Fostering local hi-tech success doesn’t have to mean offering huge subsidies to companies like Apple and Amazon. Here are some alternative strat
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using “old economy” incentives for “new economy” firms can be costly and counterproductive. The “lots of eggs in one basket” strategy is especially ill-suited. But many public leaders haven’t switched gears yet, often putting taxpayers at great risk, especially because some tech companies have become very aggressive about demanding big tax breaks. Companies with famous names are even more irresistible to politicians who want to look active on jobs.
First, the too-many-eggs problem: hi-tech firms are prominent among recent tax-break “megadeals” awarded by cities and states. Tesla’s battery factory ($1.3bn from Nevada), Foxconn’s display-screen plant in Wisconsin ($4.8bn) and Apple’s data centre in Iowa ($214m) are typical.
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Here are two proven alternative strategies. The first could be called “back to basics”. A regional government inventories existing small- and medium-sized firms, the backbone of many local communities. Typically family-owned and located in micropolitan and rural areas, these firms are often neglected by policymakers and shortchanged by incentive programmes.
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The second alternative takes this same approach and applies it to very young companies and to emerging technologies with more speculative prospects. This was North Carolina’s successful strategy from the 1950s until the mid-1990s. Making no big bets on any one company, the state invested in all levels of education, created its community college system and upgraded the state universities. It also focused on highway upgrades and other infrastructure investments.
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The most important element for public officials and local champions is to have a long-term vision rooted in an informed analysis of local strengths and weaknesses and market potential. Informed by that analysis, incentives to individual firms may make sense, along with the investments in public goods intended to benefit many employers.
This is a strategy for the long term, but arguably a much safer and more effective use of government funds. Plus it uses the tax revenue of current local citizens for their own benefit.
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Maryann Feldman is the Heninger distinguished professor in the Department of Public Policy at the University of North Carolina, and director at the Center for Innovative and Prosperous Economies at the Kenan Institute of Private Enterprise. Greg LeRoy directs Good Jobs First, a nonprofit watchdog group on economic development incentives. |