Another Reason to Discuss Government-led Local Business Development

I have written many times about my frustration with cronyist business relocation incentives handed out by most local and state governments.  I have always considered these government incentives to be insanely unproductive spending, often taking taxpayer money to move a company as little as a few miles to get it over some artificial border.  One issue I have not considered in these critiques is whether the sorts of companies selected for relocation are really in the long-term interest of the local community at all.

Almost by definition, most relocation subsidies go to large, well-known companies.  This is for a couple of reasons.  First, large companies have the clout to lobby and demand such subsidies, clout smaller businesses do not have.  Second, politicians are handing out these subsidies in order to get re-elected.  The actual product of these subsidies is a press release and a blurb on the politician's campaign website.  A press release saying that your faithful governor has gotten Joe Smith's Widgets to move to Arizona is a lot less powerful than saying he got a branch of General Electric to move to Arizona.  In fact, the sexier the name the better, which is why politicians fall all over themselves to get Google and Apple and Tesla to come to town (despite the fact that in my observation, it is the staid old companies like Honeywell and Wells Fargo and such that tend to invest a lot more in their local communities).   We have a plant in the Phoenix area that has already had two subsidized sexy companies in it (First Solar and an Apple screen manufacturing partner) and now is empty yet again waiting for the next sexy crony.  Apparently, the state has agreed to subsidize Apple again to use it for a data center, though the move-in may be delayed as there was a large fire at the building when the solar panels on the roof caught fire.  Three sexy press releases for Arizona politicians for the same building!

Anyway, I was thinking about this when I read the piece below from Scott Sumner

This reminded me of a very interesting study that compared two cities in Michigan, Flint and Grand Rapids:

In 1946, sociologist C. Wright Mills and economist Melville Ulmer concluded the fortunes of two of Michigan's largest cities, Flint and Grand Rapids, were headed in opposite directions.Seventy years later, their predictions are getting new notice from academics.

The researchers warned Flint was overly dependent on its big employers even though its workers made 37 percent more than the national average at the time.

The warning seemed out of place. By 1950, Flint was labeled "the happiest city in Michigan" and the "epicenter of the American Dream," thanks to its thriving auto industry.

Grand Rapids, whose economy was defined by its numerous small businesses, was less flashy. But it offered its citizens more mobility and opportunity for its middle class that would help it survive tough times, the researchers concluded.

Flint was still booming in the late 1960s, so it looked like this 1946 prediction was wrong. But then the prediction suddenly came true. Flint's metro population fell from 445,589 in 1970 to 410,849 in 2015. In contrast, Grand Rapids has been booming, with its metro population soaring from 539,225 in 1970 to 1,038,583 in 2015. And both of these places are in the rustbelt state of Michigan.


  1. Sam P:

    Diversification: It's not just for your personal investments.

  2. Corky Boyd:

    Note: Grand Rapids is on the western side of Michigan, is populated by conservative Dutch descendants and votes Republican. Flint is about 70 miles north of Detroit, is the home of Michael Moore, was a hotbed of union discontent in the 1930s, ran out of money 15 years ago, was and is solidly Democratic.

    It doesn't take a genius to figure which would succeed and which wouldn't.

  3. 增达网:








    丁酉年(鸡)三月初五 2017-4-1

  4. SamWah:

    Diversification of assets spreads the risks widely.

  5. tmitsss:

    Amway > Apple?

  6. Jeff Guinn:

    My daughter lives in Holland, MI (40 mins from Grand Rapids) and works as a tech writer for a smallish industrial automation company. It is amazing how many manufacturing companies are in the area.

  7. BobSykes:

    The difference in the racial composition of the two cities accounts for some of this.

  8. 衣皇后:


  9. Benjamin Cole:

    I agree with this post. Stadiums are the worst of course, and convention centers a close second.

    I would like to see Coyote Blog go on an extended jihad against property zoning.

    For some reason, perhaps local crony capitalism and self-interest on steroids, property zoning and related ills such as variances never get the pixels.

    Seems to me property zoning fails on many, many levels, such as on property rights, then on free-market grounds, and then as zoning leads to corrupt governance, and loads of NIMBYism, and then skyrocketing housing costs.

    But the right-wing never wants to talk about property-zoning. What gives?

    Coyote Blog cares not about PC, whether red or blue.

    Go bit, Coyote!

  10. DirtyJobsGuy:

    My parents and sisters live in Grand Rapids and it's economy is booming as is it's "social" attractiveness. The diversity of business is the key (furniture, auto parts, etc) but also a stable and conservative local politics. The local Christian (dutch) reformed church population is the dominant faction in business. They have a clannishness like Mormons with plusses and minuses, but are very local minded with regard to development. The city was never dominated by minority politics but retained large Polish as well as dutch neighborhoods. The city was protected against becoming a welfare industry dominated place.

  11. irandom419:

    Diversity is only for skin color.