Wednesday, August 18, 2010

Why Focus on Improving the Environment for Small Business Job Providers?

There are two competing philosophies regarding economic development:
  • Empower the bureaucrats in Lansing to pick the winners from the losers, subsidize the expected winners with tax credits and hope they create jobs.

  • Improve the environment for all businesses, encourage innovation and entrepreneurship and hope jobs are created and revive the economy.

First, it probably goes without saying that creating jobs and reviving the economy is the most critical issue Michigan faces. If we can get the economy going again:

  • State tax revenues will rise, making balancing the budget much less painful.
  • The budget priorities, such as education and public safety will more easily be funded.
  • Home foreclosures will fall. Home values will stabilize.
  • The severe budget problems facing local governments will subside so as to allow funding of critical public services such as plowing snow, fixing roads, and police and fire protection.
  • Kids will be able to find jobs here and stay in the state, making not only them happy, but thrilling the parents and grandparents who want to maintain close contact with their family.

Creating jobs is the key to solving many, many issues.

Bureaucrats Fail. I don’t favor the first method, as studies have proven that the bureaucrats simply are not that good at predicting business success. Only 29 jobs have been created for every 100 announced with great fanfare with the granting of the tax credit by MEGA, and at enormous cost per job. In short, this method is great for publicity for the politicians and bureaucrats, not so good for the workers. See The Michigan Economic Development Corporation: A Review and Analysis

Startups Are the Key to Job Creation. Small business creates well over the majority of new jobs. (64% by one report, but a higher percentage by other reporters) Further, the Kaufman Foundation Research Series: Firm Formation and Economic Growth, “The Importance of Startups in Job Creation and Job Destruction”, July, 2010, says: “[W]ithout startups, there would be no net job growth in the U.S. economy.” Startups create most new net jobs in the United States, and the job creation is less dependent on the business cycle, whereas existing firms’ employment varies dramatically with economic expansion and contractions.

“Policymakers tend to reflect common media stereotypes about job changes in the economy, which is to say a focus on the very large aggregate picture (such as the national or state unemployment rate) or on news of very large layoffs by individual companies. That attention is almost certainly misplaced. Nationwide measures are a blunt tool for analysis, and net employment growth reveals little that policy can affect.

Similarly, the common zero-sum attempts to incentivize firm relocation are oblivious to the important pattern of gross job creation revealed by the [study]. States and cities with job creation policies aimed at luring larger, older employers can’t help but fail, not just because they are zero-sum, but because they are not based in realistic models of employment growth. Job growth is driven, essentially entirely, by startup firms that develop organically. To be sure, Survivors create zero to 7 million net jobs (half of which are at establishment births), while Deaths account for a net loss of 4 million to 8 million jobs, which are large flows for the context of the steady job creation of 3 million startup jobs. But, in terms of the life cycle of job growth, policymakers should appreciate the astoundingly large effect of job creation in the first year of a firm’s life. In other words, the [study] indicates that effective policy to promote employment growth must include a central consideration for startup firms.” Page 6.

Ranking 48th Out of 50 States Will Not Revive the Michigan Economy. Michigan ranks very low in terms of attractiveness for businesses to locate here. Whether we wish to encourage outsiders to come locate here of grow organically, we need to make it as easy and attractive as possible to establish themselves here. Otherwise, why shouldn’t they go where it is more favorable?

What Causes Michigan to be “Unattractive”? What can be done? There is no one cause, but the Michigan Business Tax with its 22% surcharge does not help. Neither does the labor climate, with Michigan’s reputation for strong unions, particularly when there are other state’s without the same adversarial labor-management attitudes. The uncertainty about our current and future tax structure is also a deterrent, as uncertainty increases risk for investments and discourages lenders from making loans to emerging enterprises.

If I had to pick one group of ideas proposed by any one group about what to do to improve the environment for creating jobs, it would be the Business Leaders for Michigan, with its Michigan Turnaround Plan: (in great measure along the lines of Rick Snyder's Reinvent Michigan: Rick's 10-Point Plan). See a more extended discussion on my website at

I must admit that this set of ideas is no “quick fix”. It will not be easy and it will not be quick. Anyone who suggests his or her method will be quick and easy is just trying to sell you on smoke and mirrors, similar to “hope and change”. But, we can do better. We can revive Michigan.

The bottom line is that we are not helpless or hopeless. And, as Edward Everett Hale is credited as saying,

"I am only one, but I am one. I cannot do everything, but I can do something. What I can do, I should do and, with the help of God, I will do."

This apples equally well to all who seek to serve this great state of Michigan in getting it back on its feet. That is what I am committed to doing.

Reinventing Michigan for Our Future vs. Protecting the Past and Special Interest Groups

You may have heard about the 7-year-old entrepreneur named Julie Murphy whose business as a lemonade stand at the July Multnomah County, Oregon monthly art fair was shut down and threatened with a $500 fine. The government regulation she violated? Failing to get a $120 temporary restaurant license. Inspectors Shut Down Girl's Lemonade Stand

This serves as an extreme example of government interference with job providers which is stifling our economic recovery. We have a clear choice in this election for State Representative in the 55th legislative district of Michigan.
  • I favor getting government out of the way and cut taxes to let small businesses create jobs. There should be no bailouts for union bosses, or dollars for special interests not tied to real job creation. I favor workers’ choice in the workplace.

  • My Democrat opponent? As a AFL-CIO Community Service Liaison to the United Way, a long time member of the United Steelworkers local 2511 District 2 AFL-CIO who has served as Chief Steward, Trustee and President of the local and currently represents local 2511 as a Delegate to the Monroe/Lenawee County AFL-CIO Central Labor Council, he can be expected to protect the past, opposing necessary reforms related to labor laws (although none of his publicity is specific enough beyond buzz words to know just what he stands for). (And his “Issues” page on his website is blank.)

Currently, labor laws allow unions to collect membership dues from workers covered by a collective bargaining agreement, regardless of whether or not they support the union, and with precious few checks and balances to assure that union money and power is actually used to further the interests of workers.

An August 2002 EPIC/MRA survey commissioned by the Mackinac Center for Public Policy, reported in Michigan Voters Support Labor Reforms, g. 28, 2002, showed that there was support to make the union bosses more accountable.

A financial disclosure bill, e.g. House Bill 6226 of 2002, would require public employee unions to open their financial records to members. When asked whether they would favor a bill requiring annual financial reports from government employee unions, 73 percent of those polled indicated they would do so, with 47 percent saying they would “strongly favor” such a bill. Of those who identified themselves as union members, 72 percent expressed their support for union financial disclosure. Only 15 percent of those questioned expressed opposition to the financial disclosure law. Only with full disclosure can workers fully exercise their right to choose whether to support the continued existence of the union. This is clearly a “union bosses” vs. “the workers” issue. I side with the individual workers.

A paycheck protection bill, e.g., House Bill 4252 of 2002, would require unions to obtain authorization from individual union members before using those members’ dues money for purposes other than bargaining or implementing an existing collective bargaining agreement. Such a law, if implemented, would prevent union dues money from being spent on political activities or lobbying without the approval of workers. Sixty-three percent of those polled expressed support for such a law. Twenty-five percent were opposed. The number of union members favoring paycheck protection fell just short of a majority, at 49 percent. I support the workers’ right to choose whether to support any political parties or ballot measures, and not leave it to the sole discretion of the union bosses.

"Right to Work” laws are state statutes or constitutional provisions which ban the practice of requiring union membership or financial support as a condition of employment. Twenty-two states have enacted Right to Work legislation. Michigan is not one of these states with right to work protection of the employees. Instead, Michigan has a union shop provision allowing employers and unions to negotiate rules that mandate that employees join a union or pay union dues and fees. See Few employers can withstand the union pressures to agree to those provisions.

Senate Bill 945, sponsored by Sen. Nancy Cassis, R-Novi, is a bill that would allow local governments to create the right-to-work zones. (This is different from House Bill 4454, introduced by state Rep. Jack Hoogendyk, R-Portage, in 2008 which would have given workers in a union shop an opt-out of participating or paying dues to a union, in other words, a state-wide implementation.)

“Within these proposed zones, employers would be prohibited from compelling an employee to join a union under threat of either being fired or never hired in the first place. Free-market labor analysts have repeatedly noted that there is a strong correlation between a state's economic growth and whether it provides right-to-work protections to its workers. And polling data has indicated strong public support for Michigan becoming a right-to-work state.” [A June 2002 poll of likely Michigan voters indicated that 62 percent would favor a Michigan right-to-work law. Only 22 percent of those polled were opposed to this idea.] . . .

“A 2007 analysis by Mackinac Center labor policy director Paul Kersey examined the correlation between a state's economic success and its adoption of a right-to-work law. Looking at the five-year period from 2001-2006, Kersey reported that states with right-to-work laws increased their gross state product by 18.1 percent, while states without a right-to-work law saw GSP grow by just 13.6 percent. Michigan was one of the worst non right-to-work performers, growing by just 3.4 percent.

Even Louisiana and Mississippi - two right-to-work states that saw massive economic damage due to being hit by Hurricane Katrina during the period under examination - were still able to substantially exceed the GSP growth of Michigan.”

Republican gubernatorial candidate Rick Snyder has opted not to make Right to Work a plank in his platform, likely recognizing that in addition to a massive voter education campaign, any successful workplace freedom initiative would require a population that has learned to dismiss the demagoguery of self-serving special interests who benefit from the status quo.

When Mike Bouchard announced his support for Michigan becoming a Right to Work state in his unsuccessful candidacy for Governor, he said, "The union bosses and special interests may be upset, and will probably target me, but I'm ready and willing to take on the tough challenges to turn our state around." I second that emotion. If we are going to pull the state out of our doldrums, we must take dramatic action to show that “Michigan is open for business.”

“University of Michigan economist Don Grimes said, “the state will have trouble competing for manufacturing jobs against states from the South that are almost all right-to-work. . . . If Michigan wants to go after manufacturing jobs, it should consider right-to-work laws.” Role of unions in Michigan during recession disputed

Prevailing Wage Laws. Under Michigan’s prevailing wage law, all contractors participating in a state or state-sponsored school construction project must compensate their workers b paying wage and fringe benefit rates found in local union collective bargaining agreements. While I was a school business manager at Adrian Public Schools supervising the $50 million bond project to renovate our schools, the contracts that fell under that provision cost us about 20% more than contracts that we could competitively bid out without that provision. With scarce dollars, we must do all we can to get the biggest bang for our buck, and that includes eliminating this budget busting provision.

Minimum Wage. The federal minimum wage is set at $7.25 per hour. With some exceptions, this amount is the lowest amount that a worker is able to make in the United States. States are entitled to pass higher minimum wages. Michigan’s minimum wage is currently $7.40 per hour.

No one will argue that $7.25 is a wonderful wage rate, but studies have shown that setting minimum wages reduces the number of people employed. Further, Michigan setting a minimum wage rate higher than the federal minimum wage is one more example of Michigan being antagonistic to employers. Small wonder we rank 48th out of 50 states in attractiveness for businesses to locate in Michigan.

“Card Check”. “The current method for workers to form a union in a particular workplace in the United States is a sign-up then an election process. In that, a petition or an authorization card with the signatures of at least 30% of the employees requesting a union is submitted to the National Labor Relations Board (NLRB), who then verifies and orders a secret ballot election.

. . .

Under the proposed Employee Free Choice Act (EFCA), if the NLRB verifies that over 50% of the employees signed authorization cards, the secret ballot election is bypassed and a union is automatically formed.”

The tension here is the workers’ freedom to choose without coercion as guaranteed by the confidentiality of a secret ballot versus the unions’ desire to more easily form new unions. I view the secret ballot to be a right we must protect, yet most Democrats favor the card check bill.

Other Miscellaneous (but important) issues related to labor: The Democrats in Lansing:
  • Overwhelmingly opposed blocking the 3% increase for unionized state employees even when a $1.7 billion deficit was projected.

  • Oppose revision of PA 312 (which requires binding arbitration for police and fire fighters if agreement with the municipality cannot be reached) to require the arbitrator to consider the municipalities' ability to pay. Contracts awarded by arbitrators in the absence of that requirement have granted retirement pay and other benefits grossly out of line with reason. See Center for Michigan

  • Oppose revision of the Urban Cooperation Act (which requires consolidating municipalities to pay the highest wages and the highest benefits of the consolidating entities, which results in higher costs after consolidation rather than lowering costs, and thereby discouraging consolidation rather than encouraging cooperation).
Where will my Democrat opponent come out on these issues? All relate to protecting the current practices which discourage controlling spending and creating an environment in which small business job providers can prosper and create jobs. My bet is that with his strong union background (and probable financial support for his campaign) he would vote with the liberal majority of the Democrat caucus and against job creation.

The choice is yours. I would appreciate your support.