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Sunday, March 21, 2010

Daugaard Plan Misses Evidence: Business Incentives Bad

South Dakota GOP gubernatorial candidate Dennis Daugaard has offered some useful ideas in his economic recovery plan. Daugaard wants the governor to be the state's "number one salesman," pointing out to ex-pats and outside businesses all the reasons South Dakota is a great place to live and work.

Unfortunately, Daugaard's plan also includes (p. 3) the failed idea of incentives to lure outside businesses. Daugaard's incentives do include building infrastructure and holding recipient businesses to concrete benchmarks of job growth or productivity (too bad the City of Madison doesn't attach similar clear benchmarks to its economic development funding). Still, Daugaard misses the point that business incentives are one of the worst investments of public dollars.

But don't take my Heidepriem-voting word for it. Let's ask Dr. Jesse L. White, Jr., director of the Office of Economic and Business Development at UNC-Chapel Hill, former federal co-chairman of the Appalachian Regional Commission and executive director of the Southern Growth Policies Board. In this piece reprinted at the Daily Yonder, White says North Carolina has discovered business incentives for outsider corporations don't do much good for rural communities:

...The argument is not against all recruitment - after all the Research Triangle Park was built on a recruitment strategy. Nor is the argument against all public investments in economic development - for example, water and sewer infrastructure, railroad spurs, access roads, industrial parks, etc. But what is indefensible is incentive-based recruitment in which public money goes into the corporations' bank accounts in what amounts to corporate welfare.

...The scholarly literature on incentives shows that they are a very poor investment of public resources. And, of course, the business sector has become expert at playing off one state against another in something akin to corporate extortion; and who can blame them? [Dr. Jesse L. White, Jr., "Proof That Industrial Incentives Are Poor Bet," Daily Yonder, 2009.11.20

White still sees an important role for government in economic development. He just recognizes that you get more bang for your buck investing in infrastructure that everyone in the community can use. Or if you just have to hand out money to businesses, you make a better bet subsidizing your own people and their homegrown entrepreneurship:

Imagine if the South in general and North Carolina in particular had put all of the money spent on industrial recruitment into education, training and small business support. We would be watching even more Quintiles, Cree, PPD, Southern Seasons, Performance Bicycle and other homegrown entrepreneurial success stories all across North Carolina. And, although there are no silver bullets in economic development, homegrown businesses are more likely to stay put, invest in the local community, provide stable civic leadership and keep the control and wealth local instead of away at some remote corporate headquarters [White, 2009].

Focusing on developing homegrown industries is more than good economic policy, says White. It addresses a certain inferiority complex that I've noticed in South Dakota politics. A local economic development focus "removes the insult to ourselves that only 'outsiders' can create the jobs and that we have to pay them to bring the jobs to our people."

White says we can do better than to rely on the favors of "footloose industry." A candidate who loves South Dakota as much as Daugaard should see the same potential in our own people and resources.

Memo to Daugaard campaign: read more on this theme here, here, and here.

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