McCrory moving forward on $$$ for jobs even as new study pooh-poohs idea | Eastern North Carolina Now

    Publisher's note: Brant Clifton uses the words of others, in part, to expose cronyism in his "bare knuckles" Conservative online publication known as The Daily Haymaker.

    In Raleigh, the McCrory Department of Commerce is doing quite a bit of cheerleading for special taxpayer-provided incentives to lure business to North Carolina.

    We've registered our concerns previously about special deals for new business — especially those targeting the film industry. It's been reported that some legislators are feeling a little queasy about offering business recruitment incentives — especially amid a $445 million revenue shortfall. But Gov. Pat has included in his proposed budget a push for renewed incentives for Hollywood types shooting their works in our state.

    A couple of scholars from The Mercatus Center at Virginia's George Mason University have published an intriguing paper raising serious questions about states competing against each other for economic development by dangling cash and other incentives at prospects:

    [...] Targeted benefits often fail to achieve their stated goals and have major negative consequences such as misallocation of resources, an increase in lobbying and other rent-seeking, an increase in cronyism, and a bias toward large firms.[...]

    When policymakers provide targeted benefits, they remove the profit and loss signals that investors would otherwise use to determine the highest-valued uses of a particular resource. The lack of market signals also means that policymakers have no way of knowing the value of alternative uses of the resources being redirected as a result of their policies. The result is costly government investments that often fail to yield the benefits expected by policymakers. For example,

    A study of the Michigan Economic Growth Authority Tax Credit Program estimated the program's cost per job to be approximately $45,000.

    • A study of Minnesota's Department of Employment and Economic Development estimated that its Opportunity Building Zones cost approximately $29,900–$30,800 per job.

    • Louisiana provided $1.7 billion in incentives to Cheniere Energy with the goal of creating an additional 255 jobs and retaining another 77 jobs, costing the state nearly $7.5 million for each job. [...]

    Companies end up expending resources on the political relationships necessary to secure future gains in the form of targeted benefits. These are resources that would otherwise be used for wealth creation. To affect policy, businesses create the impression that they are willing to relocate, and signal to policymakers that they fulfill the criteria of a suitable benefit recipient.[...]

    Just as productive entrepreneurship leads to further wealth-creating activities, rent-seeking can carrot multiply and create further economic woes.

    Companies begin to habitually serve political interests instead of satisfying consumer needs, and political competition replaces market competition. Consequently, cronyism—the established practice of exchanging favors between powerful people in politics and business—may become entrenched in the social fabric of a state. [...]

    When targeted companies hire people and invest, they can create the illusion that the benefits they receive increase a state's well-being. Policymakers therefore have an incentive to make large-scale, observable investments that appear to contribute more to a state's economic development. This creates a bias toward large firms when granting targeted benefits.

    The authors' full report on economic incentives can be found here.