as Tools for Economic development
OVERVIEW
State and local governments have relied for years on the use of public funds as a means to attract new businesses to their communities. These location incentives have taken the form of, among other things, tax abatements or deferrals, custom construction projects, worker training programs or infrastructure improvements. But the use of incentives as tools for economic development has come into question in recent years. Many localities are questioning whether or not they are receiving benefits commensurate with the costs of the programs.
Harold Wolman and David Spitzley (1996) recently published a literature review entitled "The Politics of Local Economic Development," in which they discuss the current state of economic development practices. Although the topic is more comprehensive than this page, many of their conclusions apply to the more specific topic of location incentives. They see a general lack of empirical research on the subject, especially dealing with policy evaluation. They also discuss the disagreements in the literature as to a specific definition of "economic development" as well as to the extent to which private business dominates the political debate. Finally, they make the observation that for a public official with personal career interests, "a rational outcome does not necessarily imply a rational process" (Wolman and Spitzley, 1996, p. 146).
The problem is that in recent years, the term "incentives" seems to have come to refer only to location incentives and as such has taken on all the negative connotations of those programs, similar to the problem cited by Wolman of definition inconsistencies. The discussion should turn away from the negative aspects of any specific definition and toward the positive aspects of incentive policy and its context within the larger economic development framework. Practical and more "forward-thinking" models must be implemented and tested, so practitioners feel there is an alternative to the "giveaways" that have become so commonplace.
On the other hand, conflict between political maneuvering and idealistic economic development programs can create a climate in which much more creative solutions are possible. Political pressures will always be present in any public policy debate, but the fact that academics have presented such convincing arguments against the "wasteful" practices of the past will hopefully turn practitioners in that direction as well.
Copyright - Kevin Ames.
Last revised: April 12, 1998