Tuesday, October 6, 2009

What Granholm Did Wrong

If you're not doing the right thing, then fighting harder just makes things worse. You end up digging yourself into a deeper hole.

The Washington Post recently did a piece on Granholm's fight against unemployment in Michigan. It's a serious problem that deserves a valiant effort, but I sure wish she would have spent her energy more wisely.

Consider some of her brilliant tactical moves:

"In her effort to attract employers, the governor has taken up the latest arms in the economic arsenal -- tax credits, loans, Super Bowl tickets and a willingness to travel as far as Japan for a weekend to try to persuade an auto parts company to bring more jobs to Michigan.

"She had spent months calling, e-mailing and meeting with city and state officials trying to sway the company to take a package worth about $70 million in tax breaks to stay in Michigan.


"A $37 million tax package helped persuade Michigan-based United Solar Ovonic -- she wooed the chairman with a trip to the 2006 Super Bowl in Detroit -- to build a solar panel production plant

Instead of literally begging people to bring jobs to Michigan, offering to subsidize anything that moves, and creating more tax loopholes for certain industries than swiss cheese, why didn't she focus on creating the right environment for organic economic growth?

No matter how many degrees she has from Harvard, Granholm is still not as good as the market at choosing what jobs should come to Michigan. She can try to lure a company to open up a factory in Michigan with Super Bowl tickets, but that is not a responsible long term strategy for growth.

Here's the outcome of one of her brilliant job-creating acts of desperation:

"With a tax incentive package worth more than $100 million, Michigan beat out Arkansas, Missouri and Oklahoma, as well as Spain, in getting Hardee's company and two other alternative-energy firms...

"...In the spring of 2008, Granholm returned to Greenville to tour the United Solar plant that replaced the Electrolux factory.

"They had product orders all the way out until June 2009 back then," said Greenville Mayor Ken Snow. "But the global economy shifted. That left them with more product than orders that need to be filled."

The pesky thing about markets is that they have a tendency to shift. It's a natural and positive process for society. But when you offer $100,000,000.00 in taxpayer money to specific companies to locate in Michigan, you have to either revert to protectionism, reneg on your deal, or lose a $100 million dollar bet that you made with our tax dollars. None of these are good options.

Granholm's erratic behavior has done serious damage to Michigan's economy.

Before, we had the reputation of a state that constantly tried to protect its major industry. We shielded automakers from foreign competition, so they could shut their eyes and pretend the world wasn't changing. But it couldn't' last for long, because all walls eventually fall, and reality came crashing down on Michigan's auto sector and it's overpaid workers. If we had resisted the protectionist temptation from the beginning, maybe the big three would have adapted, GM wouldn't have gone bankrupt, and there would be a lot more jobs in this state. This is why it is crucial for government to be pro-market, not pro-business.

Now, we've succeeded in losing the protectionist reputation, but we have a worse one: erratic. Businesses do not have confidence in the government of Michigan. While Granholm has been traveling the world offering subsidies to anyone who's thinking about bringing a large-scale operation to our state, she's failed to notice that government intervention in the market always creates winners and losers. With every subsidy you offer, you are picking one winner and declaring everyone else a loser. You don't have to be a mathematician to understand that this is a losing equation. This is why it is crucial for government to be pro-market, not pro-business.

However, there is one thing that Granholm got absolutely right. She admits to herself that she doesn't know what she's doing:
"Granholm remembered coming home and telling her husband, "I just don't know what to do for people."
Don't get me wrong - I admire the persistence and effort on her part, I just wish it was more skillfully applied.

I wish she would have fought for tax reform, making the system fairer and simpler, so big corporations can't hire legal departments to find loopholes to exploit while innovative small businesses get stuck paying the lion's share.

I wish she would have fought for efficiency and accountability in government, so we could reduce the tax burden on our struggling businesses, so they can create more jobs and prosperity.

I wish she would have fought for maintaining healthy markets where innovators and entrepreneurs can thrive, and growth can happen organically.

Those are the things Michigan needed most from her.

Incidentally, these are the things Michigan can expect from Rick Snyder. This wasn't going to be a post about his campaign, but I feel obliged to say that if you agree with my analysis of Granholm's failures, you should seriously look into Rick Snyder.

blog comments powered by Disqus