Friday, February 23, 2007

on incentives

I seem to have been invoked by the irascible and inebriated pencil-pusher (aka ADB) in this post about the role of incentives in the successful retention/attraction of the USAirways operations center. Lots of important questions embedded in her comments....

One historical point worth noting. While they may not have been the first to coin the term, I believe it was actually the folks in the Thornburgh administration that popularized use of the term "smokestack chasing" in the early 80's. As a pejorative it reflected the trends at the time. Where once the attraction of a new manufacturing facility was the holy grail of economic development, the cascading failures of heavy industry here had become our undoing. Thus the shift in policies toward 'high tech' or other forms of industry targeting. ADB's comments imply a subtle question: have we moved away from the "smokestack" more than the "chasing"?

But what is the role of the incentives? Former Pittsburgher Ronnie Bryant has this thoughtful comment in the Charlotte Observer just last week on the role of incentives in economic development. It really is worth a read. It is a little ironic that he wrote this over a week ago and Charlotte was one of the regions that was said to be bidding for the USAirways project. Yet he was actually talking about a $260 million package of incentives offered to Google to put a data center in North Carolina.

I share some of Ronnie's sentiment that no matter how much one wants to eliminate most of this ad-hoc tax competition it is nonetheless a fact of life for now. I myself had hoped for a different result in the recent Supreme Court case Cuno v. DaimlerChrysler that has at least delayed judicial intervention to limit the role of state level incentives. We will have to see how the anti-incentive forces regroup and go forward.


Anonymous Anonymous said...

As much as everyone is horrified by the use of economic development subsidies, there is also an expectation that economic development professionals will effectively compete. If the location and movement of industries is zero sum game with clear winners and losers, then it's important to be in the game.
But how do you hold anyone accountable in the buy-a-job world? You know when you lost, but how do you know when someone has spent too much?
Maybe the wrong metric is being used to measure the problem? We know that sustainable economic value occurs because a company/industrial group/region can do something better than anyone else. Why not measure economic development investments by their ability to improve productivity, worker safety, or environmental quality across industries, and not just new entry firms? If you get what you measure, shouldn't everyone be a little more clear about what they want?

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