The use of economic incentives by governments as a tool for luring business and industry exists nearly everywhere. But at a John Locke Foundation luncheon Nov. 18, University of North Carolina-Chapel Hill management professor Dennis Rondinelli said very little research has been done to measure the success of the enticements.
“Very few states have examined to see whether the policy works,” he said.
Rondinelli, in various analytical and professorial capacities, has researched international competitiveness issues and other aspects of interaction between public entities and the private sector. Recently he has co-authored, with Elon University management professor William Burpitt, two studies on the effect of economic incentives in North Carolina.
A study published in Policy Sciences in 2000 addressed whether government incentives attract and retain international investment. The professors surveyed executives of 118 foreign-owned businesses in the state, asking them to rank the importance of 11 factors that contributed to their location decision. Respondents said that labor force factors were most important, followed by transportation, quality of life, and business climate.
“Consistently at the bottom (of the rankings),” said Rondinelli, “were incentives and state marketing efforts.”
Another study, scheduled to be published next year in The Journal of World Business, surveyed 78 foreign-owned companies in North Carolina. The professors this time asked executives what the determining factors were, without giving them preselected criteria, in deciding to locate in the state.
“Virtually none of them mentioned in their responses ‘state incentives,’” Rondinelli said. “They were looking for good places to do business.”
He said locational assets were what companies primarily sought, like transportation, communications systems, education, and labor pools. Once the decision was narrowed or finalized based on those factors, Rondinelli said corporations usually look at available incentives in order to reduce costs for setting up shop.
One example Rondinelli cited was automobile manufacturer Mercedes’s location of its plant in Alabama. He said the company admitted that it decided where to locate based on the more important factors, then once it decided, explored what incentives were available. Now that incentives are offered by nearly every state and jurisdiction, governments end up in bidding wars for promising companies, Rondinelli said.
“Once localities offer incentives,” he said, “they tend to wipe out each others’ incentives.”
Chesser is associate editor of Carolina Journal.