Economic Development Incentives: the deep, and deeper, and deepest challenge.

Oy.

Trying to craft a cogent and fair assessment of the incentives issue and the responsibilities of those of us who care about communities is feeling like the Gorgon’s knot…you can’t fully untangle the mess in one setting. As my attempt to capture the debate over the topic yesterday (with its 12-page “summary” attachment) indicated, there’s dozens of issues mixed together, and dozens of perspectives with legitimate points and important contributions.

But having grappled with this for a few weeks, I’ve come down to the following conclusions:

  • I don’t think there’s any question that the principle behind incentives, as a rule, has legitimacy, and that incentives can be important. I can trace back to my days with On Broadway, Inc. in Green Bay, Wisconsin. We offered tiny little incentives — a few hundred dollars for a new sign or a building facade improvement — and those incentives made a difference. They enabled improvements that benefited the business and the district, and they helped make those improvements happen at a time when most of these businesses could not get funding or could not convince landlords that it was worth it. Those incentives helped move the needle for the district. Those incentives mattered.
  • I also don’t think there’s any question that we often use incentives badly. Very badly. As many of the commentators in yesterday’s post pointed out, we waste a lot of money on incentives that, if we honestly went back and evaluated the results, didn’t generate the payoffs we promised or were promised. Between the dozens of official reports and exposes that have been generated on the subject nationwide, there is too much of a preponderance of evidence on that point to come to any other general conclusion. Sometimes, like in the 38 Studios case, it’s obvious quickly that the incentive was a bust. Many times, we don’t understand how wasted the effort and the cost was until years later — if we are ever aware of it at all.

 

Here’s where it starts getting tough:

  • Both the scope of problematic incentives in the U.S., and the fact that incentive programs are developed in a keeping-up-with-the-Jones, you-gotta-play-the-game mentality, indicates that the problem with incentives isn’t incidental — it’s not simply a factor of some bureaucrats not doing their due diligence properly, or some short-sighted misunderstandings. It’s across the board.

It’s systemic. It’s not a melanoma, confined to a few spots and relatively easy to remove. It’s more like a leukemia, or a cancer that has metastasized.

  • That systemic problem is threatening the viability and resilience of both communities and the local government professions. Not just economic development, but planning and community development and administration and all the work and people who are tied into local development and funding. As local government and nonprofit finances get tighter and tighter, and as demands on the remaining funds accelerate due to everything from pensions to decaying infrastructure, the volumes of resources being allocated to incentives becomes more and more obvious. We all know that in most places we are well past cutting fat, and getting deep into muscle and bone.

And in a social media, networked, open data world where anyone with Excel on their laptop can analyze your funds and spending, the scrutiny focused on that funding is only going to grow.

Just the facts of the case, ma’am.

 

So what’s the source of the systemic incentives illness? And how does anyone solve this?

Here’s the deep problem: incentives are easy. They are an intellectually and (until recently) politically easy way to make it look like we are doing something good — something that justifies our professional existence. Company says they want incentives? You give them incentives, it makes them happy, you get a nice ribbon cutting and picture in the paper, the mayor is happy. Easy cheesy lemon squeezy.

Until people wise up to the fact that the golden ring they thought you had grabbed for them turns out to be painted plastic. Until they notice that the new retail center was followed by vacant storefronts in their neighborhood, or the cool tech company we all pinned our hopes on never lived up to its promises, or we got that great new office building that is supposed to lessen our tax burden, but we’re still being asked to pass a huge school levy and the park district is turning off the lights.

Or they don’t notice, but these things are happening, and then they cut your department to balance the budget.

 

Here’s the deeper problem: we haven’t been able to stop chasing those golden rings because we can’t (or don’t) figure out whether the ring is worth what it costs, or not.

Part of that has to do with the analytical problem that Bill and Ed and the New York Times have identified — the pervasive lack of postmortems, of doing the simple kind of look-backs that we know you have to do if you’re going to learn from your failures — or your successes.

But the bigger part of that deeper problem is that we have defined the cost of the ring too narrowly. One of the writers on the Economic Development 2.0 group said of his community’s residents:

“the impression is that we aren’t serving the public and second we aren’t held accountable.”

Doesn’t that make you cringe?

It made me cringe.

 

We like to assume that those new businesses and new jobs are having all sorts of benefits to the community. But what if they are not? What if they are cannibalizing another part of the local economy? Imposing costs on the local government that will cut its ability to support the community’s quality of life? Putting the community at risk of agony down the road because that company that we bet the farm on didn’t fit well, sold us snake oil or had no reason to stay when the incentives ran out? What if the cost of “progress” means destroying a heritage that the community will never be able to get back?

What if the costs are greater than the benefit? Did we look at both, or did we just see stars in our eyes at a bunch of pretty promises?

I’ve said this before: we want to think we can do our work in silos–that we are only responsible for our little bailiwick. It’s easier that way. It’s safer that way. But it’s deadly, because what we do in one silo affects everything else. If we don’t try to understand those interdependencies, or worse yet, ignore them in the name of “that’s not my department,” we dig ourselves and our communities ever deeper into the hole.

 

Here’s the deepest problem of all: fixing this systemic illness, and making a difference for the communities we care about, requires professionals and passionate community members to own their responsibility. We have no choice except to pull up our boots and exercise the leadership that we alone can claim.

We have to stop accepting simplistic answers from elected leadership, department heads, or ourselves. We have to take leadership in teaching our elected leaders, communities and bosses what we know. We have to screw our courage to the sticking place and hold to our course.

We have to finally, finally give up on “shoot what flies and claim what falls.” We have to admit what Kathy pointed out, what we know in our guts: deals that look like wins on paper can hide cancers that will eat at the lives of our communities.

Physician, heal thyself.

___

Small piece of encouragement: in a broad sense, this challenge doesn’t face economic developers alone. A couple of years ago, I took the urban and community planning profession to task for similar dangerous and damaging shortcomings — particularly the tendency to avoid worrying about interdependencies and to stick in the silo your boss told you to stick in. It’s strange to quote yourself, but, with a few word replacements, what I said to them fits here as well:

Stop allowing bad economic development. It’s damaging the profession, and it’s damaging the places that matter to us. Economic developers have had a tendency to avoid raising tough questions, to shy away from pushing for the right but difficult choices, to sidestep grappling honestly and critically with our decisions and alternatives.

That’s mostly, I think, driven by a very understandable desire for job security.  We have all be told somewhere along the line that some issues aren’t in your job description, that you don’t want to upset the politicians, the developers, the citizens, the client. Don’t rock the boat, the voice whispers, and your job and your future are secure.

If there’s anything the last few years have taught us, it’s that job security, for both public and private sector employees, is a myth. Public sector employees get laid off or put on furloughs, or they get stuck in soul-deadening bureaucratic jobs processing paperwork and accept that deal with the devil for the promise of future financial security that is turning out to be a mirage. The private sector doesn’t do much better: we deliver what the client wants, regardless of whether that’s what the community needs or not, in the hopes of winning more work and maintaining that ridiculously high utilization rate and not having to spend nights and weekends writing more proposals on our “own time.” And then we get laid off because of a “strategic realignment” or because the company wouldn’t let us pivot to where the necessary work actually lies.

If we can’t count on those promises, that security, and playing the incentive game is making it worse, then what is the price of our silence? Why not take reasonable, well- supported stands on issues that matter, when it matters? What have we really got to lose?

I say all of this because I have done all of these things. I did them because I was the consultant, it wasn’t in the scope, it wasn’t in the budget, they weren’t “ready.” I didn’t want to rock the boat.

At the end of the day, what you’re really left with is how you feel about the job you did. In some cases, I am proud of the work and how it helped move a community forward.  In other cases, I am not sure whether my work did any good at all. As I evolve, I am determined to repeat those mistakes as few times as I can.

There’s a piece of calligraphy in my office that sums up how I think we need to approach economic development in this generation — not in terms of business clusters or recruitment strategies, but in terms of how we think about the job and how we think about communities and their futures. There are two quotes on it, the first being from Henry Thoreau:

Go confidently in the direction of your dreams. Live the life you have always imagined.

The second is from Will Rogers:

Even if you’re going in the right direction, you’ll get run over if you just sit there.

 

Let’s not get run over anymore, ok?

 

 

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