Lawmakers in Lansing try to figure out an economic theory they can stick to
Governor Rick Snyder’s election seven years ago was supposed to represent the political triumph of “economic gardening,” the idea that government doesn’t offer big incentives to land big companies and, thus, pick winners and losers.
Instead, the idea goes, economic gardening works to create an overall environment that allows businesses and startups to grow organically. The benefits are supposed to be fairness to both small and large businesses and that tax breaks and incentives are more across the board.
But there is a particular type of will required with economic gardening. And that is a willingness to let big deals pass your state by.
And, that’s where economic gardening always seems to fail because when big companies come along offering lots of jobs and paychecks, the political class feels a lot of pressure to do something to land those businesses in their state.
That’s one reason why we’ve seen the state Legislature recently move back into the incentives game with an eye on big deals like Amazon’s new H2Q headquarters, Foxconn Technology, and the new Mazda-Toyota partnership.
It seems like every time there’s a big deal dangling, there’s a new war between the states with all of them competing to offer tax breaks and incentives so the companies want to come to them.
And, let’s remember, that money that goes towards the incentives is money that would otherwise go to the state budget. Someone or some program is going to end up having to pick up the cost.
“What I would love to see would be for the governors to get together and sign a ‘non-aggression’ pact saying we’re all going to not do this,” Michigan State University economy Charles Ballard told It’s Just Politics.
Ballard says states are letting big companies drive up the ante and, thus, the cost of incentives. “As long as they don’t have some kind of a mutual agreement… big companies will continue forever to be able to play one state or one locality off against another.”
But, historically, the pressure is just too great. The economic prize just too big to ignore.
Republican Governor John Engler ran in 1990 against economic incentives - no more government picking winners and losers.
He stuck to it for 2 years.
In 1992, in a big restructuring wave, General Motors pitted factory against factory and state against state. One of the winners in that competition was Arlington, Texas. The Willow Run plant in Ypsilanti was a loser.
Afterwards Engler famously declared “no more Willow Runs” and Michigan was back in the incentives business.
Engler’s successor, Democratic Governor Jennifer Granholm, continued the game. She wasn’t able to shake the state’s reliance on incentives as Michigan weathered the Great Recession.
Rick Snyder derided incentives in his campaign for governor in 2010. But, now, he’s embraced them in an effort to win Amazon, FoxConn, and the Mazda-Toyota plant.
But there’s another reality about incentives - it’s not always game over once a state lands a big employer. That’s because those companies - even after they set up shop in a state - are still in the driver’s seat. During the Great Recession, Michigan actually ended up awarding incentives to companies that demanded them to simply avoid job layoffs and stay in the state.
When the political class goes for deals that are too big to ignore, taxpayers should know these promised rewards don’t come without risk.