Economic developers point to new study

September 13, 2010
| By Pete Daly |
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A new study commissioned by West Michigan economic development agencies is a “blueprint” for creating a “great” economic development organization representing the entire state, according to Ron Kitchens, CEO of Southwest Michigan First in Kalamazoo.

“We hope to change the dialogue away from the negatives or just looking backward” at the economic development process that has been in place as Michigan’s economy withered in recent years, said Birgit Klohs, president/CEO of The Right Place in Grand Rapids.

Because of the economic turmoil of the last decade, and because the November election will yield a new governor and replace a majority of the Michigan Senate and House, “we anticipate a call for dramatic change in how the state of Michigan does business,” states the summary of the study: “Policy Recommendations for the Improvement of Statewide Economic Development in Michigan.”

The summary also notes that “the effectiveness of statewide economic development agencies has become a central policy debate in a number of states since the recession began in 2008. Arizona, for instance, recently decided to scrap its statewide Economic Development Organization in favor of a new organization that is both closer to the business customers it serves and further distanced from the politics that drove staffing and budget decisions in the Arizona Department of Commerce. … The same policy debates are now being voiced in Michigan.”

“If there is total dismemberment” of the Michigan Economic Development Corp., Michigan will lose credibility in the worldwide competition to attract new business and more jobs, “because nobody will be answering the phone in Lansing,” said Klohs.

Early this year, MEDC CEO Greg Main offered to resign after a Michigan Economic Growth Authority grant was tentatively approved for convicted embezzler Richard Short if Short would bring his alleged alternative energy company to Michigan. Short’s background was soon uncovered, however, and the money was never awarded. Gov. Jennifer Granholm refused to accept Main’s resignation.

Later, a member of the Legislature proposed to cut business taxes and eliminate most state incentives for companies that would set up shop in Michigan.

Among the study’s recommendations: A state-run economic development agency should be “insulated” from politics. It also focuses on effective job-creation practices in five other states and dissects what it calls “myths” about job creation, which include “big business isn’t important in economic development” and “business recruitment doesn’t matter.”

The study, done by Taimerica Management Co., a Louisiana management consulting firm, was commissioned by The Right Place Inc., Southwest Michigan First, Lakeshore Advantage in Zeeland, Newaygo County Economic Development, Cornerstone Alliance in Benton Harbor and Battle Creek Unlimited.

Klohs maintains that Michigan must have an economic development organization at the state level — not just regional agencies — and the state agency must officially represent the state of Michigan, because when she travels to Germany or Japan to propose Michigan for new investments, the people there want to know for certain that the state of Michigan is backing up the proposals.

Klohs also emphasized that the issue is “not east versus west,” referring to a perception that West Michigan and Southeast Michigan are often opponents in state government affairs.

“This report isn’t meant to be an attack on the MEDC,” said Randy Thelen, president of the Lakeshore Advantage. “It’s really meant to be an assessment of economic development across Michigan, at the local, regional and state level. How do we get better?”

Klohs said the MEDC was the leading state economic development agency in the U.S. for several years after it was formed nearly 18 years ago, but it began to lose effectiveness four or five years ago.

“We’re not saying it’s their fault,” she said, referring to the MEDC. “We’re not throwing anybody under a bus.”

Main told the Business Journal Thursday morning he had just “flipped through” the study and had a sense of what it was saying. He said “several of these kinds of (studies)” are in the works, noting that the Small Business Association in Michigan did one and another is in the offing from the Michigan Economic Development Association (scheduled to be released this week.

“And we’ve commissioned a study, as well,” added Main. “We thought it would be important for the new administration, whoever it may be, to have a good base (of information). So we’ve gotten an out-of-state, well-respected consultant to do some work,” said Main. The MEDC’s report will probably be available in early October, he added.

Main said he believes the debate is “all healthy” and that Michigan ought to be “looking at where we are and what we have accomplished, where should we be headed, and what does that mean in terms of our incentive programs, our strategies, our organizational relationships.”

As to the study released last week, he said, “I was disappointed that whoever did this report didn’t make any contact here, and as a consequence, there are some factual difficulties with what’s in the report.” One glaring one, he said, is the statement that governance of the MEDC is “complex” because it has 90 board members, which the study says is “larger than most state Senates in the U.S.”

“There is a quibble that we have a 90-member board, which we really don’t have. We have an executive committee of 20 members, which is largely made up of the private sector — and local economic development people, by the way,” said Main.

“They act as the governing body for the MEDC and they are responsible for hiring me and approving our budgets and so on. And that was missed in the report,” said Main.

“I don’t want to shoot it all down,” said Main. “I think there’s probably some relatively good ideas, which most people would agree with. At the same time, it’s one of a mix. There’ll be lots of these reports out.”

Thelen said the Richard Short controversy was “one bad apple that snuck through the system.” He emphasized there was “no cost to the taxpayer” in the outcome and it was “one in 800” MEGA projects that were approved.

“That’s hardly reason, in my estimation, to scrap the entire system. It’s cause for correction, cause for rethinking the process but it’s not cause for dismantling the whole system. I don’t think you should penalize the other 799,” said Thelen.

As to the debate over what the focus should be in economic development, Klohs disagrees with those who believe that small business is the source of most new jobs, a position that also was disputed in the Taimerica study. She also said some argue for focusing only on retention of existing businesses in Michigan; others would focus only on attracting new businesses to Michigan.

“It’s not either-or. We do both,” said Klohs.

Thelen also said he views many positions as “taking what I consider to be an either-or approach. It’s either this or that; it’s never both.”

The West Michigan study, he said, “is a comprehensive, thoughtful approach to economic development,” one that is diversified to include new company development from the earliest stages, retention and expansion programs for existing businesses, and new business attraction efforts.

“All three of those elements need to be part of any qualified economic development strategy,” said Thelen, “and I think that’s what this report finds.”

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