This past week The New York Times published a three-piece exposition of the burgeoning government market for business. As capital becomes more mobile both within and between national borders, firms find themselves in the position of demanding rent for their services. Local governments have proven complicit in the exchange, regularly paying firms millions in tax deductions and favorable regulations. The Times estimates that in the hunt for ‘job-creators’, all levels of government contribute over $250 billion annually.
Businesses and their allies do not contest the prevalence of accepting treatment from government. But, rather than focus on the public cost their operations incur, the private sector discusses their impact in measurements of jobs. Given the persistence of a turbulent labor market, rightly so. Here however, measurement has to extend beyond aggregating the total number of jobs offered. Additionally, the ‘cost’ of each job in terms of forgone tax dollars, the quality of job created, and the intra-district/state effect of each additional job should be accounted for.
When judged along these lines, the performance of special business treatment as a method of sustainable job creation is less than convincing. A firm like Amazon receives $250 million to do business in the state of Texas and creates (moves) 2,500 jobs. Each additional job Amazon creates costs the public over $100,000. Given that new employees are paid on average only $30,000, Amazon pockets over $170 million dollars in the transaction. Reconciling the new politics of fiscal responsibility with this monumental display of waste and corruption is impossible. The friendly business environment Texas Governor Rick Perry regularly touts smacks of corporate welfare.
The economics of luring businesses with tax incentives and entitlements is not convincing either. Public incentives towards firm placement is a positional game.The geographic placement of existing employment responds to the price counties, states, and federal government will pay, but new jobs are not created. In this game, where governments compete with one another for a limited supply of employment, a winning strategy includes offering the most attractive of tax/regulatory regimes for business. While a mutual agreement amongst governments to offer similar (nonexistent) business incentives could eliminate this game entirely, competition amongst governments all but ensures its pervasive influence. If in the pursuit of business ‘y’, your neighbor provides incentive ‘x’, you will be encouraged to provide an incentive matching or greater than ‘x’. Such are the demands of politics, and they prove more influential than those of economics. And, this process repeats itself, in the U.S. to the tune of the aforementioned $250 billion.
Lastly, it is important to note this behavior is wholly capitalistic. Capital is given a special treatment that would be deemed socialist and anti-American if extended to labor. In a fashion that surely would make Orwell smile with disgust, the meanings of free markets and capitalism are now synonymous. Taken together or standing alone, these words sanctify a tradition of economic thought and political action. The new (?) business of corporate welfare only highlights an underlying feature of that history, namely that in American capitalism, the interests of capital trump those of labor.