The Childishness Behind Economic Development

Published July 5, 2013

Being the parent of a four-year old, I’m often the target of my son’s lobbying efforts for a new toy. It usually goes something like this: “If you just get me this new toy, you’ll make me the happiest boy in the world and you’ll never have to buy me anything else again!”

As an adult, I realize this isn’t true. It’s mainly a plea to value the short-term gratification more than long-term financial prudence. As any parent can tell you, four-year-olds aren’t great at long-term thinking.

Instant Gratification

In this sense, economic development consultants act like children when they talk about attracting new businesses. Maybe a “deal closing” fund can help the state attract high-profile corporate relocations, they argue. Or maybe a special job training grant. Just do it this one time and it will make our state an economic powerhouse. Pretty please!

You might also expect that corporations are eager to lobby for these sorts of things, too. However, when you ask corporate CEOs what matters most to their decision to relocate, their answers diverge greatly from those of many state policymakers and consultants.

13th On the List

Area Development Magazine recently published their 27th annual survey of more than 200 CEOs. Those corporate heads were asked what factors were most important to them when they consider whether to move or open a facility in a new location. The “incentives” packages that states usually offer were pretty far down the list at 13th place. Costs of doing business day-to-day and the ability to hire good workers were much more important concerns.

First place went to low labor costs; second place was “highway accessibility”; and third place was “availability of skilled labor.” A bit farther down the list—but still higher than special favors and handouts to a company—were low corporate tax rates (7th place), weak union power (10th place), and whether the state was a right-to-work state (11th place).

This doesn’t mean a corporation wouldn’t gladly accept a handout. But it’s likely that the lobbying would be less intense if the handout weren’t offered in the first place.

Just as a father often has to decline his son’s request for a new toy—even if it’s one that dad wants to play with too!—taxpayers should expect elected officials to act like adults as well. Sometimes “no” is the right answer.

Stephen Slivinski ([email protected]) is senior economist at the Goldwater Institute in Phoenix, Ariz.