We’re often asked what we would recommend for alternative economic development policies to the traditional ineffective and costly incentive-and-subsidy model. Our answer is that while the specifics will vary from state to state and city to city, there’s an important common thread: Make your community a good place to live and do business.
That’s obviously easy to say, but harder to do. In practice, lawmakers and other stakeholders should take stock of where the pain points are in people’s lives and in businesses’ bottom lines, especially when they’re caused by government policies that can and should be changed. Then, rather than trying to bribe businesses with taxpayers’ money to overlook those challenges, they should address them in a way that benefits everybody and makes the entire community, instead of one chosen business, better off than before.
In many cases, this discussion starts and ends with tax rates. And while taxes are important and matter to the decisions that companies and individuals make about where to locate, there are plenty of other practical policy reforms in any community that could generate meaningful economic impact and have nothing to do with tax rates.
One real-world example of this is in Michigan, where the state’s auto insurance laws have long required drivers to purchase insurance that provided no-fault personal injury protection with no lifetime cap on benefits and a pricing structure that inflated payments to health care providers far above market rates. The result was some of the nation’s highest auto insurance rates, often rivaling or even exceeding drivers’ car payments. The problem was even worse in cities such as Detroit where even higher rates priced many low-income people out of car ownership altogether.
In 2018, Michigan’s Republican-controlled legislature passed legislation to reform the state’s auto insurance system by overwhelming bipartisan majorities, and it was signed into law by Governor Gretchen Whitmer, a Democrat. It was a rare moment of bipartisan agreement between the legislature and the new governor.
Of course, the special interests that profited greatly from the old system are challenging it in the courts. In an article in The Center Square on those lawsuits, CEA President John C. Mozena was asked for his thoughts on the economic impacts of the reforms:
“One of the more under-appreciated benefits to getting auto insurance reform right in Michigan is the potential it has for creating jobs and growing our economy,” John C. Mozena, president of The Center for Economic Accountability, a Michigan-based nonprofit and non-partisan organization that promotes free-market-based economic development policies across the country, told The Center Square.
“Businesses consistently say that their biggest concern in site selection is finding the skilled workforce they need to succeed,” Mozena continued. “When policies like sky-high auto insurance rates drive people out of our cities and away from our state, we’re not just losing those workers – we’re also losing the companies that would want to come here to hire them. When we make it unnecessarily expensive for people to live in Michigan, we also make it unnecessarily expensive to employ them here.”
Back in the 18th century, Adam Smith gave the policymakers of his day a simple rule for creating economic growth and prosperity: “Peace, easy taxes and a tolerable administration of justice.” While much has changed since his day, Smith’s suggestion is as true as it ever was and an excellent starting point for communities searching for economic growth: Keep your community safe, keep the burden of paying for government as low and fairly distributed as possible and limit the legal and regulatory intrusions into people’s lives and businesses to what’s absolutely necessary. Communities that operate under these principles will be places people want to live and work, and where good companies will create good jobs.
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