Ideas in Development

Major Questions about Economic Development, Business Recruitment and Incentives: Some Questions Come with Answers, Some Don’t

I am often surprised about how much the debate over what is economic development and what would make for more effective strategies goes over the same old ground. But the basics are fundamental. So, this is a five-part series of articles, drawn principally from an earlier CFED publication, Improving Your Business Climate: A Guide to Smarter Public Investments. Part 1 tackles the concept of economic development and its importance. Later installments will propose some principles to guide policy, describe the chief policy levers for achieving “high road economic development,” and then address major incentives and business attraction questions and confusions.

What Principles Should Guide Effective Economic Development?

The pressures associated with the bidding wars and the “cut-taxes-and-deregulate” lobby lead to policy “on the fly.”   Decisions are made in an un-strategic fashion and long-term consequences are rarely considered. Recruitment efforts focus on doing the deal and tax adjustments are made on the basis of political calculus. It is time to set out some basic principles that should inform economic development policies and programs.

We offer seven for starters.

What are the Policy Levers for Creating a Positive Business Climate?

Fresh thinking is required about the way economic development is heading in the United States. We have to move the debate about business climate away from simplistic notions of tax competitiveness or “getting the government off our backs” to focus on the real disincentives to economic competitiveness and opportunity. We explore six critical policy “levers” for creating a better business climate: education, physical infrastructure, regulation, taxation, development incentives and modernization.

Education

Major Questions about Economic Development: Why Business Recruitment? 

Today, we are examining the nature and popularity of business incentives and attraction strategies.

Is Economic Development The Same As Business Recruitment?

What about business attraction efforts?  Why did our discussion about policy levers leave them out of the mix?  Isn’t economic development the same as business recruitment? 

No.  Business recruitment is simply a critical and extremely common strategy for promoting economic development.  We regard them as tool or strategy, not policy lever, for the purposes of this article.

Major Questions about Economic Development: Do Incentives Work?

Now, there is the fundamental question.  Do they work?

What Are The Costs And Benefits Of Using Incentives To Attract Business?

Benefits

Particularly from the perspective of a state or local economy, there are a number of benefits from using tax and non-tax incentives to attract businesses.

Development incentives can help a state or locality attract a desirable business prospect. This is because, on the margin, when it comes down to two or more equally satisfactory sites, a superior incentive package and “red carpet treatment” can clinch a deal.