Monday, January 11, 2010
Standard Article by Brett Narloch
Issue: Economic Development
Gov. John Hoeven and North Dakota State University professor Larry Leistritz recently released a study conducted by Leistritz that estimates the "economic impact" of the Centers of Excellence program in North Dakota. The Centers of Excellence program was started in 2005 with the idea that each Center would become a "hub of research and development around which new dynamic new businesses cluster."
According to the study, the program has had an economic impact of $329.4 million on the state's economy and has led to the creation of 2,060 jobs. Apparently, 922 of those jobs have an average annual salary of $48,266.
The type of study that Leistritz and his associates conduct and the way they conduct it in these instances is important to understanding what the study tells us and what it does not. For example, it tells us that the tax dollars and private dollars spent on the program has supposedly created more than 2,000 jobs and that the money used to pay those salaries and other expenses have cycled through the North Dakota economy generating economic benefits to other local businesses.
What the study does not tell us is what that money would have done had it not been spent on the people and things associated with the Centers of Excellence program. For instance, had the state not taken the $19.9 million from taxpayers, what would that money have done? Had the private companies not spent money on program-related expenses, what would they have done with it? How about the tax dollars taken by local and federal governments to finance the projects?
Those questions, of course, are hard to answer definitively. Though simply finding out the "impact" of the program, like Leistritz did, is just as hard. Estimating the impact of certain government programs is, in many ways, an exercise in futility if you're looking for an objective result. Clearly though, these studies can be used to justify government programs. Politicians can talk about how great of an "economic impact" this or that program has on the economy, implying a huge benefit. There is simply no way of knowing the true impact.
The study does not, nor can it, determine if the economy is better off because of the program than had it not been done. If 2,060 jobs were created using the capital provided by government and private companies, perhaps 2,061 jobs, 5,000 jobs, or 10,000 jobs would have been created with that capital had it not been taken in the first place or spent on that particular program.
Furthermore, the model that Leistritz uses depends on accurate data. The data submitted to the North Dakota Department of Instruction, which was used to determine the program's impact on the state's economy, can hardly be called accurate. For example, the reports submitted by each Center are not verified. If a company says that it created 25 jobs because of the program, the Center does not verify that claim, nor does anyone at the Commerce Department.
Impact studies, such as the one conducted by Leistritz, do not take costs into account and rely on bad data, but to gain the best understanding of programs, such as the Centers of Excellence, is to take a step back and look at the theory behind them.
The Commerce Department, Governor's office, and legislature with the help of multiple committees, select each Center of Excellence. Those Centers then reap the benefits of being politically favored by getting to partner with taxpayer subsidized universities to develop their future workforce and new products. In a very real sense, politicians are planning North Dakota's economy.
History has shown us that only consumers know what consumers want. There is no amount of planning, no number of consultants, or other "experts" smart enough to plan local economies that can deliver what consumers want at a price they are willing to pay.
We know that businesses that are currently paying taxes are productive (otherwise they wouldn't have any income to be taxed). Why do politicians and university employees believe that the state can take money from those productive businesses, skim money off the top to fund the ever-increasing Commerce Department, hand-select each Center of Excellence and increase economy development?
The answer is: politics. Government officials can show that they're doing something. Of course, history has also shown us that government officials should be doing nothing.
