The headline to this Richmond BizSense article neatly captures the McDonnell administration’s economic development thinking: “Spending money to make money.” Specifically, the Governor wants $54 million in new economic development incentives that he hopes will spur growth and employment. But does any of this spending make good economic sense?
According to the local Babbittry, yes it does. Since it took office, the McDonnell administration claims credit for creative 55,000 new jobs via its many and multiplying incentive programs. It’s important to realize that these are jobs companies have promised to create over time, and certainly not until long after the incentive checks have been cashed.
But let’s give the administration the benefit of the doubt. These jobs will appear, and growth will follow. Not necessarily. A Commonwealth Foundation study of the academic literature surrounding economic development incentives found that “the best case is that incentives work about 10% of the time, and are simply a waste of money the other 90%.”
Surely, though, the jobs will be created as promised, right? Quite the opposite:
…[the] most basic question of all—whether incentives induce significant new investment or jobs—we simply do not know the answer. Since these programs probably cost state and local governments about $40–50 billion a year, one would expect some clear and undisputed evidence of their success. This is not the case.
Decades of academic research into economic investment incentives has shown no evidence of the programs’ success. So why does the McDonnell administration, even more than previous Governors, insist on plowing more money into such program
The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence.
That’s a nice way of saying “hubris.” But there’s a darker side to all of this which bears watching.
As the Governor grows the economic development arms of the state, increasing not only the number of incentive programs, but their budgets as well, he isn’t just growing government. He’s also institutionalizing this growth and creating with it a clientele that has a direct stake in seeing that these new programs continue to expand.
So a Governor who says he embraces free markets is actually bent on expanding the corporate welfare state – one that, much like traditional welfare, encourages dependency upon the state and may prove as difficult to end.
