Michigan rejoins U.S. economy

This appeared on The Detroit News on May 15, 2014.

For most of the last decade, Michigan has unquestionably had the worst performing state economy.

As economists and former Michigan residents, we know both the abysmal economic statistics and the real human costs of perpetual layoffs, declining income, long-term unemployment, empty main street storefronts, and a stream of friends and family members forced to leave the state they love in search of opportunity and prosperity elsewhere.

Thankfully, recent public policy changes should give Michigan citizens reason for optimism for a brighter and more prosperous future. Our recent Rich States, Poor States economic outlook ranking of the 50 states shows Michigan jumping from its position as the 20th most competitive state in 2013, to the 12th most competitive state in 2014.

Just a few years ago in 2009, Michigan ranked as low as 34th in the country.

Rich States, Poor States ranks states’ respective economic outlook and competitiveness based on economic policy climate. The study, published annually for the last seven years by the American Legislative Exchange Council, measures the extent to which a state embraces a free market, low tax, limited government public policy environment according to 15 equally weighted variables, including tax and labor policy, the size of government, public debt and the state’s legal environment for business.

While a state’s public policy environment isn’t the only thing that determines economic performance — weather, natural resources, sound governance, basic public services and the prevalence of innovation hubs all matter, too — it contributes greatly to a state’s economic health and growth. Moreover, policy reform is the only real option available to state policymakers looking to improve their economic performance, given their inability to alter the other contributing factors of economic growth.

Michigan policymakers have undertaken a number of bold reforms in recent years to make the state more hospitable to large and small businesses. Significant reforms that helped spur economic growth include the Michigan business tax repeal, the phase-out of the personal property tax, the taxpayer audit guidance, regulatory reform, and increased labor freedom through right-to-work policy. By cutting red tape, providing reasonable and predictable rules for businesses, and giving individual employees the choice to unionize, Michigan’s government allows more money to remain in the hands of businesses and individuals.

When businesses have more profits due to lower taxes and decreased regulatory compliance costs, they are able to more easily invest, expand, hire, and promote in Michigan.

Moreover, for entrepreneurs just starting out or out-of-state firms looking to relocate to a more hospitable business climate, business in Michigan has recently become substantially more viable. This means work for the long-term unemployed, promotions for the underemployed, opportunity for the ambitious to start their own business, and perhaps most importantly, the ability for Michiganians who love their home state to stay close to friends and family and build a career in Michigan. Greater economic freedom in Michigan means greater opportunity for Michiganians to share in the blessings of prosperity and the dignity of professional achievement.

Policy reform in Michigan came with its share of controversy, but the truth is that economic freedom matters dearly to economic performance.