Here is another example of why paying companies to do business in your city is problematic. Now that Carson City handed out more generous incentives to retailers in Southgate Center than it had to others in the past, it’s now faced with other businesses who want their incentives, too.
Bribing businesses to move to your town is a problem that is not limited to Carson City. So many other local government entities have offered these bribes that it’s very hard to land new businesses without paying them off. Especially in tough economic times, businesses have the power to pit governments against one another to get the best deals possible.
As Adam Smith observed in An Inquiry into the Nature and Causes of the Wealth of Nations, too often these subsidies create situations where the emphasis is on the subsidy and not the economic activity it is supposed to create.
There’s a point where these kinds of taxpayer-funded incentives need some controls, probably on a federal level. It’s one thing for private property owners to offer inducements to strike deals with companies who want to do business with them, as they have the incentive to look out for their long-term interests.
It’s quite another for governments to offer these subsidies. Too often, their interests are short term: how they can bring new companies to town and create jobs in advance of the next election. It’s not their money, and few of them will be around for the length of some of these deals. And of course, there’s the perception that shady deals are being made behind closed doors between companies and government officials.
Without some kind of controls, local governments are in a race to the bottom, to see who can offer up the most taxpayer goodies to attract new businesses to town, or to keep the ones they have.
I think it would be a good move to require governments to treat all businesses the same, and if they offer incentives to one business, they have to offer it to all businesses. So, if a city wants to lure in new businesses by cutting their sales taxes, then it has to cut those taxes for all businesses.
Perhaps then local governments would stick to improving infrastructure and making themselves better places to live instead of bribing businesses to locate within their jurisdictions.
Yea, I know, good luck getting that through Congress. I’m sure the companies who love these incentives are also the ones who shower elected officials with plenty of campaign cash.
But we can dream, can’t we?
