by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
WRAL reporter Tyler Dukes has examined job creation promises from North Carolina economic-development incentives programs and found them falling far, far short. Dukes examined job creation from projects under the Job Development Investment Grant (JDIG) program and One North Carolina (OneNC) fund from 2009 to 2016.
A summary of Dukes’ findings follow:
That last bullet point is a consolation, at least, reflecting hiring, retention, and investment benchmarks the companies must meet to qualify for some of the grant funds.
These findings, spanning the administrations of two governors, one from each political party (Bev Perdue, Democrat, and Pat McCrory, Republican), provide further evidence of what economists warn about regarding government incentives:
Economists point out – and Commerce officials fully acknowledge – that incentives are far from the primary driver for companies making decisions about their growth. That’s why state recruiters regularly tout factors like the quality of North Carolina’s workforce, its tax climate and quality of life in their efforts to woo businesses.
“All economic decisions are made on the margins,” Jon Sanders, director of regulatory studies at the John Locke Foundation, said. “Only in a few cases are incentives going to be a marginal benefit that changes a ‘no’ to a ‘yes.'”
But figuring out how many companies would have hired in the state regardless of the incentives is a hard thing to measure.
Tim Bartik, an economist at the W.E. Upjohn Institute for Employment Research, studied that question specifically for incentive programs across the country. His 2018 paper showed the vast majority of the jobs attributed to incentives in a given state – somewhere between 75 to 98 percent – would have been created there without the subsidies.
In a nutshell: Businesses make business decisions for business reasons. If they can get free money from politicians wanting to look good in press releases and photo ops, great, but it’s rare that it’s a deciding factor.
For taxpayers, however, it’s not “free money.” If you think about it, taxpayers are forced by politicians to pay companies to make the decisions they’ve already made in order to let the politicians take credit for it.
I wrote last year about the difference between economic development programs like JDIG and OneNC and economic growth policies such as keeping tax and regulatory burdens light, protecting property rights, and giving individuals greater freedom to direct their own resources as they see fit.
Moving from “economic development” to economic growth policies can be difficult for politicians and people who want to believe in a big, wise, all-powerful central government. We can see the one big incentives recipient and what they do; we can’t see all the actions taken by everyone else, especially not the unmade choices with the resources they no longer have (which were given to the one big incentives recipient).
As I explained:
99 percent of employers in North Carolina are small businesses. These are the little guys who can’t afford lobbying and rent-seeking in state legislatures. They don’t specialize in ribbon-cutting ceremonies, golden shovel groundbreaking displays, and other photo ops to thank politicians. They’re trying to make ends meet and serve their communities in their own special ways.
Economic growth policies make it easier for them by keeping state tax and regulatory burdens low. It’s a better choice than playing the incentives game for the 1 percent.
But making that choice means choosing not to indulge in the self-gratifying fiction that economic activity comes at the direction and generosity of politicians and bureaucrats, rather than by the strivings and efforts of untold, unsung numbers of enterprising risk-takers.