We’ve been doing economic development all wrong. It’s not hard to see — the results are right in front of our eyes.
Over the past four decades, under administrations of both major political parties, Michigan has gone from being a relatively prosperous state to an objectively poor one.
Even before the pandemic, more than 43 percent of Michigan households couldn’t pay for basic necessities.
Our call is to reduce this horrible statistic and make rising household income for all Michiganders the new primary goal of state economic development policy.
Shifting focus to the economic well-being of Michigan residents instead of GDP growth is the first step.
Next, comes the important task of crafting the best set of policies to achieve this goal.
Michigan Future Inc. President Lou Glazer and I wrote a recent article for Bridge Michigan where we lay out the tenets of what a new, more effective economic development strategy for Michigan should look like.
While there is no magic formula, it’s clear from the experience of successful places around the country and the world that we must invest in our existing residents, places and entrepreneurs. We must develop our own talent and local businesses and create places that will retain that human capital and attract more of it.
In short, we need to do the opposite of what we do now — making top-down investments in large corporations in the hope that they will bring jobs and, ultimately, prosperity. Here, I’ll explain what that really means on a practical level and outline some examples of policies that put people first.
While we need to change our current approach, that doesn’t mean that existing policies and their mechanisms can’t be instructive.
For the most part, Michigan’s economic development strategy is based on a sound concept: provide targeted incentives to businesses and define milestones and metrics that trigger the full value of the incentives.
But what if the targets of those incentives weren’t companies? What if we directly removed barriers and helped people achieve goals that already align with the path to prosperity for Michigan? In other words, what if we treated people better than businesses?
For example, in successful places, more people have higher levels of education, and people with higher levels of education have higher incomes.
However, in Michigan, cost is a huge barrier for those seeking college degrees or other credentials. So, taking a page out of our corporate-focused playbook, why don’t we provide tax credits for people who achieve certain educational milestones, say earning a bachelor’s degree, and then stay in the state?
Of course, back-end incentives won’t remove one of the prime barriers to education for lower-income people: the fact that they need money to pay for school now. So, couple this tax credit with one of the existing scholarships like Michigan Reconnect or Futures for Frontliners.
For businesses making improvements to properties that are blighted or functionally obsolete, we’ve created an incentive called tax increment financing, or TIF.
TIF works like this: we look at the taxes a company is paying before making the improvement and we call that the “baseline.”
Once they increase the tax owed, say by constructing a new building, the increase or “increment” is used to offset the cost of the investment or pay for environmental remediation.
Flipping the script, but aiming to accomplish the same goals, Jordan Twardy, an economic developer from Ferndale, suggests using a similar mechanism for people who are repairing or fixing up their properties in cities and inner ring suburbs, allowing them to capture the taxable value of improvements they make to their homes.
This would help revitalize urban areas, increase the wealth of those residents, and improve their quality and standard of living.
In an earlier column I described how, in the past year, we’ve all been made acutely aware of the importance of traditional small businesses to our commercial corridors and main streets. The stock market’s record highs don’t reflect the true state of our economy as it is felt by most Americans.
Yet we have directed very little specific economic support for these businesses. This has always been shortsighted, and the speed at which our broader economy (not just the Dow Jones Industrial Average) recovers from COVID will be directly correlated with the degree to which we help our small businesses not only weather this crisis, but thrive when it is over.
We must ensure that all over the state, every small business and each would-be entrepreneur has access to the financial support and technical assistance they need to start, stabilize, and scale their business. We don’t need to attract chain stores.
We have the talent right here, and we have the model in our existing economic development toolbox.
You might not know this, but the Michigan Economic Development Corp. has divided the state up into 21 smaller areas each serviced by what it calls a “SmartZone.”
Each SmartZone provides all manner of technical assistance and financial support to businesses in its respective geography.
The state provides annual support to the zones through a variety of mechanisms — Ann Arbor’s SmartZone received almost $4.5 million in 2020 from a TIF (remember those?) while Oakland County’s got $2.5 million from the state as a grant separate from its own TIF.
Business owners who work with a SmartZone have access to a statewide pool of capital called the Business Accelerator Fund. If they need to build a prototype or hire a lawyer, they can access the fund for up to $50,000 for essential services.
Sounds great, but here’s the catch: This support is only available to technology-based businesses located in one of the TIF zones. This is counterproductive for several reasons, and it’s time we used this model to help all small businesses regardless of where they’re located in Michigan.
The state should create a similar structure to SmartZones, but for traditional businesses, and complement this structure with a fund to help defray startup expenses if the business works with these technical assistance providers.
We could create, staff, and operate this network, helping thousands of small businesses across the state, for a fraction of what we shell out to help tech companies in a few urban centers.
These are just a few of the ideas that economic developers and business leaders across Michigan have shared with me when I’ve asked: What if we treated people better than businesses? There are dozens more.
You’ve probably thought of one while reading this.
It’s time to flip the script. It’s time to unlock Michigan’s potential and invest in our people.
Ned Staebler is vice president for economic development at Wayne State University and president and CEO of TechTown.