Defending Incentives

This is an interesting op-ed piece published in The News and Observer, a newspaper serving readers in Raleigh, Durham, Cary, and Chapel Hill, NC. The writer—an assistant professor in city and regional planning at UNC-Chapel Hill—argues that the financial incentives the state has given to two companies, Dell and Google, to locate in North Carolina, may be worth the cost despite those projects not meeting job creation expectations. It's a tough call; it's not uncommon for a state or community to give up revenue or even spend money outright on industrial recruitment without making up the difference in an increased tax base, higher average earnings for residents, etc. (It makes me wonder why communities don't structure all their incentives to be applicable only if the company meets certain job and investment targets, such that the community cannot lost money.)

What the writer argues, however, is that these incentives provide incentive not just for the company to locate in the area, but also to economic developers to make sure their business environment is set up to make it easy for these companies to succeed. By setting high expectations for job growth after a corporate expansion or relocation, the economic developers have a duty then to improve themselves. The expectations are often based on what can be expected from an expansion in the industry (in the case of Dell, computer manufacturing). If the average computer manufacturing expansion of a size similar to Dell's in North Carolina can be expected to create X jobs, but North Carolina's results came in after several years at 0.75X, then there needs to be an investigation of why North Carolina's results were below average in that case. The law of averages says some projects will create more jobs, some will create less; the article's author says that setting expectations to be at least average is healthy, and missing the target is a chance for authorities to figure out if there is something they could have done better.

In my opinion, there could be something to this, but of course it's possible that even in a perfect business environment, where North Carolina executed flawlessly, Dell or Google might have faced adverse market conditions or other unpredictable circumstances. Still, it will be interesting to analyze the situation again in five or 10 years and see whether the seed planted by Dell or Google eventually does pay off, even if the state takes a loss in the short term. I'm sure the people with jobs at these companies in North Carolina are at least grateful the state sacrificed some revenue to keep them employed.

The News and Observer - "Don't Write off Incentives Yet"