“Economic development” is a slippery term; for many, it means attracting existing businesses to an area using tax breaks and other incentives as bait.
Yet for many smaller towns, the ability to attract businesses comes at a huge cost in terms of the incentives often demanded by corporations — incentives which can run into the millions of dollars. In fact, a New York Times article put the cost of incentives used by governments to attract businesses in excess of $80 billion annually.
It’s a good example of shifting an organization’s costs onto taxpayers, and in many cases, corporations have pocketed the incentives and eventually closed the operation anyway, leaving locals to deal with the economic wreckage.
The New York Times outlines the effects of incentive packages on communities (see article excerpts below), including the businesses which pitted towns against each other in a race for more lucrative incentive packages.
Are there alternatives to this form of economic development which offers lower impacts on communities? The answer is yes.
Microenterprise Development: Homegrown Economic Growth
Microenterprise development looks to community members to initiate and grow businesses which — although they don’t provide the hundreds of jobs a manufacturing operation might — still provide a living wage for a family.
The benefit, of course, is that these businesses can quickly take root and grow, and unlike transplanted industries — which have few ties to a community and often leave — microbusinesses have roots in a community.
The cost of helping these businesses start, grow and flourish are a fraction of the incentives demanding by incoming corporations, and while most remain small, a few micro-businesses eventually grow, adding more jobs.
When compared to the kind of costs a community bears when it wants to attract an existing business, microenterprise is simply less expensive.
NYT Researches Incentives
In a recent article, the New York Times researched the incentives offered by states, counties and cities to businesses, and concluded it’s difficult to know if the incentives were money well spent or simply shifted corporate costs onto taxpayers. Here are a few excerpts:
A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.
…Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.
…A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.
Over the years, corporations have increasingly exploited that fear, creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors.
While some jobs have certainly migrated overseas, many companies receiving incentives were not considering leaving the country, according to interviews and incentive data.
The article documents many cases where towns were put in direct competition (or were simply told they were in competition) by organizations, who eventually moved out of the community.
In most cases, the outcomes weren’t closely monitored, so officials couldn’t even say whether the costs of luring a business to the town resulted in a net plus or minus for the community.
Business attraction can bring jobs and economic growth to a community, but it’s increasingly difficult to do so without offering significant incentives to corporations.
While growth via microenterprise isn’t the whole solution to most regions’ economic well being, it’s an under-utilized — and typically far more cost-effective — solution.