Landing the Whale: Why a rational debate on incentives isn’t happening.

It’s been just over a year since the New York Times ran its series on economic development incentives — the one that shone a truthful but uncomfortable light on the lack of transparency, analysis and evaluation that has plagued many incentive programs.  Since then, there has been much hand-wringing, some debate, a few cases of increasingly targeted state and local scrutiny, and some localized progress toward improved information and accountability. But its been, at best, a mixed bag.

One of the best-informed observers of this issue, Ellen Harpel of Smart Incentives, noted recently that she saw three trends in 2013:

  • The total number of new facilities and expansions nationally is a fraction of what is was just a few years ago, but the average amount of money involved in the deals that do attract incentives has skyrocketed.
  • State subsidies overall have become more transparent, but that’s not the case with most local governments.
  • Fewer incentive programs are targeting incentives according to policy priorities, such as improving needy areas or improving energy efficiency.

One guardedly optimistic item, one squirm-worthy, and one that even the most diehard incentive supporter would have to admit presents big cause for concern.

Even more disturbing to me, though, is that we who deal in economic development — and who understand better than anyone else the impact that a well-designed incentive can have on facilitating economic change — appear to be continuing to lose our relevance to, our role in, the incentives debate.  Just a couple of weeks ago, one of the largest economic development service providers ran a blog entry recapping their sense of the year’s trends – including the fact that, after an initial flurry of attention, “this story did not seem to grow legs, and the issue went away.”

Hate to break the news, guys:

The issue didn’t go away. A lot of us have gotten an earful, including people who have spent a lot of time in legislative hearings and program re-evaluations and squirming uneasily under sharp questions from reporters and citizens at public meetings.  And more importantly, others have been talking about it.  Ask your city manager.

What hasn’t happened?  We haven’t fixed it.  Except in some corners of the profession, we haven’t even had a cogent conversation about it.

 

I have been wondering in the back of my mind just what is making us so damn stubborn, so obstinately resistent to face this issue before it turns around and takes a large bite out of us.  And part of the answer came to me from a bit of a surprising source — my old friend and frequent Wise Economy contributor Pete Mallow, who turned the tables on the former English major and helped me understand the deep psychology at work in the incentives non-debate…through 19th century American literature.  Go figure.

 

Read what Pete wrote, and let’s figure out how we get over the whale hunt mentality before it wrecks our flimsy boat.

Landing the Whale: Why a rational debate on incentives isn’t happening

 

The ongoing debate regarding incentives has been an intriguing one for me.  Living in the Midwest, it seems the vast majority of incentives are used to keep a company from leaving a neighboring town or to induce a company from the neighboring town move.

Moby Dick illustration
Um, yeah. That happened.

 

Who can blame the companies for accepting the handouts? It is a competitive advantage to the business and the cost of doing business to the community. One egregious example that comes to mind is a retail store that accepted millions of dollars in direct subsidies to buy inventory in exchange for staying in the central business district.  They recently announced that they will be moving to the suburbs, though.

 

I want us to think about why our debates regarding economic development incentives continue, yet there is little discernible change in our actions and our debates over the past couple of decades.

 

That reason lies deep in us, but it can be found in many different stories over time — perhaps none better than a great piece of American literature.

 

“Call me Ishmael.”

 

The opening line of Moby-Dick begins a story not unlike the quest to land a large company in one’s community.  Once the whiff of a landing a massive company reaches our noses, everyone lines up speaking of the good fortunes that will come. The obsession to land/retain the company quickly becomes a single-minded pursuit to land the Whale. There will be doubters, people offering there words of wisdom from past pursuits, and others saying stick the plan. Yet, these voices are quickly drowned out. How can anyone expect a rational debate about the value of incentives when you are trying to land the Whale?

 

If you are reading this, you probably have found yourself caught up in that pursuit.  Maybe many times. It could be an automobile plant, a casino, a large “lifestyle” mixed-use center, or a business with hundreds of office jobs. It all boils down to obsession, which is the chase of the whale.

 

We, the economic development community, justify landing the whale as the one thing we need to put our community on firm ground and allow us to focus on more sustainable strategies or home grown strategies afterwards. You know, these strategies, everything we talk about in our conferences, to grow smart, buy local, and invest in the gazelle company.

 

Yet, the next whale is just off in the distance. Waiting…

 

The next whale is always visible in the distance.  It offers a panacea to all the problems facing the community. The whale will increase employment, increase all sorts of taxes, bring prestige to the community, and reelection to any number of political leaders.

These reasons fuel the obsession to grant large incentives to the whale.  Whether it be infrastructure improvements (new roads, sewer, water, etc.) or Tax Increment Financing, Industrial Revenue Bonds, payroll tax credits or abatements local communities will put forth their most competitive package and lobby their state elected officials to put forth additional incentives.

 

Can a politician go to his/her constituents and say, I let the company go that was going to bring/keep hundreds of jobs our community?  Can we say to our elected leaders that we let the whale get away?

 

Absolutely not!  When the pursuit of the whale, major employer, begins it is all consuming. The various incentives we have to offer become our harpoons to be hurled at the whale. Rational thoughts, logic, best-laid economic plans, and long-term thinking can’t compete for this most basic human emotion.

 

“There is a wisdom that is woe; but there is a woe that is madness.”—Moby Dick

 

As I tell my kids about every day, understanding someone’s behavior does not mean accepting it.  If we are acting like Ahab, blinded to everything except the elusive promise and the thrill of the chase, then we are going to put everything else at jeopardy.  And like Ahab, we won’t realize the mistakes we have made, and the danger that we have put ourselves and our communities in, until it’s far too late.

We’ve got tighter budgets, less money to work with.  The screws tighten every day, we face a constant demand to squeeze more services from less and less  resources, and…

We’re going to give mega-incentives?

How long, realistically, do we think we can get away with this?

How soon before the people we say we’re trying to help — the ones we say we’re “creating jobs” for — conclude that we’re nuts?

How long before Moby Dick turns into Mutiny on the Bounty

How long before that crew that we thought were following us to the bright economic future we were promising…dump us off the ship and sail home without us?

For God’s sake, let us get over this already.  Use the damn things right.  And stop wasting what little we have chasing long-shot, unproven whales.

 

4 thoughts on “Landing the Whale: Why a rational debate on incentives isn’t happening.”

  1. Della, a very good analogy with a difference. While Ahab’s obsession was driven by vengeance the ED pursuit of the whale is driven by self-interest, which means there is no end to the pursuit. Think of how many in the industry would be negatively affected if the status quo were fundamentally changed to very limited use of incentives? The conversation typically ends with “the states are free to do what they want to compete with other states,” thereby disqualifying the industry from the issue and shifting the policy debate to state and elected officials – ensuring that the issue will go away. However, where is the credibility of a profession that ignores the whale in the room? Thanks for the article. Julia

  2. This topic has been around for some time and several years ago no less an authority than the Federal Reserve made an effort to educate and coax Congress to act to stop the bidding wars between states. If anything, the situation has worsened.

    It is also my opinion that in many cases, companies are using a bluff as a strategy to pad their bottom lines. Would Boeing have really left Washington, leaving behind a business climate with a strong aviation cluster, and also sacrificing many of its employees who would not relocate? How about Sears? Ten years ago the ninth-largest retailer, with $36.1 billion in sales, combined with a $19.7 billion Kmart to form the fourth largest retailer. Today the company is the 14th larget retailer with $36.1 billion in sales. Yet Illinois renewed a 20-year set of incentives it originally provided to move the company from Chicago to the suburbs. Given the very obvious fact that Sears is on a irrevocable path to failure, how wise was this? Consider that even if the company had moved, in many cases we see a surge in innovation and entrepreneurship among those workers who do not move with the company. In the long run, that might have been much better for the state.

  3. Good comment – you just touched on roads as an incentive but the hidden incentive is the funding of rural roads with gas taxes generated by the cities. If you really look at the costs and what each driver pays in gas tax, unless your home is on a street with 66-wide lots, if your street is paved you and your neighbors did not pay enough gas tax to pay for that street. This is a hidden incentive. There is a similar situation for businesses but I have not had the data to make the calculations.
    Years ago may father a high school math teacher, pointed out a similar situation with the grants programs for schools. The incentives were used where the legislature did not have the will to tell people they could not fund needed programs so they put out small piles of money on a short term basis that each school system could compete for – it just increased the bureaucracy of the school systems and made the teachers grant chasers.
    On Micheal Stempf’s last sentence, I can corroborate that because when a pharmaceutical firm in my town got bought out, rather than move the research scientists stayed and created a number of start-ups – they needed help, and some of that came from a mix of public and private loans.
    How do we get the

  4. The book and movie “Moneyball” provide another “literary” analogy for this situation. In the Moneyball case there is hope! Billy Beane saw that overpaying for superstars (Barry Bonds, ARod) – MLB’s equivalent of whales – was not in the cards for him. So, he found a better way by focusing on the player who “gets on base.” At the time he was doubted and dismissed, but he changed how MLB approached the game. There is hope for an Economic Development version of a Billy (or Betty) Beane to demonstrate that there are better ways. I am intrigued by the Moneyball metaphor. What is the economic development version of the “player who gets on base” but who is undervalued? Is it existing business retention and expansion? Is it co-working, incubators and accelerators? Is it retiree entrepreneurship a la Baby Boomers? A combination of things? I would love to hear your thoughts.

Leave a Reply

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