Maybe DFW didn’t miss the boat so much as the ice­berg

Star-Telegram (Sunday) - - Opinion - BY MICHAEL FARREN AND ANNE PHILPOT — Michael Farren is a re­search fel­low and Anne Philpot is a re­search as­sis­tant with the Mer­ca­tus Cen­ter at Ge­orge Ma­son Univer­sity.

Just over 106 years ago the Ti­tanic sailed on her ill-fated maiden voy­age. But by happy ac­ci­dent in­dus­tri­al­ists J. P. Mor­gan and Mil­ton Her­shey lit­er­ally missed the boat.

In more re­cent news, DFW res­i­dents learned Dal­las is no longer a can­di­date for Ama­zon’s ex­panded head­quar­ters, HQ2.

Per­haps that should bring a sigh of re­lief.

Pay­ing busi­nesses to re­lo­cate and al­legedly cre­ate lo­cal jobs is good pol­i­tics, even if the facts tell us it isn’t good eco­nom­ics. The sheer size of the Ama­zon sub­si­dies makes an al­ready-shaky pol­icy po­ten­tially cat­a­strophic.

Es­ti­mat­ing the cost of the sub­sidy bids is dif­fi­cult — in many places not even city coun­cils knew what Ama­zon was of­fered. The few pub­licly avail­able bids ini­tially made by semi­fi­nal­ist cities and states av­er­aged a stag­ger­ing $8.9 bil­lion over 15 years. Ama­zon even­tu­ally re­quired non-dis­clo­sure agree­ments of all 20 semi­fi­nal­ists, so the clan­des­tine fi­nal of­fers were al­most cer­tainly even larger.

Cor­po­rate hand­outs suf­fer from three fun­da­men­tal prob­lems:

First, they don’t ac­tu­ally work. Com­pa­nies re­lo­cate for prof­itabil­ity rea­sons, and lo­cal tax pol­icy is only one small part of that. The avail­abil­ity of a skilled work­force, ac­cess to re­sources, and op­por­tu­ni­ties to work with nearby in­dus­tries usu­ally out­weigh any sub­si­dies. Tax in­cen­tives are at best a tiebreaker and more of­ten than not sim­ply a waste of pub­lic money.

Even worse, the aca­demic re­search on cor­po­rate sub­si­dies gen­er­ally finds that while they ben­e­fit the com­pany on the re­ceiv­ing end —ob­vi­ously — they don’t ac­tu­ally im­prove com­mu­nity wel­fare.

Sec­ond, giv­ing tax priv­i­leges to one com­pany im­poses costs on other busi­nesses and res­i­dents. Lo­cals must ei­ther pay more for a given level of pub­lic ser­vices, or ac­cept a re­duc­tion in ser­vice qual­ity and quan­tity. The av­er­age pub­licly-avail­able city bid ($2.15 bil­lion) could in­stead fund 740 ad­di­tional Dal­las po­lice of­fi­cers — a 22 per­cent in­crease — or pay for the cost of ed­u­cat­ing 11,000 pub­lic school stu­dents each year.

And since Texas most likely of­fered its own undis­closed sub­si­dies, peo­ple across the state would have suf­fered th­ese same kinds of trade­offs. For the av­er­age pub­licly-avail­able state bid ($6.75 bil­lion), Texas could an­nu­ally fund 28,200 full tu­ition schol­ar­ships at the Univer­sity of Texas or pay for all high­way main­te­nance for the next two years.

The higher taxes to fund the sub­sidy and the long-run costs of re­duced pub­lic ser­vices gen­er­ally out­weigh any extra tax rev­enue that might be gen­er­ated, mean­ing th­ese schemes don’t ac­tu­ally pay for them­selves.

Third and most im­por­tantly, spe­cial gov­ern­ment priv­i­leges de­grade our demo­cratic ideals. Be­cause we al­low (and of­ten en­cour­age) politi­cians to of­fer spe­cial priv­i­leges, corporations and spe­cial in­ter­est groups have all the mo­ti­va­tion they need to lobby hard for them.

Many politi­cians and eco­nomic de­vel­op­ment of­fi­cials see the ruse for what it is, but they feel trapped be­cause ev­ery other city and state is also do­ing it. Po­lit­i­cally, they can’t risk let­ting their neigh­bors out­com­pete them.

Econ­o­mists call this kind of prob­lem a “pris­oner’s dilemma.” No­bel lau­re­ate Eli­nor Ostrom il­lus­trated that mu­tual co­op­er­a­tion is the so­lu­tion, but it re­quires clear lines of com­mu­ni­ca­tion and cred­i­ble com­mit­ments from all par­ties in­volved. An in­ter­state com­pact that for­bids the use of pub­lic funds to priv­i­lege any busi­ness or in­dus­try — com­pelling pol­i­cy­mak­ers to treat ev­ery com­pany equally — of­fers one way out.

In the end, the Metro­plex may be bet­ter off with­out Ama­zon — es­pe­cially given the ex­or­bi­tant sub­si­dies of­fered — even if the re­jec­tion stings. Some­times missing the boat is the best thing that can hap­pen to you.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.