Economic Development’s Junk Food?

My good friend Bill Lutz has been on a tear lately… and once again I think he’s onto something.  I’m always glad to be able to serve as his editor and publisher.  Here’s his latest: 

 

—-
I fully believe that LinkedIn is a very powerful tool, and I find myself drawn to the discussions in those groups that I work in, most notably those groups in economic development.  There are very few forums that provide a real-time discussion on relevant issues with input from every corner of the world from highly respected individuals.

 

On one such occasion, I was looking through discussions and saw the following comment dealing with issue of incentives in economic development:

 

A monetary incentive is the easiest way for elected community leaders to say “we respect you, want you and invest in our community.” Incentives bridges the gap between “saying” you will do something and actually “doing” something for the company. 

 

In all fairness, this was not the complete comment, but I pulled out the two sentences that struck the loudest chord with me.

 

The comment left me speechless.  It sounds like the author is all for selling out a community to land the big win… you want the big business to come in, you have to respect them and that respect can be bought, for the right price.

 

As I think about that string of logic, it gets me to one of the great paradoxes I see in the way economic development is being practiced.  Our local governments, local chambers of commerce, local economic development organizations, are charged with hiring men and women of high caliber to lead economic development efforts.  In this line of work, economic development professionals are careful to use vague code words to describe leads, they safeguard the business intelligence and trade secrets that they know, they understand that relationships are built on trust and they do everything they can to earn and keep the trust of the business clients that they are working with.  Yet, according to this author, the “sell out” is the key.  Of course, we are not selling out the business, we are selling out the community, the state, the taxpayer and whoever else might be footing the bill for the incentive.

 

The paradox lays in the fact that economic development professionals are hired for their ability to earn and keep trust, but not with the people that hire them. Rather, you might conclude that the trust they are responsible for maintaining belongs to the businesses they work with.

 

But, as I re-read the comment, I realized that there is more to it.  The author tells us that the monetary incentive is the “easiest way.”  Maybe that is the operative word – easy.

 

But easy for whom?

 

Of course it is easy for the business to accept the incentive, and it may be easy for the local government, the local chamber of commerce or local EDO to give out the incentive.

 

But is it easy for the community?

 

 

If a community get used to relying on the “easiest” way to bring in business, what’s going to be the strategy when it requires hard work?  Any community that is willing to shell out money to a business is not fooling a soul when it claims that it just bought itself a long term commitment.

Do you really think the business you had to pay to come to your community wants to stick around if there is a better deal somewhere else?

 

burger
Incentives = Big Bacon Bomb (or whatever this is)?  From salon.com via Creative Commons

I am beginning to think that economic development incentives are analogous to junk food for our communities.  In the short term, they might satisfy our hunger and we might even feel better about ourselves and our community.  But in the long run, the questions remain:

 

Is it worth it?

 

Will our communities continue to bloat up with empty buildings?

Could have the dollars that were used for incentives been better used elsewhere?

 

Was the easiest decision the best decision?

 

 

4 thoughts on “Economic Development’s Junk Food?”

  1. One of the big reasons we go for easy as competitors is that the pie is too small and the choices too many for the employer. The policies at national, state and local levels are often too limiting and result in a win lose situation for communities. As ED professionals we are obligated to ask the questions Bill has posed and to provide recommendations that go beyond easy. A balanced approach is what winning companies use and communities can learn from their example. What is your community, region, state or national strategy and actions that will lead to becoming a compelling destination for investment?

  2. This blog reminds me of something an old-school engineer told me during an interview back in the day:
    He said there are two primal motivations for all human decisions: greed and fear. This applies particularly to public officials, who want to increase the revenue stream for their jurisdictions, but are afraid that if they make the “wrong” decision they won’t get re-elected. A similar frame of mind ccurs in the development community, particularly publicly-held companies.
    This drain spiral continues to play out everywhere, whether it be in the Rust Belt of the north, the Coalfields of Appalcahia, or the Sunbelt states. Incentives are constantly offered by governments for private sector entities to come into a region, and those entities only have to wait until somebody offers the deal that provides the lowest overhead costs. Usually the government makes up the difference by increasing taxes on employees while giving tax abatements to the development (look at NC for a few noteworthy examples). Greed and fear on both sides of the table!

  3. As an economic development professional and municipal employee, the paradox of “trust” in this article really struck a chord with me – how true the lack of trust from the people who hire us, how true the need for trust from the industries and investors we deal with. Balancing this trust, and the “vague code words” we must use when making reports that become public record, takes not only the confidence in your professional relationship with the client, but also the ability to take a few “slings and arrows” from your employers. I also agree totally with the comment on incentives being ineffective – it’s like offering your “date” a nice dinner, but your competitor offers a better. And as the old joke states – if they’ll sell themselves to you – you know they’ll sell themselves to someone else. All you are doing is negotiating the price.

  4. Excellent post. Instead of special favors for a few (paid for by everyone else) perhaps we could create a better business climate and a level playing field for everyone.

    In the 1970s, Hurricane Agnes and urban flight made Harrisburg one of the most dismal cities in the USA. So Harrisburg embarked on a strategy to incentivize everyone. One key technique was transforming their property tax into a public service access fee. This was accomplished by reducing the tax rate on privately-created building values and increasing the tax rate on publicly-created land values. As a result, there was a building boom in downtown Harrisburg. Thousands of vacant and boarded-up properties were reduced to a few hundred over a 10-year period. This occurred while manufacturing declined in Pennsylvania and while other cities nationwide continued to experience an exodus of residents and businesses to the suburbs.

    Harrisburg reduced the cost of constructing, improving and maintaining buildings. This benefited everyone — old-timers and newcomers, residents and businesses alike. And by recapturing publicly-created land values, Harrisburg maintained needed revenues while creating an incentive to develop valuable center-city sites.

    Creating opportunity by reducing taxes on privately-created value WITHOUT GIVING AWAY THE STORE allowed Harrisburg to show respect to private business AND to its tax-paying public. And, it allowed Harrisburg to become a more prosperous and sustainable community. It is an example for the rest of us.

Leave a Reply

Your email address will not be published. Required fields are marked *