Ideas in Development

Business incentive costs continue to rise. States competing to land a prospect do not know what each is bidding, while the footloose enterprise is in the best position for egging on the multiple states to bid more than necessary to close the deal. When this occurs, it's called the "winner's curse", because the winner of the particular "auction" pays more than any of the other bidders believe it is worth, possibly more than the company's target, and may be more than the government can afford.

CFED Releases the 2006 North Carolina Action Kit on transforming economic development policy and practice in the states

Author Bill Schweke has just finished a series of economic development reform essays for policymakers and advocates in North Carolina, which are relevant to other states as well.

In an effort to assist states in promoting policies that encourage economic opportunity, CFED prepared a toolkit in March 2005 to educate the North Carolina General Assembly on the impact of economic development incentives on the state.

State Toolkit

Business incentive costs continue to rise. States competing to land a prospect do not know what each is bidding, while the footloose enterprise is in the best position for egging on the multiple states to bid more than necessary to close the deal. When this occurs, it's called the "winner's curse", because the winner of the particular "auction" pays more than any of the other bidders believe it is worth, possibly more than the company's target, and may be more than the government can afford.

A “Smart Subsidies Audit” is a tool that enables state (or local) policymakers to hold their business incentive programs to a higher level of accountability, in regards to their transparency, fiscal integrity, cost-effectiveness and impact. 

Why an independent review of the state's employment and fiscal model is still needed

Given the price tags of recent subsidy deals with footloose business facilities, CFED and the NC Justice Center still believe strongly that North Carolina’s employment and fiscal cost-benefit model needs a thorough independent review that builds on our own initial evaluation of the model’s design and applications.

There are many ways to grow an economy beyond using subsidies to recruit footloose facilities.

Attraction efforts are supported intellectually by so-called export base theories. But the authors of this paper regard the export base perspective as more of a mechanism (and symptom) of growth, not a good theory of economic development. ¹

So-called “new growth theory” (aka: endogenous growth theory), which is increasingly becoming a widely-held view among economists of all political persuasions, instead emphasizes that economic growth is a product of innovation and new ideas.

Bill Schweke

Are There Grounds for New Hope

At least from a reformer’s perspective, 2006-2007 were not really great years in the history of incentive accountability, transparency and cost-effectiveness.  The state of North Carolina is now a “leader” in size and heterogeneity of incentive packages.  Companies, consequently, are responding by raising their expectations, asking for more money and keeping certain issues “hush-hush.”