States mull privatizing business recruitment, job creation efforts


Stateline Midwest Vol. 20, No. 3: March 2011

Proposals to transfer business-recruitment functions to private entities have advanced in three Midwestern states. Governors in Iowa, Ohio and Wisconsin have led the charge in hopes of making these agencies more responsive to the businesses they serve.

In February, Wisconsin Gov. Scott Walker signed legislation that creates the Wisconsin Economic Development Corporation, a public-private entity that will be in charge of the state’s business-recruitment efforts.

Under the new structure, public employees in the state Commerce Department will be replaced with private employees. The department’s regulatory responsibilities will be handled by other state agencies.

Replacing Ohio’s Department of Development with a private, nonprofit corporation was one of Gov. John Kasich’s campaign promises. Last month, he signed a bill creating a new entity that will be headed by a board of business leaders.

In Iowa, Gov. Terry Branstad is proposing a similar change to replace the state’s Department of Economic Development with the Iowa Partnership for Economic Progress. If approved, the new organization will be a public-private partnership charged with promoting and marketing the state in order to attract investment and jobs.

Duties currently handled by the Iowa Department of Economic Development would remain in the hands of public employees, but a nonprofit entity within the partnership would solicit and accept private donations that would be used to recruit and retain business.

In the Midwest, Indiana and Michigan have already established quasi-public agencies to handle business recruitment and job creation. The governors proposing the restructuring all argue that privatizing major portions of the state’s economic-development portfolio will result in more flexibility and responsiveness to the needs of business.

“One argument for moving to a public-private model is to remove the agency from the day-to-day direction of the executive or legislative branch,” says Graham Toft, who, from 1988 to 2001, served as president of the Indiana Economic Development Council. That public-private partnership was charged with developing strategic economic-development plans for the state.

According to Toft, when the move to a privatized agency is designed well, it can enhance the state’s capacity for negotiating relocation deals with companies, remove political interference from the business-attraction process, and speed up response time by releasing the agency from public-service rules and accounting practices. The nonprofit model also allows an agency to use both public and private funds for its operations.

Privatization releases the agency from public-sector employment rules, allowing for the hiring of more experienced and better-compensated development professionals.

“This permits the agency to build a cadre of core staff with a long-term commitment to agency vision, mission, stability and credibility, well beyond electoral cycles,” Toft explains.

Opponents of the corporate model argue that these agencies can become too independent, and concerns over transparency have been raised.

Toft adds that these privatized agencies seldom maintain a long-term view of a state’s economic growth. Instead, they tend to focus on making deals to create jobs in the short term.