Opinion: Development incentives don't benefit communities

John C. Mozena
State officials resisted revealing the incentive package for the unsuccessful bid, citing a confidentiality agreement with Quicken Loans Inc. Chairman Dan Gilbert's family of companies. At the request of Mayor Mike Duggan, the mortgage impresario last fall quarterbacked a high-level coalition of business and civic leaders to craft a proposal to lure what Amazon dubbed its "HQ2."

When giant companies like Amazon, Quicken and Ford get together with Michigan’s politicians to put together new “economic development” incentives, we’re told a tale of job creation and community benefits.

But the research results are increasingly clear that economic development incentives don’t actually accomplish what they claim. Independent economists from across the political spectrum who evaluate the results of these corporate welfare programs come back with consistently bad news for the economic developers: Overall, incentives to big companies don’t create jobs.

They just enrich deals that would have happened anyway. They make states less attractive places for entrepreneurs. They reduce innovation. They increase inequality. They reduce support for critical services like police, fire departments, infrastructure and schools. They’re not necessary for economic growth and job creation. They are, quite simply, a bad idea.

The true purpose of economic development incentives isn’t to create jobs. Rather, it’s to make voters think that politicians are creating jobs.

The truth is that the beneficiaries of economic development incentives are the politicians who take credit, the bureaucrats who have jobs running the programs and the companies that cash the checks. Of course, they will deny this all day long because the incentive gravy train will keep flowing only as long as voters believe their elected officials are doing something that benefits the community. This means all the players have a direct and personal interest in making sure we believe that giving free money to big companies is somehow good for us all.

In reality, the opposite is overwhelmingly true. The evidence is that at least three quarters of the time, incentives go to companies that either have already made up their minds or would have ended up making the same decision regardless of the incentive. This makes practical sense, because businesses tend to make big decisions such as building a new facility based on key factors such as customers, suppliers, workforce, infrastructure and natural resources.

But because virtually every state and municipality runs some form of incentive program, corporations can make the best business decision then ask for an incentive in their chosen location while pretending the decision is still open, which politicians are happy to provide in return for credit with their constituents for “getting the deal done.”

The solution to this toxic combination of big business and big government is surprisingly simple: We simply stop believing them. As soon as politicians are punished by voters instead of rewarded for their involvement in these deals, they’ll become far less likely to hand them out when asked. Once businesses are considered greedy rather than job-creating for taking government incentives, they’ll have to consider the brand reputation cost to their bottom line.

In short, everyone involved will stop playing as soon as the costs outweigh the benefits.

This is a corporate welfare fight we can win, right here in our own communities, simply by not taking part.

John C. Mozena is an independent economic development policy advocate.