by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor | John Locke Foundation
Amazon’s success owes to many things, but it also is tremendously helped by one strategy in particular: getting governments to pay Amazon dearly for the privilege of saying look at us; Amazon does business right here:
Amazon’s expansion can be in part attributed to its economic development team. Responsible for its site selection process and the execution of economic development, infrastructure, and tax related incentive negotiations, applications and legal incentive agreements; the well-oiled economic development team has secured millions of dollars in tax credits and incentives across the nation for the online retailer.
In other words, Amazon has a major competitive advantage in rent-seeking. Because that’s what economists call it when a “well-oiled economic development team [works to secure] millions of dollars in tax credits and incentives” from governments.
Mike Munger calls rent-seeking “Competition for government goodies.” It’s also been called people trying to “obtain benefits for themselves through the political arena.”
Or likened to pirates seizing the profit of merchant ships.
In that sense, Amazon’s announcement today was a virtual hoist of the Jolly Roger. Imagine, a continentwide request for proposals for government incentives! Amazon did:
I’ll be watching to see if any state and local government leaders in North Carolina fall for this trap. The bidding is sure to get out of hand quickly. It’s inevitable that whoever “wins” will overpay.
I’m hoping it’ll be someone else’s folly. State and local officials should resist the urge to chase specific companies and industries with incentives.
Instead, they should make sure the economic climate here is suitable for many different enterprises.
Rather than lowering the costs of doing business just for specially favored industries through targeted incentives, state leaders should use corporate income tax cuts and regulatory reforms to lower business costs across the board.
Such policies have solid empirical backing. They can be considered all-comers incentives, good for untold numbers of business ventures across the state and, therefore, the state’s economic growth.
Importantly, they would include small business ventures and sole proprietorships. Those get overlooked by politicians seeking big-splash headlines and ribbon cuttings.
Nevertheless, small businesses quietly make up 99 percent of all businesses. Removing unnecessary government impediments to small businesses may seem less “splashy,” but it’s more helpful to the overall domestic economy and local jobs.