The Economy

Viewpoint

Dec. 21, 2004

Now's the time to end the economic development shell game.

With the booming U.S. economy cruising along in the longest economic expansion in history, it's time to inject some sanity into some of the practices of the economic development industry. Extensively described and documented in a Baltimore Sun special report last October and the previous November by Time magazine, the economic development industry has showered companies with money in the form of tax incentives, payroll rebates, education grants, free building and infrastructure improvements, and more. In return, many communities that expected jobs have been shortchanged. There are fewer jobs than promised at lower wages than negotiated, and sometimes the community is left holding the bill when the company moves its facility to the next, better deal. Now I know what you're going to say: "But the communities are throwing money at us. We have a fiduciary responsibility to our shareholders to get the best deal." As a stakeholder in a (much too) small number of companies, I couldn't agree more. That's why, though my comments are targeted to company executives, I don't hold executives entirely responsible for the perpetuation of this charade. I recognize that the complex web of government officials, consultants, and company executives have contributed to this shell game taking on a life of its own -- a subgroup of artificial economic forces to which the players react. But you know what I'm really talking about -- the part that YOU can stop. Part of this dirty little corporate welfare non-secret is that companies are now addicted to these sweet deals and will stop at nothing to get more. Among the findings of the Sun and Time investigations:

Companies routinely mislead government officials about their location searches. They feign interest in sites simply to extract a better deal from the state they would have chosen anyway.

Companies inflate the number and wage-level of jobs the company will bring to the community in order to get the incentives.

Companies relocate abruptly and prematurely to another community that offers a richer package, leaving the first community holding the bag.

Companies insist that the deals are cut under a shroud of secrecy, leaving the taxpayer, who foots the bill, out of the negotiations. In addition to being unfair, unethical, and dishonest, these practices only are marginally beneficial to the companies that use them. I have a nagging suspicion that companies that use these tactics are blind to their costs. With the lure of financial incentives clouding the decision-making process, is it possible that companies are making bad choices about where to relocate? Instead of finding the right place based on market needs and business strategy, do companies choose a location based on the best deal? Is winning this unofficial side game coming at the expense of their business? (Maybe that's why some of these companies accepted incentives only to relocate prematurely.) Before I go on -- and before you fire off your response that I'm a liberal, kowtowing to job-padding unions and obstinate workers who are unwilling to change--please note that I am also in favor of changes that would be quite painful even for the line worker. Many subsidies are going to prop up industries that would be served well by consolidation and the resulting downsizing of their workforce. They, too, should stop. But that's another column. Am I calling for companies to go off the dole? No, but I would like to see them be above board in their dealings. If they know the community to which they plan to re-locate, they should not bluff, sending another community into the wasted effort of drawing up a straw-man package while forcing their chosen community to sweeten the pot. They should not promise more or higher paying jobs than they know they can deliver. Finally, they should use their already enormous clout to lobby communities, cities, and states for fair corporate tax system: Once all companies are paying a share, there should be room for cuts, and companies will be relieved of negotiating their individual contributions. Should economic development consultants shutter their offices? No. They should get back to the very important business of helping companies find the best site based on market needs and business strategy. They should help the companies negotiate an honest incentive package with communities. Should governments in inner cities and poorer communities throw up their hands and relegate themselves to second-rate status? No. They should go back to the very important work of strengthening their cities to attract business. They should use the money they are now giving to specific companies to rebuild their infrastructure, adding quality of life amenities, and improving the education system. Most important, they should put some teeth into these deals that keep honest those companies who receive incentives. With the economy at its best, the pain of weaning companies from the extra incentives they obtain using these unethical, dishonest practices will never be less. We might not get another chance like this for a long time. Patricia Panchak is managing editor of IndustryWeek.

About the Author

Patricia Panchak | Patricia Panchak, Former Editor-in-Chief

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In her commentary and reporting for IndustryWeek, Editor-in-Chief Patricia Panchak covers world-class manufacturing industry strategies, best practices and public policy issues that affect manufacturers’ competitiveness. She delivers news and analysis—and reports the trends--in tax, trade and labor policy; federal, state and local government agencies and programs; and judicial, executive and legislative actions. As well, she shares case studies about how manufacturing executives can capitalize on the latest best practices to cut costs, boost productivity and increase profits.

As editor, she directs the strategic development of all IW editorial products, including the magazine, IndustryWeek.com, research and information products, and executive conferences.

An award-winning editor, Panchak received the 2004 Jesse H. Neal Business Journalism Award for Signed Commentary and helped her staff earn the 2004 Neal Award for Subject-Related Series. She also has earned the American Business Media’s Midwest Award for Editorial Courage and Integrity.

Patricia holds bachelor’s degrees in Journalism and English from Bowling Green State University and a master’s degree in Journalism from Ohio University’s E.W. Scripps School of Journalism. She lives in Cleveland Hts., Ohio, with her family.