RALEIGH – If you are in the policy-research business, you want to believe that your efforts matter. You want to believe that someone studies your studies, reads your writings, hears your hearings, or speaks of your speeches.
But as I’ve previously observed, politicians have a tendency to request information, receive the information, use the information if it comports with their preconceived notions, and ignore the information if it doesn’t.
That’s why federal and state governments have been funding preschool intervention for years despite the lack of evidence that large-scale programs such as Head Start or Smart Start make any significant difference in the educational performance of participants. That’s why federal and state politicians continue to insist on the possibility of a health-reform free lunch by funding preventive care that, contrary to their predictions, will never save taxpayer money over time.
And that’s why North Carolina and other states continue to play the corporate-welfare game with subsidies and tax credits aimed at fostering job creation. As far as I know, there is little empirical evidence to support such incentive policies, which inevitably work to the benefit of big companies over small ones, politically connected companies over apolitical entrepreneurs, and politically favored industries over those without any trendy political slogans or extravagant claims of social benefit.
Reporter Lee Weisbecker offers a telling, if depressing, example of the problem in the latest edition of Triangle Business Journal. A couple of years ago, a legislative committee asked researchers at the UNC-Chapel Hill Center for Competitive Economies to conduct a rigorous examination of the economic effects of North Carolina’s incentive policies.
The $300,000 study arrived in 2009 to a General Assembly short on attention span and patience for embarrassing news. Based on records from 150 companies receiving targeted tax credits and 465 companies that didn’t, the study concluded that there wasn’t much evidence of economic benefit:
• Only a little more than half of the recipient companies had more employees in 2006 than they did in 1996.
• By the end of the period studied, “companies receiving statutory tax credits no long outperformed – or even matched – the state’s economy.”
• Nearly two-thirds of business executives said they were not even aware that their firms had received credits.
Weisbecker asked Karl Smith, an economic-development specialist at the UNC School of Government, to respond to the incentives study. “It’s a general pattern that when credits are tracked over a long period of time, it looks like you’re not getting that much benefit from them,” Smith said.
Yeah, well, no kidding. My John Locke Foundation colleagues and I have been pointing out since the mid-1990s that North Carolina’s incentives programs were based on faulty assumptions and flawed economic reasoning. Essentially, the state was putting itself into the position of trying to pick future winners and losers in the marketplace. It would be far wiser, we advised, for policymakers to focus on making general improvements in the state’s business climate – by reducing government-imposed costs, improving core government services, or both – rather than meddling in specific business decisions.
If North Carolina lawmakers had listened to such advice before, advice offered by policy analysts of both the Right and Left, they would not have squandered hundreds of millions of dollars on a pointless exercise.
But they didn’t listen then. Will they listen now? The prospects don’t look good at the moment.
Hood is president of the John Locke Foundation.