Just what exactly is economic development? Is its purpose to implement industrial policy, or is it simply a way to streamline some of the government bureaucracy? Is it corporate welfare, or a way to attract much needed jobs and tax base to communities? For that matter, is its main purpose to attract new companies to a locale, or to help retain the businesses that are already there?
The truth is that economic development is all of those things.
Now before I send my conservative colleagues off the deep end by the mere mention of the phrase “industrial policy,” let me say that I’m not talking about Stalin-era five-year plans where the government purports to have a detailed blueprint for managing the economy. Anyone who has ever tried to get the street light in front of his house repaired by the city understands that an organization that has difficulty changing a light bulb probably can’t run a multitrillion-dollar economy either.
No, I use the term industrial policy loosely to refer to local and state government intervention, in specific instances, in order to effect the decision of a private business as to where that company locates a particular facility.
Why do state and local governments want to do that? Because it means more — and hopefully better paying — jobs for their constituents (i.e., voters) and a broader tax base from which to pay for services. For smaller communities, it may even mean the continued survival of the town by providing jobs for the town’s kids once they grow up and enter the work force.
| Is it really out of line for companies to ask for certain concessions that would enable them to lower their expansion or relocation costs? I don't think so. After all, they do the same thing with their customers and suppliers every day. |
How do governments influence location decisions? Well, reasons No. 2 and No. 3 are by streamlining bureaucratic red tape (i.e., permitting, etc.) and by offering targeted incentives (i.e., tax abatement, work force training, infrastructure grants, etc.) to reduce a company’s transition costs. Reason No. 1, however, is by helping create a local business climate that does not require artificial stimulant in order to correct problems that otherwise make the location non-competitive with other regions of the country.
Why do existing businesses contribute time and money to the local economic development effort? Most do it because it brings in potential new customers, both consumer and business-to-business.
Is economic development really just a form of corporate welfare? Well, you can certainly make a good argument that it is, particularly when you are wearing your “taxpayer hat.” After all, why should taxpayers subsidize a private corporation or, for that matter, why should other local businesses subsidize future competitors? Those are all great questions that many of us struggle with all the time.
Like all good philosophical dilemmas, however, this one also comes with a but for stipulation.
Incentives really only come into play after a company has narrowed the field to its “short list” of two or three cities, each of which would meet that companies operational requirements. At that point, though, incentives often determine which one of those three finalist cities is chosen. In fact, it is not unusual that the city finally chosen would not have been chosen, but for the incentive package, which drives down the overall cost of the project.
So, are companies just being greedy when they ask for incentives from a prospective community? I don’t know. Are you being greedy when you negotiate your employment package with your employer?
Staying in business, in the end, boils down to profit or loss. Companies that are planning to open up a new facility are making a large capital investment that will provide employment, tax revenue and new markets for local businesses, to mention just a few things.
Is it really out of line for companies to ask for certain concessions that would enable them to lower their expansion or relocation costs? I don’t think so. After all, they do the same thing with their customers and suppliers every day. That’s the way business is done.
Just as with those customers or suppliers, though, a community always has the ability to say no and see what happens.
Economic development is merely the business arm of local and state governments, weighing the pros and cons of each expansion or relocation deal. That, too, is the way business is done.
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