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.