How NOT To Do Economic Development

According to a recent report in the Capital Chronicle, the Indiana Economic Development Corporation wants a massive increase in funding. It justifies that request by insisting that larger expenditures are necessary to keep Indiana competitive in the national job market,  “especially as Indiana pivots from manufacturing to the “economy of the future.” Those industries — electric vehicles, semiconductors, agricultural technology — will need incentives to come to the Hoosier State.”

The article describes the nature of the “incentives” that will be offered: purchases of land, tax credits, a “Deal Closing Fund,” and others.

If you are interested in the details, you can find them at the link. My reason for highlighting the article is that it underlines Indiana’s persistent–and exclusive– focus on an economic development approach that is essentially bribery.

There’s a lot wrong with that focus.

First of all, even when successful, it uses tax dollars generated by Hoosiers to reward/bribe enterprises new to the state, rather than trying to grow businesses and employers who are already here. Second, it is an approach that buys in to the “zero sum” game being played by American states that are encouraged to bid against each other to lure Enterprise X,  which, if successful, simply moves the site of employment to state A from state B, rather than adding positions to the nation’s job market.

But my biggest beef with the bribery approach is that it misconceives and misunderstands what makes a state attractive both to business and to skilled workers.

In a recent interview, the new CEO of Techpoint spoke of that organization’s commitment to working with partners “to bring more people of color and women into the sector.” Indiana is currently 37th in tech employment, and–as I have previously noted– there are reasons for that.

Economic development– the addition of skilled workers and new companies–depends  on a state’s quality of life. That quality may be enhanced by good weather and natural beauty (assets Indiana mostly lacks), but it is a far more capacious concept.

As one economic development firm explains,  improving quality of life raises a destination’s desirability, attracts (and retains) population, adds revenue, and boosts recognition and reputation.

As the Brookings Institution has found,

There is compelling new data that these traditional economic development tools may be ineffective compared to investments in quality of life and place. Our research on smaller communities has found that community amenities such as recreation opportunities, cultural activities, and excellent services (e.g., good schools, transportation options) are likely bigger contributors to healthy local economies than traditional “business-friendly” measures. Smaller places with a higher quality of life experience both higher employment and population growth than similarly situated communities, including those that rank high by traditional economic competitiveness measures.

Research has shown that people are willing to pay higher housing prices and even accept lower wages to live in places offering a higher quality of life, and that businesses are willing to pay higher real estate prices and offer higher wages to locate in places with more productive workers.

After estimating quality of life (what makes a place attractive to households) and quality of business environment (what makes a place especially productive and attractive to businesses) in communities across the Midwest, we found quality of life matters more for population growth, employment growth, and lower poverty rates than quality of business environment. 

As the article notes, policymakers can’t build a Great Lake, mountain, or other natural feature. But they can focus on enhancing other quality of life aspects and providing solid public services for their current residents.

The Brookings analysis found that one of the strongest factors associated with higher quality of life was spending on public schools, “with public school quality and the availability of early childhood education being two of the most important factors for working parents.”

Bottom line?

The findings reinforce that local leaders and economic developers should prioritize quality of life strategies over tax incentives and lax regulation. The long-standing Midwestern community economic development strategy of low taxes, business incentives, and loose environmental regulations usually doesn’t work, and has often proven disappointing to communities that have given away tax dollars and reduced business standards without seeing substantial returns. Low business taxes often hide a hidden opportunity cost by reducing available funding for local schools and other public amenities. 

If our legislative overlords really wanted to attract skilled workers–including female workers and workers of color– they would fund child care and pre-K programs. They would work to create great public schools and excellent transit systems. (They would also leave medical decisions to the professionals who understand the complexities of those decisions, rather than imposing the beliefs of fundamentalist Christians on all Hoosiers.)

Pledging billions for bribery while ignoring quality of life isn’t a viable economic development strategy.

 

23 thoughts on “How NOT To Do Economic Development

  1. Now we are seeing TV Ads (In Indiana) promoting LARGER transfers of scarce education funding to Private Church Schools. I wonder, WHO is paying for all these TV Ads? This is yet another BAD Indiana idea that will likely win in the state house this year.

  2. In the 1980s Allison’s, located in Speedway for many years, began threatening to move out of state; a 10 year tax abatement (ransom) kept them in place. Is there anyone here in Indiana who remembers President ELECT Trump and our own former Governor, Vice President ELECT Pence coming to town to wheel-and-deal for Carrier Division which resulted in paying them $6 MILLION to maintain their business and their workers here. They knew, and Indiana authorities must have known, it was already a done deal and the move took place within three months. Authorities from the Mexican city Carrier moved to came here to STOP the deal; explaining that salaries would only cover worker’s day-to-day expenses with no benefit to their city.

    It has been several years ago since Western Electric Corporation shut down here; their workers were offered jobs if they would move to Oklahoma, Florida or Hong Kong. The Hong Kong deal included minimum wage with federal housing assistance if needed and a free bicycle. My sister-in-law had worked there for many years; she opted to stay here and seek employment.

    The Goldsmith Mayoral administration handed powers to one of his biggest out-of-state donors who was vice president of a bank in Columbus, Ohio. He was given a contract to study public housing here (???), later for a short time was illegally appointed Acting Director of Department of Metropolitan Development (DMD). He lived and maintained his full time employment as bank VP in Columbus, Ohio, and made appearances in the City-County Building a few days monthly and had powers to order city employees as he saw fit. Developers from Ohio began receiving contracts with tax benefits in Indianapolis at a level I began wondering if we had been annexed into Ohio. The two deals that stick with me after all these years was the sale of FIFTEEN pieces of property on Indiana Avenue for $82,000.00 to a contractor from Hamilton, Ohio, and two one-year contracts with Oscar Robertson/Smoot consultant firm in Cincinnati, Ohio, for $3 MILLION per year. The first year there was no legal contract when payday came; as records secretary for the Metropolitan Development Commission I was asked repeatedly where the contract was. It took months for me to discover there had never been a legal contract signed by the City or OR/S. I reported this to Deputy Mayor Nancy Silvers. The DMD Chief Financial Officer, Ali Khan who had a Masters Degree in Personnel Development from the University of India, came to me to ask how to make a legal contract. The second year all contracts with City Directors and OR/S officials were sent back to me after being passed by the Commission. I put them in the Commission file and waited for someone to ask where they were. In a few weeks the consultant in DMD and a Vice President of OR/S came to me and I handed over all copies. Incompetent Republicans playing with $12 MILLION of our local tax dollars.

    Indiana officials are top-of-the-line for information regarding “How NOT To Do Economic Development”. Apparently there has been no improvement in their ability to accomplish development on any issue. Have they paid off that $6 MILLION deal with Carrier?

  3. Indianapolis is not without urban amenities. We have live theater, major league sports, a respectable symphonic music scene, live jazz & other music, summer festivals galore, a constantly refreshed dining industry, an art museum far better than we deserve, a world class children’s activity museum, universities, and more. The Indiana “flatscape” is an issue, true, but there are beautiful scenes even in the absence of mountain vistas. As Prof. Kennedy argues, the state’s cultural and governing revanchism is critical in making “tech workers” look elsewhere for careers. Given the hard-right turn of the Indiana legislature, it seems unlikely that the state can be made more desirable to educated, talented, and diverse people having more attractive, tolerant, and welcoming alternatives.

  4. JoAnn, sometimes I find relief by reminding myself that all those greedy, corrupt assholes are going to die just like the rest of us. That knowledge may not solve any problems but it helps me breathe and seek joy in my own life.

  5. As long as culture wars continue to dominate Indiana politics and policy, we will struggle to attract and keep the best and brightest. Traditionally, one thing keeping many people here is family. But raising families here for many has become a non-starter. I would predict Indiana’s birth rate will drop and our average/median age will increase…. kind of a slow death. Maybe the retirement home industry can thrive but wouldn’t count on it.

  6. Considering the regressive policies of our legislative overlords, along with the blinders they wear regarding the impact of many of their policies toward the environment, improving quality of life in Indiana ain’t gonna happen. SMH

  7. How about the state concentrating on the “non-professional class”? The new governor of Pennsylvania on his first day on the job de-classified more than 75% of state government jobs so that they didn’t require a college degree.

  8. Sheila presents a classic argument debated for decades within institutions of higher education how tax policy, zoning powers, cooperation among rural and urban economic centers, understanding what drives corporate investment to attract desired sustainable workforce, and yes it is all about perception and earned reality of accessible quality of life. I recall recruiting a very bright and intelligent married couple to relocate from California to Indiana. The question came down to why should they relocate to Indiana. My wife and I lived for eight years in Los Angeles. I knew one answer very clearly. Life in Indiana can give you 34 additional days at home you currently do not have. They were planning to have children and commutes between work to affordable housing out west prevented possible quality of family life. They accepted our offer and both were employed to live happily ever after here in Indianapolis with their children. Yes, there is a “brain drain” from graduates moving to other regions. But when they are ready to begin raising a family, they know where to move back to. Indiana can capitalize on that if the state makes smart moves to invest in quality public schools. Say what you will about charter schools. Believe, it is not just about influence of religious values in making a choice, but more so parent confidence the school administration has a no nonsense intervention to curb bullying. Bullying us out of control in today’s schools. Parents will relocate anywhere to protect their children.

  9. Are there any instances in which Indiana has come out ahead on one of their economic development schemes? As long as bankruptcy laws are as easily manipulated as they currently are (for everyone except those owing student debt), Indiana will come out the loser. “Reorganization” allows our corporate benefactors to put the screws to us and scamper off to Denver or Chicago or wherever the next big deal is waiting.

  10. I find it interesting that among my siblings those who left for the west coast way back when were the ones with higher educations and secure skills. Now, into the next generation it is the same. Debates about leaving Indiana in my family take place around the dining room table at all our gatherings . Soon the first grandchild will be packing up and heading west. “There’s nothing here, Grandma.” Like those who proceeded her I don’t think she’ll be coming back.

  11. Breaking news from IBJ last evening stated that an EV battery plant deal between GM and Korea-based LG Energy Solution to be built in New Carlisle has been put on hold indefinitely. It was to create 1600 jobs for NW Indiana. It was to b e built on a 656 acre economic development site and include tax incentives. An Ohio plant is already operating and construction has started on plants in MI and TN. Indiana has the most attractive business tax climate in the Midwest, so what could be the reason the deal was put on hold?

    As Sheila wrote, our state continues down the path of enticing potential employers with bribery. The EDC also continues to focus on manufacturing jobs – like the EV battery deal cited above.

    Another new and sickening use of our tax dollars is MakeMyMove’s deal with the Indiana Economic Development Corp that involves bribing ‘remote workers’ to relocate to Indiana. Cities or Counties can choose to bribe people with anywhere from $5000 to $20,000 cash bribes that may also include housing assistance, YMCA memberships, free babysitting or any other cultural amenities they think might help entice people to move to their communities. The IEDC provides grants to match city or county tax dollars used to bribe remote workers. Our legislature has now stooped to forcing current residents to pay nonresidents to move to our state.

    Maybe other states that have also chosen to bribe remote workers will end up making it a wash for Indiana as some of our current residents accept bribes from other states.

  12. What’s the old saw…..You can’t buy happiness. You can’t buy prosperity either. But you can create an environment where it can germinate, grow, and bloom. Nature does it everyday. I guess some think they can improve the laws of nature and natural desires. How arrogant and shortsighted. As a former Mayor and member of the Indiana legislature, I was guilty of both. I was very wrong. Too late I understand the old saw is true.

  13. “If our legislative overlords really wanted to attract skilled workers–including female workers and workers of color–”
    Well, that is a big IF, is it not?
    Do fundamentalist Christian concepts make room for those categories? Or, do those concepts conceive of female
    workers simply working to birth more children when they can be spared from the kitchen, while workers of color
    make up the servant class?
    In my smallish west coast Florida town, we are seeing, and applauding, the resurrection of the downtown area.
    Just yesterday we ate lunch in a nice little, but not upscale, restaurant in downtown and my wife, and I were commenting
    on how nice a job the town was doing in reinventing itself. A very old hotel was recently revamped, over a period of a
    couple of years, reopened last summer, and has a very nice restaurant, attracting people to the downtown area.
    i have to agree with the idea that quality of life is the biggest draw. One more personal note: the town in which
    we lived when first married, 39 years ago, in N.J., started to loose middle class people when the public school
    system began to focus on winning prizes for enrollment, rather than quality of eduction. St. Reagan visited, and bestowed
    a prize just as the system was in the process of tanking. That town’s downtown area has continued to attract only
    a variety of discount shops, and looks deserted most of the time.

  14. Half of our state and local tax dollars go to fund K-12 education. We’re not shortchanging education. You want to discourage young couples from moving to Indiana? Tell them they have no choice where to send their kids but the local public school. Forget charters, forget a refund of tax dollars to spend at private schools…that failing public school over there? That’s your only choice future Hoosier. Many will say “no thanks” and move elsewhere. (Or telecommute.)

    As far as mass transit, Indianapolis is the second least dense city in the country. (Jacksonville is No. #1) That’s why mass transit doesn’t work well here. Plus the design of our bus system is aimed at transporting white collar workers from the outer parts of Marion County to downtown. The demand for that has diminished greatly as telecommuting has increased. Our bus system should be designed to transport blue collar workers to the factories and warehouses outside of the downtown area. That’s where the need is. Our approach to mass transit isn’t to meet a need but a “build it and they will come” approach. That hasn’t worked. We spent a fortune on the Red Line and majorly disrupted businesses along the College Avenue corridor, and it’s been a huge failure. Numbers have been so bad on Red Line membership that they’ve stopped enforcing the requirement you pay a fare to ride the Red Line.

    As far as economic development goes, nowhere in the state are we worse at that than the City of Indianapolis. We pour a ton of money into professional sports even though all academic studies show taxpayers don’t break even on the subsidies. Indy also heavily subsidizes the failing convention industry…again we don’t get a decent return on our “investment.” Then you look at all the other development, particularly around downtown. It’s aimed at enriching politically-connected developers, contractors and law firms. And don’t get me started on the TIF districts (many of which are running in the red) we have created which drain money away from public services, such as schools.

    Indianapolis desperately needs local candidates who will start to question all the corporate welfare that’s handed out in the city. That’s something that liberal and conservative taxpayers should be able to agree on. We’re all getting fleeced. Indy has the highest local taxes of any place in the state and much of it goes to corporate interests not for public services. High taxes are exactly why a lot of people don’t live in Marion County.

  15. I would add that the notion that investment in pre-K education offers great rewards is a myth. Truly academic studies (as opposed to those funded by groups which have an interest in promoting pre-K education) show the benefits of pre-K are only temporary. For example, the University of Tennessee did an extensive study of pre-K as did the liberal Brookings Institution. They both found the same thing…only a temporary boost to pre-K students. A 2019 Brown University study of Head Start found the same thing. Temporary boost.

  16. Our state continues to legislate against many things that are important to people with the option of choosing where to live/work – definitely quality of life considerations for many: Woman’s reproductive rights, LGBTQ rights, the environment, policies favorable to racial and ethnic diversity, voting districts that aren’t gerrymandered … I’ve reached the point of actively discouraging friends and colleagues from moving to IN. Likely others have as well.

  17. Sheila’s big shoes just crossed the line into my domain. There will be consequences! 👺

  18. I recall vividly being surprised years ago to hear a CEO when asked what he first looked for in choosing a site for expansion answered: “I look for libraries in the proposed sites.” I thought that was a refreshing if surprising response and it led me to totally abandon the current and past bribery of corporations as policy practiced by our politicians in taking the money of Hoosier taxpayers to bribe corporations to come or to stay in Indiana, money spent that helps cause such hapless taxpayers to endure weak public schools (already under attack for the tax dollar from religious and charter systems), libraries and other amenities forward looking states have.

    I suspect that one of the flashing red lights that long ago CEO would have noticed today when choosing a new venue for expansion would be the advertising braggadocio (as in Indiana) in re “low taxes,” since (assuming no chicanery by politicians – an admitted stretch) “You get what you pay for,” and millions to corporations to come or to stay could better be spent in providing the amenities that attract skilled employees and corporations which would likely result in increased productivity, taxable wages and corporate profits while also benefitting all Hoosier taxpayers with such amenities they have paid for.

    I well remember years ago asking a very rich Swedish lawyer in Stockholm how he endured such high taxes, and he replied that it depended on what you got for your money – and that Swedes got a lot. Thus we hear from the corporate media that “high tax” California is losing home offices to Texas and Arizona, but what we are barely hearing is that Californians are “getting a lot for their money” and that that state has moved up from 5th place to 4th place as the largest economy IN THE WORLD – surpassing the economies of Russia, Italy et al. So much for the myth that the level of taxation is significantly related to economic growth. . .

    While I am no fan of higher taxation for its own sake, it occurs to me that we have been trained to ask the wrong question, i.e., one categorically denouncing higher taxation, when we should be asking what we get for our money. Perhaps higher taxes can result in lower costs on our individual balance sheets.

  19. If you truly want to see the effects of early childhood education, go into any grade school and watch kindergarten and 1st grade classroom activities. Children who come into K-12 schools with early childhood exposure often are miles ahead of those who have no such exposure, especially if coming from poor, unstable families where frequent moves are a given due to poverty, mental or medical illness and job insecurity.

    Developmental issues aside, there is a clear difference when parents have the time, energy and resources to create a strong learning environment for their preschool children, whether at home or in structured educational formats. Preschools are not glorified babysitting, nor should they be. Opportunities for social, verbal and emotional interactions with peers from different backgrounds enhance learning and prepare children for the real world experiences that will eventually confront them.

    Strong, well-funded public schools need all the resources available to educate and inform the future leaders on our communities. Millions going to religious schools/for-profit charters, along with the involvement of parents with time and resources away from public schools do nothing for the public good but cause de facto segregation. Welcome to Jim Crow.2.

  20. It’s Saturday. My choices for recreation range from skiing to warm pool swimming, from the 36 miles of developed bike paths to UC Berkeley’s vast panoply of museums, lectures, and student activities, or maybe guided tours of arboretums, home gardens, or sailing, windsurfing, or lolling on the beaches, fresh and oceanic.
    And I live in a “poor” blue collar town (with excellent schools). Richmond.
    Five star rated health care is 8 blocks away.
    We just adopted a 71 year old friend from Florida, which has fallen apart.
    Government services are crap in Florida. No place for poor old people.
    I spent a year in Indianapolis one December. It sucketh. Paul Ogden is weird.

  21. I spent 25+ years trying to improve the quality of life in our city and state. Taking pages from Richard Floridas book the rise of the creative class says skilled and talented people will seek out communities with the highest quality of life for their futures and family.
    These people will be drawn by a clean healthy environments, a active Arts and Cultural venue, a Safe and Secure community, affordable housing for a workforce,state of the art medical facilities, community service safety nets that look to the underserved, a thriving restaurant and social networks, a vibrant entertainment community, sports teams, transportation options, a strong commitment to schools, universities, skilled trades education and learning at all levels, parks. open spaces,
    and yes a vibrant greenways system.
    Richard Luger, Bill Hudnut, Bart Peterson, Steve Goldsmith, and Mitch Daniels that I worked directly with all knew that.
    Build that and they will come, economic development is about community infrastructures, quality of life, access to trained Human Resources, not how much you have to pay them to be here. I have always disliked the fact that the Tax Payers bought and paid $500+million for so the Lucius Oil could put their name on the Stadium, look no further than Carmel as one of the most desirable cities in America Mayor Brainard get it, and it has worked.
    Yes we do need to get the story of our city out to the world but if we spend massive dollars to fix and build these requirements for success, it will happen not waving our dollars bidding for the next company that will move to Mexico after fleeting Indy.
    THIS I BELIEVE .

  22. Paul, I agree with some of what you said. I do think we need public officials who won’t put up with corporate welfare, but, as you know, when I ran on that platform, they chose the parking meter leasing lobbyist. 8)>

    As for studies of pre-K programs, let me make an analogy. Take a diabetic and put them on medication for two years. Their blood sugars will be under control. Then take them off of the medication. Conclusion, medication only has a short-term effect and isn’t worth the cost? Where the pre-K programs succeed, our ignoring K-12 education undoes the gain. That is a better interpretation of the data.

    As for choosing where to live based on your ability to have the state fund your choice of sending your children to religious schools, depriving the public schools of funds and advocacy, and then complaining about how bad they are – well that may be true for people who have already decided that they want a religious education for their children, or don’t want their children to be influenced by “those” people, but not for everyone.

    I can speak for three generations of my family and friends who consider the quality of the public schools to be one of the main factors in deciding where to live. I, who have no children, have always thought that I would be in a better neighborhood, with higher property values, if the school system was a good one. Real estate agents use school quality as a selling point, so I would look beyond your circle for friends and associates when making generalizations about the importance of “school choice” to the larger national population.

    On the other hand, cost of living is a selling point for Indiana. Again, I agree, while Indy’s reputation outside of the state is that of a “sports” town, there is a lot more beneath the surface. That is why the first post on my now inactive blog was called “Hidden Indy”.

    Lester, I think that the “non-professional” class could be a great boost to Indiana, but I am not certain what those jobs are, and how much they contribute to the overall tax revenue. Non-professional fast food workers won’t support the state; non-professional battery factories would, but then that would be owned by one of those high tech companies, so we need to be creative when we concentrate on non-professionals.

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