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Does economic development actually help economies?


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Economic development activity includes prospecting trips and granting incentives. As we witnessed in Indiana, the governor of Louisiana, too is off “to develop deeper relationships with companies in Asia.”

The Baton Rouge Advocate reported Gov. Bobby Jindal sees a “need to diversify and go beyond our country’s borders … to focus on the next frontier for business opportunities … to personally communicate that my administration stands ready to assist the development of their respective projects in Louisiana and that these companies should consider our state as a strong partner in their prospective operations.”

This song is familiar in the Pelican State. The Advocate, however, found no examples of similar trips by Jindal’s predecessor yielding any of the expected returns.

This might come as no surprise to Richard Lindenmuth of the Economic Development Partnership of North Carolina. He says (USA Today 1/9/14), “CEOs know that tax breaks and other corporate incentives have only a marginal impact in attracting businesses. More important are good schools, the cost of living and the general business environment.”

Lindenmuth might know, but not want to say, the cost of living depends on the level of wages (low pay turns into low purchasing power and then low housing values).

What “general business environment” means is an open question. For some in Indiana, it means low taxes on businesses, minimal protection of workers’ health and safety and avoidance of responsibility for environmental consequences.

There seems to be no low to how far some economic development agencies will go to bag a success. Take the case of the Newark Company in Chicago. It “will move its offices — and about 350 employees — to the West Loop from the Ravenswood neighborhood after landing nearly $1 million in tax credits” from the state of Illinois. (Crain’s Chicago Business 1/8/14)

A few facts: The new site, a few miles away from the old site within Chicago, offers “a more open, team-oriented office layout downtown.”

“The state has agreed to provide an estimated $913,406 in tax credits over the next 10 years to retain 150 jobs Newark indicated it was considering moving to Richfield, Ohio, (a suburb of Akron) according to a spokesman for the Illinois Department of Commerce and Economic Opportunity.”

The old site is in an area of the city less chic than the West Loop office tower. But the new site increases “your odds of recruiting the type of talent that would be looking at other companies that are already established downtown.”

What is this all about? The shape of the office space? Or is the Ravenswood neighborhood not fancy enough for the Newark Company’s self-image? Does this qualify as being worth

$1 million to the people of Illinois? What does it mean for the Ravenswood area?

Do we in Indiana subsidize the movement of companies for similar reasons or to gratify the egos of corporate leadership? I don’t want to believe it.

Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to editorial@therepublic.com.

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