms both for consumers' dollars and for workers and capital.

 

The job security guaranteed by industrial policy is the security of serfs on feudal manors and not that of free and prosperous people.

 

Sincerely,

Don Boudreaux

Chairman

Department of Economics

George Mason University