Back optimism with real economic reform

25 01 2012

My column from the latest issue of the Michigan Review:

The 2012 North American International Auto Show was more than a razzle-dazzle display of sheet metal: it was a testament to optimism. Pundits, industry leaders, and politicians alike were quick to boast of Detroit’s roaring recovery. The oft-repeated narrative was one of relentless positivity. The Big Three had returned from the brink stronger than ever; the Motor City (and the economy of Michigan as a whole) was on the road to recovery.

It’s a lovely sentiment–one I certainly wish that I could buy into without reservation. But although surging auto sales figures seem to lend some credence to this most recent wave of enthusiasm, there is little evidence to suggest that the destructive mentality that spurred the decades-long decline of Midwestern industry has been vanquished. I’m referring to the tendency to take entrepreneurs, businessmen, and industry leaders–and the jobs and wealth they provide–for granted.

Believe it or not, this wasn't already there when Cadillac showed up

Take, for example, one of Detroit Mayor Dave Bing’s proposals intended to improve the city’s bleak fiscal situation. Despite a personal income surtax (levied on both Detroit residents and those who merely work in the city) and property taxes that are already among the highest in the state, Bing wants to nearly double the city’ corporate income tax. That proposed increase might not seem like much on paper (the rate would climb from 1 percent to 1.9 percent) but it betrays a fundamental ignorance of Detroit’s history, its downfall, and the only viable route to its recovery.

Detroit is having a difficult enough time attracting business already. Corporations certainly aren’t moving into the city because of its honest government and world-class public services. An up-and-coming entrepreneur could easily rent office space in one of Detroit’s suburbs, raise a family in a safe suburban neighborhood, and never have to wrestle with Detroit’s incompetent bureaucracy. Many do precisely that. Bing’s business-stifling proposal would do nothing to reverse the trend.

More surprising, and disappointing, is businessman-turned Governor Rick Synder’s mixed performance as Michigan’s executive. His efforts to streamline business taxes and shore up the state’s finances have begun to yield results, but his reforms do not go far enough.

Snyder has repeatedly shut down talk of real, statewide labor reform, which must necessarily include the passage of right-to-work legislation. Michigan’s lack of action will prove a boon to other states, and not just those in the business-friendly South. While Snyder tinkers with roads and bridges, Indiana Governor Mitch Daniels has organized support for a controversial right-to-work bill. Though infrastructure is important, Daniels’ legislative priorities demonstrate his willingness to do what is right for his state despite the political headwinds.

Daniels seems to understand that no city, state, or region can lay perpetual claim to an industry. Economic and political incentives matter. The entrepreneurs that built Detroit and made Michigan a model of modern prosperity are not tied to this geographical area by duty or necessity. Once the populace began to take our industry for granted, it began to migrate to more business-friendly climes. Though Ford, General Motors, Chrysler, and their innumerable suppliers maintain a corporate presence in Michigan, much of their production has been moved to other states or countries with more competitive taxes, regulations, and labor policies.

Entrepreneurs and businessmen are as prone to personal and professional folly as anyone else; they are not the godlike übermensch of an Ayn Rand novel. But while we don’t need to deify industrialists, we cannot continue to treat them as an ever-present force of nature that will continue to produce wealth no matter how heavy the burden of taxation, legislation, or regulation. They will eventually take their toys (not to mention their capital and expertise) and play somewhere else. In Michigan’s case, many already have. And rightfully so.

We have the power to make the optimism that characterized the Auto Show both meaningful and enduring, but only if we do what is necessary to welcome business leaders–and the wealth they produce–back to our state.

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