A recent study published in Economic Development Quarterly helped answer an age-old paradox surrounding business location decisions.
This study was a survey of recently relocated businesses. As expected, CEOs said the availability of a trained and ready workforce was the prime consideration for the selection of the new location.
Likewise, the executives reported that they favored a general tax reduction rather than tax incentives. No surprises here. What was shocking is that only 30 percent of CEOs knew that their company received tax incentives.
This study addresses the paradox of CEOs saying they want to locate in high quality places with generally low taxes where they can attract and retain good workers; but then accepting tax incentives that reduce funding for local schools and other public services and keep overall tax rates higher.
It appears most CEOs aren’t involved in the tax incentive negotiations, or even aware that they receive them.
This is extraordinary. We hear from the economic development community that incentives are absolutely necessary. Yet, only one-third of the companies that received them thought them important enough to mention to the CEO.
Now, I understand the art of delegation. When I commanded an infantry company there was lots that went on the first sergeant never mentioned. But if the CEOs are mostly unaware of incentives, they are necessarily a lot less important than my friends in economic development claim them to be. And that leads us to a policy problem.
Last summer I heard a well-known economic developer and power company employee talk about jobs. I expected a lot, as he is a former county commissioner and councilor in one of the more beleaguered doughnut counties.
But he said the most astonishing thing in his defense of tax incentives, “Jobs are a precious commodity.” That’s an astonishing thing to say, but also revealing.
Hoosier workers aren’t commodities. No successful business owners, politicians or more importantly – employees – view themselves as commodities. Jobs are places to learn, to grow, to make things and make a difference.
They help people and make a life. Though people are not commodities, it’s apparent that local economic developers treat new jobs as just that.
Fundamental to that view is that local economic development officials aren’t measured on how well the local economy performs, but rather on how many deals they close. As a result, usually only the job counts matter.
Few honestly admit how costly the development efforts are, how badly the abatements drain needed resources from communities and schools, or if the new workers will even live in the local community.
CEOs, mayors and county commissioners are smart and busy people, but they should not be outsourcing decisions about tax abatements to site selection consultants and local economic development officials.
Those folks are rewarded for closing the deal, not bettering local economic conditions. This is a problem for the legislature, economic development boards, local elected officials and taxpayers.
It is high time to change how we view people in the economic development process.
They aren’t commodities.
Michael Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to firstname.lastname@example.org.