Rolling down the legislative trail is a bill that would greatly expand North Carolina’s centerpiece corporate incentives program, currently know as JDIG (Job Development Investment Grant). The bill which was passed in the House Finance Committee yesterday, would, according to the Winston Salem Journal “double to $45 million the largest pot of annual state incentives available to Gov. Pat McCrory and Commerce officials.” And in the process the name of the program would be changed to North Carolina Competes.
So with the new program title the question that goes begging is what is North Carolina competing for and what are the tools of competition that are being used. Certainly North “Carolina Competes” would not make North Carolina businesses more competitive in any economically meaningful sense of the term. Coercive wealth transfers within markets or economies, which are what economic incentive programs are, cannot make the businesses within those markets or economies more competitive. Local businesses will not become more competitive with either each other or with business in other states or internationally.
Economic competition is advanced by generally lowering the cost of doing business and removing barriers to entry. From a public policy perspective, this would mean reducing taxes and regulations that hinder business expansion by raising costs or by legally restricting market entry. If, for example, the goal is to make North Carolina more competitive then the legislature should pursue additional tax reform, which if done correctly will reduce the cost of entrepreneurship and acquiring capital, and look more seriously at reducing regulations. I would suggest starting by abolishing Certificate of Need laws and the state’s renewable energy mandates.
But the fact is North Carolina Competes does none of this. It is clear from the statements of Commerce Department secretary John Skvarla that the competition that is being referred to is between state governments over how much taxpayer money is transferred to new or out of state businesses that are considering setting up shop in North Carolina. According to the Journal:
Skvarla said they [economic incentives] are necessary given North Carolina competes regionally, nationally and globally for economic projects. “We immediately compete with 10 southeastern states, some that have Republican governors and Republican General Assemblies and they all have incentives,” Skvarla said.
The commerce secretary then went on to make the claim that “We need these incentives…They are targeted, discretionary and represent a positive return on investment.”
This is an empirical claim with no real research to back it up. To my knowledge there has not been any rigorous cost benefit analysis done with respect to these programs. What studies have been done use what is called IMPLAN, which is a model that is often used for what are falsely called economic impact studies. These models inherently ignore economic costs and can only show “a positive return on investment.” By using IMPLAN or similar models, the economic impact game is rigged ahead of time to show the result that politicians and bureacrats who administer the programs want to see.
Finally Skavarla claims that: “incentives are the first box checked by anyone [business] looking at North Carolina.” [emphasis added] I certainly hope this is not true. What he is saying is that before looking at things like the quality of our workforce and schools, our personal and business tax rates, our regulatory environment, our geographic location and quality of life, a company looks at how much in incentives it can extract from existing businesses and other taxpayers in the state. If this is truly the case for a specific company then the questions arises is this the kind of company we want to turn our workforce over to and to put into a position where they are competing with existing businesses for resources and talents in the state. These are businesses who, I might add, are not putting incentives first. But in reality, like Skvarla’s previous claim, there is no empirical evidence for this claim. As was argued in the World Technopolis Review in an article written by a team a team of researchers from the University of New Mexico:
This form of targeted tax incentives is often the policy of choice for implementation of the political model. It however loses sight of the fact that the organic growth of clusters or the movement of firms to a given area is often a function of other factors. Site selection consultants often look at other attributes such as existing workforce, education quality, infrastructure costs, and access to transportation rather than mere short-term fiscal incentives.
