Michigan Needs to get Incentives Right When Competing for Tech Jobs

Jobs are important – everyone agrees about that.   Since technology jobs tend to pay well, add to the tax base, and encourage the creation of even more technology jobs, government officials across the country have gone to some great lengths to attract them to their states or cities.  Broadly speaking, there’s nothing wrong with that; the investments politicians make in encouraging tech companies to set down roots pay off over time, and communities benefit over the long term as a result.

As the saying goes, the devil is in the details – and sometimes the details make all the difference.  What happens when an incentive package creates an unequal playing field, placing local business at a disadvantage?  What happens when a new corporate arrival proves disruptive to the business ecosystem – say, by driving many existing businesses out of business? Or what if a particular incentive package is just perceived by the public as being unfair?

Recent articles in Crain’s Detroit Business and at MLive.com about efforts to attrack a gigantic Switch/Supernap data center to west Michigan have raised some of these questions.  Predictably, some people aren’t liking the answers they are hearing.

Switch is planning on creating a vast new 400,000 square foot data center in a disused office complex  in Grand Rapids, a move that it says is expected to create 1,000 new jobs over the next ten years.  On the face of it, that seems like a win-win proposition: Grand Rapids regains economic vitality by repurposing a stagnant property, the state attracts high-paying tech jobs, and Switch gains its first sizable presence east of the Mississippi.  To make it happen, though, Switch asked – and was given – a hefty incentive package, one that many existing local data centers aren’t eligible for.  That has some people calling foul.

The deal’s opponents argue that Michigan born-and bred data centers are put at a competitive disadvantage, and that the incentive program amounts to an unfair subsidy to Switch’s business.  It’s a position that’s easy to understand: As proposed, the incentives only apply to data centers above a certain size, which excludes the majority of existing local players.

As I see it, a parallel situation is the effect that a new “big box” retailer often has on nearby small, local businesses.  Local companies, unable to match the huge national marketing budget and bulk wholesale discounts that the chains enjoy, struggle to survive in the shadow of their competitor.  When the competitors gets a generous incentive program to set up shop – incentives that existing, smaller businesses may not be eligible for – it becomes exponentially more difficult to compare effectively.  Ultimately, it’s not just the smaller business but consumers who will suffer as a result.

At Red Level, we don’t see Switch as a direct competitor.  Apart from the fact that we’re confident in out ability compete effectively against almost anyone, we see Switch’s arrival as a business opportunity, as some of their clients are likely to find themselves in need of the tailored, responsive service we can provide.  We do, though, see a need for government officials to think twice before creating incentive packages that result in an unequal playing field.  Local Michigan companies, including smaller data centers, have been responsible for keeping many of our citizens employed and our tax bases relatively stable.  Attracting new businesses to Michigan is a great idea, but not at the cost of creating an environment where stable, loyal local companies are likely to fail.  We would hope that our elected officials would step carefully, and think twice before enacting specialized incentive programs that undercut existing Michigan businesses.

For more information about gaining a competitive advantage with digital transformation, contact Red Level today.

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