Business subsidies don't foster growth

By James M. Hohman

In the last 17 years, Michigan lawmakers have voted to take $16 billion from the public at large — enough to resurface all the state highways — and given it away as business handouts to a few companies selected by themselves and state employees. A new scorecard lets you know how much money your representatives in Lansing voted to give away.

The official intent of handing out subsidies is that businesses can use the money to start creating jobs, planting a new industry and grow the economy. But when the costs are considered, economists find that these subsidy programs often cost jobs instead of create them. In other words, the subsidies don’t do the job that they were intended to perform.

The Mackinac Center for Public Policy developed a scorecard that lets you see how your state lawmakers have voted on these programs, Hohman writes.

The Mackinac Center for Public Policy developed a scorecard that lets you see how your state lawmakers have voted on these programs, with records of how much they approved or opposed in corporate handouts.

We whittled the $16 billion worth of subsidies the state approved over the past 17 years down to 37 laws that lawmakers passed to create new business subsidies. We did not include tax exemptions, only acts that transfer money from taxpayers to businesses selected by politicians and public administrators.

The scorecard shows that it’s a bipartisan game. The average Republican approved $1.47 billion in subsidies, or 91 percent of what the average Democrat gave, which was $1.62 billion.

A look at the legislative history shows how divided government played a role.  During the two terms of Democratic Gov. Jennifer Granholm, Republicans controlled the Senate and, for four of her eight years in office, the House as well. The only thing that both parties could agree upon, it seems, was that favored businesses needed more taxpayer money.

The drive for more subsidies eroded during the Snyder administration, but it hasn’t gone away. A further $2.5 billion in new subsidies have been authorized during his two terms. But there was also some persistent bipartisan opposition to the laws, with 22 lawmakers voting against every subsidy they could. That block was made up of 21 Republicans and one Democrat (Rose Mary Robinson of Detroit).

Regular opposition to subsidies is a new trend, by the way. None of the lawmakers who have opposed every subsidy served before 2009

New subsidies are being considered right now. Some bills would add more subsidies for developers rehabbing structures that officials deem historic. The Senate passed them with only two dissenters.

One of the reasons that lawmakers favor business subsidies is that fostering actual economic growth is hard. It’s tough to claim credit for encouraging growth when much of what goes into increasing state prosperity lies beyond Lansing’s approval.  It is true that state lawmakers can encourage growth by using less burdensome tax policies and improving the regulatory environment, but business subsidies offer politicians a convenient, highly visible way to look like they are increasing growth. They can show up at a groundbreaking ceremony and point out that the subsidies they approved led to it.

But it is only a mirage. Subsidies have obvious financial costs, and they have economic effects as well —— not all of them positive. And their failure to foster growth shows that lawmakers put the interests of well-connected businessmen over regular residents. With the new scorecard, you can see just how much.

James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.