Floating around Washington’s conservative circles over the past decade at least, there’s been this notion we want states — and countries — competing for businesses. If you want to lure a business, lower your tax rates, abolish your income tax, roll back burdensome regulations!
The reality of states competing for business has been something different, and far less savory. States compete for big businesses by offering them corporate welfare: free land taken via eminent domain, handouts, utilities paid, tax abatements, special tax credits, taxpayer-funded worker training, taxpayer-funded low-income housing for your underpaid workers, and so on.
Rather than building a good environment for businesses that want to compete, states are picking favorites and trying to bribe them.
The New York Times has an in-depth article examining this phenomenon:
government officials increasingly view the creation of jobs as an expense that should be subsidized by taxpayers, private consultants and local officials said.
There are interesting parallels between this viewpoint and Obamanomics — see GM, Green Jobs, Boeing, New Economic Patriotism, Winning the Future, the stimulus, etc…. But we can just narrow in on the state and local levels and learn some interesting lessons.
First, the states and cities often defend their corporate giveaways by saying, in effect, we had to do it, because our neighbors were doing it. It’s a corporate-welfare arms race. Louise Story, the Times reporter, mentions that many see the arms race as a “zero-sum game.” This is correct.
But think about it from a governor’s perspective. If your gain is Indiana’s loss, that’s not “zero-sum” for you. Also, even if your “gain” in terms of getting the company is your loss in terms of a net drain of tax dollars — as Story’s story suggests is often the case — it’s still your political gain.
For one reason, the jobs are immediate, and the costs are long term. And the Times found that state officials never really know “if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”
Related, think about the pay-to-stay model of luring businesses as opposed to the “cut rates and reduce bad regulation” model. The Times suggests that Michigan Gov. Rick Snyder is killing special tax credits. Imagine a governor who kills special favors, deregulates, and cuts tax rates: he builds a state that is fertile for new business, he still won’t get the Boeings, Wal-Marts, and Pfizers who want handouts and tax credits.
Who would Governor Free Market get? Those businesses that lack the political clout to get their own special deals. Those tend to be smaller businesses.
So, while Governor Giveaway is holding ribbon-cutting ceremonies with giant employers (who also provide huge campaign contributions and hire up your top aides as lobbyists), Governor Free Market has to wait a decade — until he’s out of office — to point at a more prosperous, competitive state.