Was this national auction nothing more than a scripted drama to raise the value of the inevitable winning bid? And did the retailer miss an opportunity to revitalize a midwestern city by choosing to enrich the already-rich East Coast?
All good questions. But here’s the big one: Why the hell are U.S. cities spending tens of billions of dollars to steal jobs from one another in the first place?
Every year, American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states. That’s more than the federal government spends on housing, education, or infrastructure. And since cities and states can’t print money or run steep deficits, these deals take scarce resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons.
In the past 10 years, Boeing, Nike, Intel, Royal Dutch Shell, Tesla, Nissan, Ford, and General Motors have each received subsidy packages worth more than $1 billion to either move their corporate headquarters within the U.S. or, quite often, to keep their headquarters right where they are. New Jersey and Maryland reportedly offered $7 billion for HQ2, which would be the biggest corporate giveaway in American history.
You might think, Don’t blame the companies. These businesses have a fiduciary obligation to make money, and it’s negligent to leave cash piles on the table while their competitors are raking it in. And you might even think, Don’t blame the local governments. Not bidding on an exciting new project feels akin to unilateral disarmament in a war for talent and business. Sometimes a big new firm can revitalize a downtown area and become a magnet for new firms.
But there are three major problems with America’s system of corporate giveaways.
First, they’re redundant. One recent study by Nathan Jensen, an economist at George Washington University, found that these incentives “have no discernible impact on firm expansion, measured by job creation.” Companies often decide where they want to go and then find ways to get their dream city, or hometown, to pay them to do what they were going to do anyway. For example, Amazon is a multinational company with large media and advertising divisions. The drama of the past 13 months probably wasn’t crucial to its (probable) decision to expand to New York City, the unambiguous capital of media and advertising.
Second, companies don’t always hold up their end of the deal. Consider the saga of Wisconsin and the Chinese manufacturing giant Foxconn. Several years ago, Wisconsin Governor Scott Walker lured Foxconn with a subsidy plan totaling more than $3 billion. (For the same amount, you could give every household in Wisconsin about $1,700.) Foxconn said it would build a large manufacturing plant that would create about 13,000 jobs near Racine. Now it seems the company is building a much smaller factory with just one quarter of its initial promised investment, and much of the assembly work may be done by robots. Meanwhile, the expected value of Wisconsin’s subsidy has grown to more than $4 billion. Thus a state with declining wages for many public-school teachers could wind up paying more than $500,000 per net new Foxconn job—about 10 times the average salary of a Wisconsin teacher.
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