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.