State Government's Role in Economic Development

The Mackinac Policy Center in Michigan has been banging away at the Michigan Economic Development Corporation (MEDC) for some time. The Center recently released its latest policy statement on the role of state government in economic development in Michigan. I believe you will find this article to be interesting reading. The Mackinac Center is a conservative policy center in Michigan.

The analysis raises questions about the efficacy of incentives, targeting industries and industry clusters and a host of other practices widely used across America and the world.

These attacks are not new and they have been leveled by many other policy shops, including the Cato Institute, the Heritage Foundation and others. The current stream of assaults coincides with the Bush Administration's effort to "put the market back in control" of the economic development process.

In talking with several economic developers and policy researchers across the country, this is what I hear people saying:

1. These attacks are a cyclical phenomenon. They re-appear every so many years.

2. The Conservatives are trying to capitalize on the Bush presidency to achieve their unfinished business.

3. Many people, including both Liberals and Conservatives, are not convinced that the current state and local government role in economic development makes any sense.

4. Targeting industries and clusters is "backdoor" industrial policy and it is a form of market-steering.

5. The Conservatives are increasing pressure in several areas, including economic development, as a strategy to gain support for the Bush tax cut plan. If they get what they want, they will leave economic development programs alone.

6. The Liberals have been against "corporate welfare" for many years. Now many Conservatives share this cause.

7. The Conservatives don't really want government out of economic development, they simply want to shift resources away from things like incentives and targeting to other types of business subsidies.

8. Most economic developers say they are all for market leadership in economic development, but they don't really trust the marketplace to make the right decisions.

9. Government has always been everyone's favorite "whipping boy." You are damned if you do, and you are damned if you don't.

10. Without Federal Government intervention, state and local government will continue to use current economic development practices. While some say they favor Federal intervention, most in fact do not trust Washington to make the right decisions at the local level.

What does Don Iannone think about the Mackinac Center's policy position?

First of all, this really is not "new" news. These arguments have been made by many others before.

Second, I think we do need to change the model underlying economic development because the current one encourages "zero-sum" behavior by communities, regions and states.

Third, we need to look seriously for alternatives to practices like incentives and industry targeting. I believe we need some "experiments" with new models and approaches to economic development. We need to think out of the box about these issues.

Fourth, before we dismantle the existing economic development system piece-by-piece, we need a clear understanding of the new system that will replace it.

Finally, there is no consistent voice within either the Republican or Democratic camp about what role government should play in economic development. I see several pockets of opinion out there. Developing broad-based consensus about what should be done will be very difficult and maybe impossible.

Article link.