How to provide incentives to every business

 

My wife and I met at a time when several people — out of the blue, after years of this never happening — started trying to set me up on dates with women they thought would be great for me. Becky was five hours away in a different state, and some of these women lived in Virginia and were no more than a couple hours’ drive. Becky and I weren’t serious yet, so I thought about letting these friends set me up.

But after our second date, which involved a hike on the Blue Ridge Parkway, dinner in a downtown Roanoke Thai place, and lots of great conversation, I decided I needed to invest in Becky, who was already in my life, rather than check out anyone new.

Believe it or not, that reminds me a bit of Richard Florida’s recent essay titled “The disturbing part about Amazon’s HQ2 competition.”

It also reminds me about a column I wrote for the Mount Airy News about 15 years ago. I was covering economic development, and I had been learning about economic developers’ desires to have more tax breaks, grants, and other incentives to offer new businesses.

I don’t have a copy of that column and I don’t remember any of the exact words I used at that time, but Florida hits the gist of it like a hammer hits my thumb a nail.

the mayors and elected leaders of these cities owe it to their tax payers and citizens to ensure they are not on the hook for hundreds of millions and in some cases as much as $7 billion in incentives to one of the world’s most valuable companies and richest men.

My point in Mount Airy was that it is important to provide incentives to the businesses you already have to help them thrive, rather than just giving away the farm to the new show in town.

Shortly after writing that column, I moved to Buena Vista, Virginia, to attend college. Many people in B.V. had high suspicion for business incentives, having seen massive tax breaks given to at least one company that set up shop, ran a factory and provided jobs during the period the incentives were available, and abandoned the city as soon as it would have had to pay taxes.

More recently, Virginia lost more than $1 million to a Chinese company that had promised to make pollution control devices in a former furniture plant in Appomattox. After collecting some of the nearly $4 million in state incentive money, the company disappeared without ever hiring anyone. Eventually, The Roanoke Times discovered that the company had hardly been vetted at all to ensure it could fulfill its promises to Virginia.

How do you explain these kinds (although they are exceptions, rather than the rule) to people who live, work, and invest in the community day in and day out, without any promise of a special break?

As Amazon has pit cities against each other to see who can offer the greatest incentive packages,  it begs a question: Why does Amazon need all this incentive money?

The answer is, of course, “Because it can get the money.” It’s the law of supply and demand. The number of thousands-of-jobs creators is lower than the number of cities that would like thousands of jobs. So Amazon can extract economic value for its employees and shareholders.

Incentives for businesses are a fact of life. But they ought to impose an obligation on government to create the best deal possible for the companies and citizens within its borders already.  This can take the form of everyday low taxes, an appropriate and not excessive level of regulation, or high quality of life. I love living in Lynchburg, for example, because of extensive trails in the city, a low cost of living, and pretty good city services.

A recent Freakonomics podcast addressed this topic in an interview with Gina Romando, the governor of Rhode Island who has overseen a nice economic turnaround while battling unions, cutting regulations, and making other pro-business moves. (Oh, she’s a Democrat.) Giving bonuses to big companies is part of the mix, but it’s actually “a pretty small piece of the puzzle,” she says.

“Most of the reason that we have had this economic comeback in the past couple of years is because we’re investing in our people. We have job-training programs, which I’ve completely retooled since becoming governor, that are working. We’ve created tight partnerships between our high schools and our companies.

 

I’ve started [a] small-business loan fund that’s run out of the Rhode Island Commerce Corporation…

 

I’ve eliminated a ton of regulations. We’re moving to put all our permitting systems online. … I’m proud of the fact that we just became the fourth state in America to make community college tuition-free.

Those are concrete examples of steps government can take to invest in its own people. These not only reward the people who already call the state home, but it also entices people and companies who would thrive in this kind of environment.

Like or hate the recent Republican tax bill, it’s hard to ignore the companies that have announced wage hikes, or, in the case of Apple, the decision to build another campus in the U.S., hire thousands more, and look at moving manufacturing into the country again. With fewer reasons to not expand on American soil, and with greater resources left for the company to do with as it wishes, it shouldn’t be surprising that some of that tax cut goes toward paying workers more competitively and doing more business at home. We’ll see whether it lasts and if it provides an incentives for smaller businesses, too.