Wolfram: Nerd's urban challenge

Governor Snyder's State of the State message this week rightly focused on jobs. But he should have spent more time congratulating himself - and the Legislature - for getting rid of the Frankenstein's monster that was the Michigan Business Tax.

One of the reasons for the economic turnaround in Michigan - perhaps a primary reason - was the reduction in the tax burden on producing goods and services in the state, and, as important, the clarification of future tax liability.

This was truly an impressive accomplishment.

Major changes in business taxation are rarely accomplished in such a short time frame since there are winners and losers in any such endeavor and special-interest battles normally bog down the political process. The MBT was the abominable result of such a process and its elimination within months of the governor taking office was impressive.

Snyder should have also taken more credit for removing the cap on charter schools. Edward Glaiser has documented in his recent book, Triumph of the City, how important education is to economic development - and how systemic change is necessary to its improvement. In particular, change is needed is to move from a centrally-planned, socialistic system to one based on competition.

Glaiser cites evidence of charter schools improving services for low-income populations and benefiting cities. Eliminating the cap on charter schools will give new hope to children in Detroit, Pontiac, Flint, and other underperforming school districts.

The governor noted that the state has "urban challenges."

These challenges will be difficult to overcome, as cities like Detroit, Flint, and Pontiac have seen substantial population declines and have significant burdens in infrastructure and legacy costs. They also have declining tax bases and failing schools. Solving our urban problems is vital to the state's economic future and will, says Snyder, take "making the improbable the new and exciting reality."

Restoring our major cities will take more than emergency managers - it will require thinking outside the box. For example, Detroit is too big for its current population to sustain.

Consider selling parts of Detroit to developers to establish a private city. The developer would then provide services either directly or through contract with the City of Detroit - much as a homeowners association might provide services and charge homeowners association dues. This idea needs further research to be implemented, but it would be the type of structural change necessary to reinvent Michigan's urban centers.

Of course, some - including myself will not agree with all of Snyder's programs. In particular, the economic argument for a government-owned bridge between Detroit and Windsor makes less sense today than it did when I argued against it six years ago when MDOT proposed it under Governor Granholm. Snyder, when discussing the 21st Century Jobs Fund, made the point that "the role of government is to support success, not pick winners and losers." Unfortunately - rather than calling for the fund's elimination, he asked to expand the areas in which it may invest. Rather than continue the Granholm-initiative that uses state funds to invest in projects that state officials believe will be successful, we should use the tobacco settlement money to reduce taxes or increase the Rainy Day Fund.

"The simple truth is the reinvention of Michigan is just as much on what each citizen does as what me and my team do or what this Legislature does," the governor rightly said. In fact, Michigan's reinvention depends more upon what we as individuals accomplish. The role of government must be to ensure that property rights are protected and that its tax and regulatory burdens do not discourage innovation, risk taking, and hard work.

In the past year, Lansing has made big strides in the right direction. We can hope that, at this time next year, our freedoms will be even greater and Michigan's recovery further down the road.

Dr. Gary L. Wolfram is the William E. Simon Professor in Economics and Public Policy at Hillsdale College.