Opinion: Daily Journal

Why incentives’ sway didn’t bring Apple our way

Austin, Texas (Image courtesy of Pixabay/Creative Commons)
Austin, Texas (Image courtesy of Pixabay/Creative Commons)

Apple surprised the business world Thursday with an announcement it was investing $1 billion in a new campus in Austin, Texas. The announcement also included news of new sites in Seattle, San Diego, and Culver City, California, and expansions in Pittsburgh, New York, and Boulder, Colorado.

It also dashed hopes in Raleigh and the Research Triangle Park of securing the new campus, although expansion here is still possible. Which is just as well, since state and local leaders had already promised away the net benefits and then some of having a major Apple operation here.

Without such an exorbitant incentives package, a new Apple campus here would have been a net positive for the area. Usually growth more than pays for itself, which is why community boosters and leaders have always wanted growing, vibrant communities. But North Carolina’s “transformative” corporate welfare is such that it would’ve made the growing pains from the Apple project — paying for more needs in schools, roads, housing, police and fire protection, labor, etc. — fall on current residents and businesses, not also the newcomer.

Further, as attested to by the Amazon and Apple decisions, having super-mega-incentives in place for “transformative” projects is unnecessary. Economic research suggests that big corporation relocations are made for long-term business reasons, not predicated on government incentives, which tend to be much less actual incentive than mere cherry on top. This means Apple chose Austin instead of Raleigh or RTP for business reasons, not for lack of incentives.

Does that mean Raleigh, RTP, or North Carolina at large is not attractive to business? Cut to the chase: North Carolina lost again, so does that mean we’re losers?

Not in the slightest. Losing out two huge, headline-hungry big corporations’ projects is no more an indicator of the overall health of the state’s economy than would be capturing those projects with monster incentives. Don’t forget: 99.6 percent of businesses in North Carolina are small businesses. What are we doing in terms of incentivizing them to relocate here, expand, and grow?

To incentivize the 0.4 percent here, we have to adopt economic development policies at the expense of the 99.6 percent. If we want to chase everyone, then we should adopt economic growth policies.

The difference is essentially who gets to control private resources: the state reallocating them to a favored few (“economic development”), or the owners of those resources given greater freedom (via lighter tax and regulatory burdens) to direct them to areas they perceive as the most profitable.

Recent (and baffling) incentives expansions aside, in the last decade, North Carolina policymakers have adopted economic growth policies. We’ve witnessed impressive results from it. We’ve achieved the kind of economy any state wants to have. North Carolina’s leaders cut taxes, spending, and red tape, and now North Carolina is hailed by the Tax Foundation as a national model for tax reform. Last month Forbes named North Carolina the No. 1 state for business.

Even executives at corporations taking incentives from the State of North Carolina can think of many, many other factors they’d rather see before targeted incentives. According to research published in 2015 in Economic Development Quarterly, those include skilled labor, low regulations, low taxes, low costs of living, and good transportation infrastructure.

Researchers G. Jason Jolley, Mandee Foushee Lancaster, and Jiang Gao, surveyed executives from 150 companies that received economic development incentives from North Carolina and 465 companies that did not. Among other things, they found that out of a list of 19 important factors for North Carolina’s business climate, both groups of executives ranked state and local economic development tax incentives 15th and 16th. The only things they found less important than tax incentives were being able to access low-cost labor, mass transit infrastructure, and availability of unskilled labor.

Put another way, asked how important tax incentives were, North Carolina business executives said they could name 14 things more important to the state’s business climate:

  1. skilled labor
  2. state regulatory burden
  3. state corporate tax rate
  4. local property tax rates
  5. community colleges
  6. state personal income tax rate
  7. highways
  8. information technology infrastructure
  9. four-year colleges and universities
  10. housing costs
  11. environmental regulations
  12. land prices
  13. workforce training programs
  14. major airports

As if to drive home the point, executives of incentivized companies were asked which was better, for North Carolina to give “select incentives to certain businesses” or to “reduce taxes affecting business taxpayers and their owners.” Only one out of five (21.7 percent) said select incentives were better.

Twin disappointments from Amazon and Apple should not tempt state and local policymakers to draw the wrong conclusion, that we still didn’t offer enough by way of government tax incentives and other special treatment. Instead, they should renew interest into what would make relocation, expansion, and growth here a good business decision for them as well as the 99.6 percent of smaller businesses, the unsung heroes of the state’s economy who create jobs and fill tax coffers without fanfare.

Sometimes that means refocusing on empirically sound policies which help ensure skilled labor, low regulations, low taxes, low costs of living, and good transportation infrastructure. Sometimes it means simply understanding you win some, you lose some.

But it never means sparing no expense to “win” the few — and lose the unsung.

Jon Sanders (@jonpsanders) is director of regulatory studies at the John Locke Foundation.