Here is what my colleague, a European ex-mayor and investment promotion expert, had to say about this article:
And here's what a one Midwestern U.S. city manager told me:If incentives are provided, they need to be like "happy hours": a little discount to make clients spend much more. In most European countries, investment incentives are granted by central governments based on a law, which has to follow EU regulations. Cities/regions usually have limited role in that game and, if they grant some incentives (like selling land cheaper than market price) to an investor, this is included in the overall limit for the public aid and inspected by the European Commission pretty strictly. EU as well as national governments do not like to see what they call "displacement," i.e. companies moving from one location to another squeezing financial & tax incentives out of local governments.The vicious aspect is that once your competitors [in other localities] start granting incentives, you get under pressure to do the same....
I think there should be a federal law that prohibits such incentives. It has created havoc and distorts decisions of businesses. [Home city name] lost two large employers this year to [Neighboring city]. [Neighboring state] offered an aggressive incentive package, more than what [Home state] and [Home city] could offer. The [Neighboring state's] governor brags about creating jobs ... but all he really did is take them from another location. That is not progress.
The human incentives for short-term gains are what mess this up. On the business side, managers feel like they "owe" it to shareholders to play localities off one another to get the company the best deal in the short term, even if it means uprooting operations and firing old workers only to hire replacements elsewhere. On the local government side, elected officials and city administrators -- who may be here today, gone tomorrow -- are incentivized to cut a ribbon and boast to the public about how many jobs they created, without bothering to look at the full economic cost over time.
Even with the best of intentions, localities are overmatched in negotiations with huge global businesses. Said one commissioner in Travis County, Texas: “We don’t have the sophistication or the resources to negotiate with a company that has the wherewithal the size of a country. We are just no match in negotiating with that.”
So yet again, the solution is for Big Government to step in and regulate how the game is played.
By Louise Story
December 1, 2012 | New York Times
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