In the face of defeat, claim victory anyway. That’s what state bureaucrats in charge of meddling with North Carolina’s economy are doing in light of a recent report that suggests their meddling has produced dismal results.
A recent WRAL article examines the track record of two of NC’s largest crony capitalist schemes, the Job Development Investment Grant fund (JDIG) and the One North Carolina Fund. These programs largely provide taxpayer-funded grants to designated companies based upon the number of jobs added to their payroll.
According to the report: “Almost 40 percent of the companies North Carolina officials announced would bring jobs to the state in exchange for taxpayer-funded incentive cash have failed to hire a single worker.”
Moreover, only about half of the promised jobs actually materialized during the time period being examined. According to the article: “among the 194 projects completely closed out or past their ramp-up period, companies created 13,023 of the 26,330 announced jobs – about 49 percent.”
Amazingly, in spite of the significant failure of the programs to live up to their own promises, the central planners running these programs barely stop short of deifying the bureaucrats doling out the political favors.
“We should be absolutely on our knees thanking God that we have 19,000-some jobs that we didn’t have before but for the utilization of this program,” state Commerce Secretary John Skvarla said.
Glory be to government.
But as bad as the actual reported figures look, things are even worse in reality. There are serious shortcomings with attempting to measure the impact of such programs.
First, how many of the people hired at the incentivized companies were merely bid away from their existing jobs? Because these positions require very specific workers with skills probably already in demand elsewhere, most were likely not filled by people from the unemployment line. In short, these may not represent new jobs at all, but merely a shift in employees from one business to another.
Second, what about the “unseen” impact of the political favoritism: that is, foregone opportunities? Companies responding to tax incentives utilize real, scarce resources that could be used elsewhere. How many investments and jobs are not created by other businesses because scarce resources are tied up by these incentivized companies? This represents a loss to the state’s economy that simply cannot be measured, but is very real.
Third, how many tax dollars are devoted to propping up these crony activities in the Commerce Department? A lot of state bureaucrats make a nice living off taxpayer dollars not only to pick and choose how these political favors are doled out, but also to administer the programs. For instance, this year’s budget included a $200,000 increase in the administration costs of the One North Carolina Fund, as well as another $190,000 line item to provide funding for staff to support historic revitalization and federal tax credits. This is money removed from the economy that could be used for actual productive purposes.
Finally – and most importantly – are the issues of fairness and the culture of political patronage encouraged by such crony schemes. If the state is going to insist on taxing businesses, NC should tax them all the same. Doing otherwise tilts the odds in favor of the politically-connected, and distorts the allocation of scarce resources to less efficient patterns of production than would have emerged without the government interference. The result is less productivity and slower economic growth.
Moreover, by signaling a willingness to dispense political favors to select businesses, state bureaucrats and elected officials create a culture of political patronage that invites corruption.
This leads us to one final point. In spite of the lackluster jobs figures, these so-called economic incentive programs are indeed a success for the group they were actually designed to benefit: politicians and their cronies.
Politicians and bureaucrats get to attend ribbon-cutting ceremonies and send out press releases to brag about “doing something” to “create jobs.” Lobbyists and corporate relocation consultants get paid to schmooze with elected officials and bargain with competing states for the largest taxpayer handout.
Meanwhile, however, taxpayers cough up more of their hard-earned dollars to finance this cottage industry of cronyism while home-grown businesses without political clout pay higher tax rates to help subsidize their competitors.
No wonder the bureaucrats claim victory regardless of the jobs figures. Economic meddling has never been about creating actual jobs or lifting living standards, but about centralizing power in the hands of the political class.
A version of this article originally appeared in the Raleigh News & Observer
https://www.nccivitas.org/2015/nc-business-incentives-just-a-cottage-crony-industry/
