Did you, as a kid, get everything you asked for on your Christmas wish list?
Of course not. But that didn’t stop you from listing every desire that had popped up in your brain the preceding 11 months, on the theory that “it never hurts to ask.”
Do companies like Amazon expect to get everything on their wish lists for new manufacturing plants or megaheadquarters?
Of course not. But that doesn’t stop them from asking, on the theory that companies in search of subsidies, incentives and other goodies won’t know what states, counties and cities will cough up until they’re given the opportunity to do so.
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Experience suggests they have a better shot at wrangling more of what’s on their wish lists than you had with your parents. And as long as the pattern holds, why not keep asking – and adding to the list? Especially when the governmental entities expected to hand over the money sprinkle their speeches not with the standard parental brushoff of “we’ll see” but with phrases such as “whatever it takes.”
Do those companies really need — much less deserve — to be given what they’re asking for? And should governments indulge those companies’ desires?
Now a set of interesting questions gets recirculated every time an attractive economic-development project comes along. You’ve been hearing them a lot recently, not just because of the mad scramble for Amazon’s second headquarters, but also for projects such as the giant Tesla battery project under construction in Nevada and Wisconsin’s $3 billion bid for a Foxconn electronics manufacturing plant.
Washington’s various subsidies for Boeing have kept phalanxes of trade lawyers and lobbyists busy for years defending them against complaints from Airbus (no slouch itself in garnering financial incentives, including those that landed Alabama an Airbus plant.)
And if you thought the competition for the last few Boeing projects was expensive and bruising, just wait until the bidding opens for the assembly location for its next airplane model.
It’s easy to understand why companies ask for incentives. Who doesn’t like free stuff – or at least stuff someone else is paying for? Free land, free buildings, free training programs, new roads and utility infrastructure, years-long tax abatements – sure, why not? What else you got?
Governments and economic-development authorities can muster plenty of reasons for doing what they do, starting with the thirst for jobs.
Maybe it’s not so evident here, but the recession didn’t so much end as sputter out in are parts of the country. The economic devastation left in its wake, for individuals, families and communities, was deep and permanent.
For those regions, cash-strapped though they might be, they really need jobs, and if cobbling together a huge incentives package is what it takes to get them, that’s what they’ll come up with.
The second major argument in favor of subsidies and incentives is that they will pay for themselves over time in the form of increased tax revenue generated by the target company and its employees, as well as from the businesses supported by the ripple effects of landing a big new employer.
That’s a tough one to test even by simple measures like tax revenue or employment. Economies are complex machines, and outcome Y isn’t necessarily the direct outcome of pressing button X.
The third reason is that everyone does it (indisputably true) and regions would lose out if they didn’t offer special enticements (untested but potentially disputable). What would happen if a city or state said, “Here’s what’s attractive about this as a place to do business. We think we do well for everyone. Take it or leave it.”
Objections abound as well, beyond the philosophical arguments that if a project can’t make its own economic case, governments ought not to subsidize it.
While there’s a viewpoint that some incentives like tax abatements don’t really represent a financial loss — because that was revenue the region wouldn’t be getting if Boeing or Amazon or whoever had gone elsewhere — not all incentives are created equal.
Those that involve actual cash – like roads, land, buildings or training – are paid for by businesses already in the community, some of whom not only won’t get the benefit of the incentive but also are competitors to the company being recruited.
While Amazon has publicly issued its want list, we won’t know until a site is selected (and details of the incentives offered are unveiled) which factors on that list were priorities and which were in the category of “let’s throw it on there and see what we get.”
The results will be studied intently, by economic-development officials wondering what the next big project is going to cost them, and by sponsors of those projects compiling their lists and musing, “If they asked for that, and got it, just maybe I could ask for …”