Should We Save, or Should They Go?

No one wants businesses to abandon communities. After all, here in St. Louis we saw what happened to Downtown West after Union Pacific moved 1,000 employees to Omaha, Neb.: stagnation and a void, only to be filled years later by subsidized housing units that our residential vacancy rate suggests are unneeded.

So, now that we have an opportunity to “save,” “keep,” or “retain” — choose your favorite active verb — yet another downtown employer, Peabody Energy Corp., through an outlay of millions of dollars, our local elected officials contend that local government faces the prospect of either doing something or doing nothing. If St. Louis does nothing, then the city faces the prospect of possibly “losing” 500 jobs, which could tarnish the “image” of downtown. If St. Louis does something, then the city could pat itself on the back for giving tax dollars to a Fortune 500 company.

Development “incentives” are anything but. On their face, they may appear to influence the course of business development, affecting company decisions to locate or to relocate. In reality, private market forces and intangibles determine business behavior in the marketplace.

As best I can discern, the only behaviors that government “incentives” encourage are the development of relationships between government officials that have been statutorily charged with bestowing our money to entities of their choosing and the corporations that so often laugh all the way to the bank.

Here at the Show-Me Institute, we have a different term for “incentives” of this variety: Corporate Welfare.

The provision of these welfare benefits on a case-by-case basis creates such a distorted environment for the exchange of goods and services as to necessarily disadvantage all market actors that do not receive the benefits in question. Ironically, rather than solving problems, these programs create problems, most notably that of rent-seeking by others.

At the end of the day, when the 10-year bonds or the five- to 25-year tax abatements are firmly in place and not subject to judicial abrogation, they do nothing to address underlying business conditions that make plausible a company’s purported threats to relocate.

Government incentives for some create an economic burden on others, ultimately proving a disincentive for many to engage in commerce.

Count me among those supportive of the position that it’s unwise when local government spends tax money in this manner.