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.
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.”
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.