By Alex Pearlstein, Director of Projects.
In recent days, the practice of awarding financial incentives to attract corporate relocation prospects has gone from an arcane subject in the economic development world to a full-fledged national topic. The New York Times ran an exhaustively researched, largely negative series on the practice in which they implied that providing tax abatements, tax deductions, tax forgiveness, upfront cash, and the universe of other incentives tools was tantamount to corporate welfare at a time when investments in public schools and other services were being cut. As the largest provider of incentives, the state of Texas was singled out for special vitriol, but numerous other states and regions were not spared the Times’ wrath.
The series got further airplay when the lead author was a guest on NPR’s “Fresh Air” program with Terry Gross.
The series certainly had its facts straight from the standpoint of the incentives awards, the recipients, the role of site consultants and brokers, and the dynamics of deals, but I thought the context of incentives in economic development was largely missing. The job of economic developers in charge of corporate recruitment is to attract good jobs. One of the ways good jobs are attracted in today’s hyper-competitive economy is through the provision of incentives. End of story. Whether practitioners like it or not – or if it’s a beneficial process or not – is almost beside the point. In war, it’s often the side with the biggest, most powerful guns that wins the day. Not to mention the fact that incentives exist to close deals; a tremendous amount of work goes into communities being competitive enough even to be short-listed for these projects. The Times also made nary a mention about the thousands of spinoff jobs and investment generated by incentivized deals, especially for auto manufacturing and other export sectors.
Another Times’ omission was the fact that corporate attraction was only one component of a broader, holistic program focused on existing business retention and expansion and small business development. The implication was that states and communities were putting all their eggs in the incentives basket. Sure, they’re expensive eggs, but millions of dollars are also spent on workforce development, infrastructure construction, innovation and research-and-development capacity, and other competitive assets.
I think that, in a perfect world, economic development practitioners would like to secure corporate wins solely based on their competitive positions and “fit” with the company’s location requirements. But those aren’t the rules of the game, and the game won’t be changing any time soon.