Dean Barber

Take Me to the River

In Site Selection on February 9, 2015 at 11:20 am

Many people, a surprising number of them being economic developers, believe that financial incentives provided to companies that invest in certain places amount to nothing more than corporate welfare, and is therefore a practice that should be abolished.

Nothing I can say will change their minds on that score. Nothing.

Frankly, I find the debate about incentives now quite tiresome and will seldom wade into an article about it.

But I will tell you this, if I’m working for a company on a location analysis project and a community views our interest with a degree of disinterest, we will duly note that.

Nice to Be Wanted

It’s only human nature that you go where you are wanted. That doesn’t mean that we go to the highest bidder. Far from it. Business reasons, not incentives, rule on location decisions.

But we do want to be invited to the dance, and we do want to dance with dealmakers who fundamentally understand that we seek a partnership with a community.

There are those economic developers and elected officials who get it and those who don’t. Now whom might you think that we prefer to work with?

Sometimes an incentive or a package of incentives just gets a community on equal footing with the competition.

Bad Land to Good

Back in 1993, the state of Alabama offered Mercedes Benz what appeared to be an ugly 1,000-acre site of up and down goat hills off Interstate 59/20 near Tuscaloosa.

Despite the challenging topography, the state assured the German carmaker that it could and would grade the site and transform it into one that would work for the company.

I don’t know how much was spent on earth moving, but it was part and parcel of an incentive package worth $250 million.

Since 1997, Mercedes’s original $400 million investment has grown to more than $4.4 billion. Thousands of people owe their job to the simple fact, among others, that bad land was turned into good. In hindsight, that $250 million incentive package was a pretty good deal for everyone concerned.

Don’t Forget Your Existing Companies

When we think of incentives, we tend to dwell on the dollar value by which a company is getting rather than the end stream result. And that can cause some resentment.

I’ve talked to more than a few senior executives who believed that a newcomer, sometimes even a competitor (certainly a competitor for labor), was being given special consideration in their community while their own company was being largely ignored.

I think there is real legitimacy to that notion, which is why all communities should never short shrift business retention and expansion. Always remember that it is your existing industry that creates the most new jobs. You take those companies for granted at your peril.

I’ve also talked to people who have been hurting – either unemployed or underemployed – and they openly wonder if they have real shot at a job for a new company that is coming to their community. They are discouraged and cynical, and view incentives as solely benefiting the owners of capital.

And there is some legitimacy to that notion, too. Too often, economic development efforts seem to concentrate on target industries rather than target constituencies.

Which makes the Community Ventures program as offered by the Michigan Economic Development Corporation a different kind of animal, at least one that caught my attention.

A River of Opportunity

It is the brainchild of Gov. Rick Snyder, who was the first chairman of the MEDC well before becoming governor. A Republican and a former venture capitalist, Snyder wondered how he could get people jobs who were considered high risk and with few employable skills. Jobs, he figured, would be the best antidote to crime and poverty.

Before I go into the details of this two-year old program, I want to tell you about Snyder’s “river of opportunity” speech that he gave last month to state lawmakers in his fifth State of the State address.

Snyder spoke of helping Michigan’s poorest and most disadvantaged residents get into the “mainstream” of the economy and society. He said he wanted to expand programs that put social service counselors inside schools to help address student absenteeism and help low-income parents get assistance and job training opportunities.

And this is the heart of Community Ventures, a $10 million a year program currently being offered in Detroit, Flint, Pontiac, Saginaw, where poverty is systemic. The idea is to link the habitually unemployed with companies that need low-skilled labor.

“It’s about creating an opportunity for success, not facilitating dependency,” Snyder said. “Let’s ramp up these programs.”

Companies Taking  a Chance

Under the Community Ventures program, companies are essentially paid a cash grant, an incentive to be sure, to take a chance on a person that they would normally not view as employable.

“We flipped the idea of workforce training around by going directly to the employers and asking them to take a chance on some of these folks. And when I say take a chance, we’re going to help de-risk it by giving you some cash,” said Michael Finney, senior advisor to the governor and former head of MEDC.

Companies are paid up to $5,000 for an employee hired under the program and who remains on the job for at least one year.

The focus of the program is to enable a person to essentially become an employee, making them job ready by addressing their needs, which previously stifled their ability to find work. Providing ransportation and child care usually heads the list.

“We try not to judge any shortcoming that an individual has – whether it is a criminal record, lack of education, lack of work experience – we don’t judge. But we try to provide support so that they can get employed and stay employed long term. And it is working,” Finney said.

Not a Hard Sell

While the numbers are not yet big, the potential of success seems real, which is why Snyder is pushing for the program to be expanded. About 2,600 people have been hired to date under Community Ventures, with about 70 percent reaching their one-year anniversary on the job at an average wage of $12 an hour.

“We expected it to be a hard sell to the companies but it hasn’t,” said Finney. “We thought we would be inundated with people and struggling to find employers who would be willing to take them. The reality is that as of last count, we have over 100 employers participating in the program.”

Saginaw Township-based Morley Companies, a call center operation, has hired more than 250 employee that have been pre-screened and pre-qualified by Community Ventures, with a retention rate of 83 percent.

“We’re also finding that they’re quite dedicated and loyal because they’re having a second chance at a job, a full-time job with benefits, at Morley,” said Dick Mott, vice president and chief financial officer, in a November interview with the MLive Media Group.

A state economic development program aimed at giving struggling people a second chance at a sustainable job through cash grant incentives awarded to companies. Some purists might contend that’s not a proper role for government.

But the way I see it, a full-time job gives a person a greater degree of independence, allowing them to pursue their dreams and be less dependent on social services.

Now why wouldn’t we want to see everyone swept up into such a river of opportunity? If a little prompting of companies is necessary, so be it.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas.

If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help.http://www.barberadvisors.com

If you liked what you read here, invite me to speak at your next meeting.

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  1. Dean: What I really like about this program is the idea that the employer takes on the person first; I see a lot of “workforce development programs” that try to guess what employers really want (as both Steve Jobs and Henry Ford have said, asking potential customers what they want rarely produces useful info). It may be OK to ask them what they “need” so long as neither the question nor the answer is a pre-selected solution.
    The result is an experiment, which if the state pays close attention, should yield all kinds of useful information for improving the program.

  2. Great article Mr. Barber. We hear from our own legislators regarding corporate welfare. And it is true, there is nothing that can be said to change their minds. Occasionally we become short sighted and cannot see through the forest. None of us have all the answers so we just continue to help upskill those that aren’t so fortunate in their career journey.

  3. I read the occasional outburst of media about incentives, one of the most notable being the New York Times series, and a common thread is that economic development incentives are a “zero sum game” meaning that they are a giveaway to companies that were going to make their investment somewhere without the need for incentives. The question I still haven’t heard these articles answer is “zero sum for which geography?” As a local economic developer, it makes a huge difference to me whether a project is built in my city, my county, or my state as opposed to somewhere else. I’ve found what Dean says to be true. A company wants to know it’s wanted, whether it’s an expansion or a recruitment project. The size of the incentive (or investment, if we want to change the semantics) is less important than the fact of the skin in the game.

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