For all the concern over “misinformation” in the public sphere, one of the greatest crises of public deception in America is going almost completely unchecked. State and local elected officials, agency bureaucrats and corporate public relations departments have duped the American public into believing the massive transfer of public resources to politically connected businesses in the name of “economic development” is necessary to a functioning economy.
This is simply not true. There’s a massive, trans-partisan consensus from economists and other researchers that targeted economic development subsidies in the name of “job creation” rarely accomplish their goals and regularly do more harm than good. As researchers at the University of Connecticut and University of North Carolina wrote in 2018, “This simple but direct finding — that incentives do not create jobs — should prove critical to policymakers.”
That’s not what Americans are being told by their leaders, though.
According to a new national poll by the State Policy Network (SPN), 57 percent of American adults believe that “subsidies from city and state governments are critical to economic development because they bring jobs and spending to local communities.” Further, SPN’s polling found that 48 percent of registered voters believe that business subsidies help their local community in the long run, while only 23 percent think they end up being harmful and 28 percent think they make no difference or aren’t sure.
It’s hard to find another area of public policy where the broad public understanding of an issue is so at odds with reality. Of course, few other areas of public policy are subject to such an unrelenting and well-funded bipartisan misinformation campaign as government “economic development” policy.
In reality, however, the evidence shows that at least three-quarters of subsidy deals go to companies that would have made the same decision without a subsidy — meaning that those subsidies are complete wastes of public money. State and local incentives are far from the most important factor in influencing corporate decisions, ranking just above “inbound/outbound shipping costs” but far below workforce, infrastructure, energy, labor cost, quality of life, the overall corporate tax climate and other critical factors in Area Development Magazine’s most recent annual survey of corporate site selectors.
Of course, sometimes subsidies do work to change corporate behavior. But when they do, it’s usually with an unsustainable price tag for taxpayers. In 2020, researchers from Michigan and Indiana found that Michigan’s subsidy programs had created jobs in the state — at an average per-job cost of $593,913 a year.
Local elected officials, who are least likely to have been captured by the economic development industry, broadly understand that more transparency is required. In a recent nationwide survey of local elected officials and finance officers, University of Texas professor Nathan Jensen found that two-thirds of those local leaders support the creation of public databases with information about companies that received incentives. Additionally, almost half agreed that more transparency in subsidy reporting is necessary, while only one in ten were actively opposed to more public scrutiny.
One good place to start with this transparency is to end the ability of economic development bureaucrats to hide information on proposed subsidy deals prior to a final vote. Tennessee and Michigan took positive steps recently by running their electric-vehicle incentive packages for Ford and General Motors, respectively, through their legislative appropriations processes rather than delegating approval to state appointees.
In the latter case, the sunlight allowed the media and public to flag concerns about the terms of the deals and motivated legislators to prod the negotiators to ensure the fine print matched the breathless press releases. But after its initial application, a few legislators are already seeking a return to the days of secrecy and unaccountability.
That’s why our organizations — along with a broad range of organizations from across the political spectrum — recently launched the Ban Secret Deals coalition. We’re working together to promote state-level bans against the use of non-disclosure agreements in economic development deals, which can keep critical information out of public view until it’s too late. Legislation to do this has been introduced in Illinois, Michigan and New York, with other states soon to follow.
America’s states and cities are addicted to ineffective and expensive subsidy programs. Reforming them will require transparency and accountability from the agencies, elected officials and even companies that benefit from them. The more access to information the American public has about what’s really going on, the more they will begin to understand what’s really happening in their communities.
David Guenthner is the senior strategist for state affairs at the Mackinac Center for Public Policy, a research and educational institute located in Midland, Mich.
John Mozena is president at The Center for Economic Accountability.