This example does not require an incentive.
We learn in the news that Reynolds American Inc. is laying off 570 workers in a corporate restructuring. While that’s bad news for the laid-off workers, it’s potentially good news for the corporation’s long-term survival. (If you hate the company’s products, you might also welcome the downsizing.)
It would be silly to think Reynolds American wanted to lay off the workers. Someone looking at the books and the long-term outlook figured that was the number of layoffs needed to ensure the business could remain operable.
What if state and/or local lawmakers had given Reynolds American some sort of targeted tax break to keep the jobs? How much longer would the company have avoided the inevitable cuts? How much capital would have been wasted propping up an unprofitable business, rather than flowing to more productive uses?
Now remember the giveaway lawmakers offered two tire makers. Aren’t those incentives just giving Goodyear and Bridgestone Firestone an excuse to delay tough business decisions that would free up capital for more profitable ventures?
