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Businesses and state government relationships have become dysfunctional

By November 30, 2015December 3rd, 2015No Comments

(This post originally appeared in various Messenger-Post Newspapers publications – but the formatting on their site is terrible, so I’ve re-posted it here)

A funny thing happened in Buffalo last week.  Maybe you heard about it.  Governor Cuomo, asked if there was ever a point at which the government could stop giving large incentives to private enterprise (like, say, $750 million for a Solar City technology park), said “No.”

No, because “every state is competing for every business.  We have governors come and meet with our businesses and make them offers to move … they will walk into an existing business and they’ll say we’ll give you $10 million dollars to move your business. ‘We’ll give you a site, we’ll give you a factory’ so it’s this constant competition among the states.”

One can argue with Cuomo, of course, but instead of doing that I’d like to ask:  what if he’s right?  What are the implications of the idea that such funding isn’t so much targeted investment in a crucial sector but the way business gets done now across the board?

If it’s true, doesn’t that mean the free market no longer works past a certain point in America?

I say “past a certain point” because it’s only the very big ventures that get largess like this.  Mom and pop neighborhood stores don’t get huge government handouts.  Open a metal shop in Buffalo, or a computer repair service, and the government will do very little to subsidize you, let alone offer you millions of dollars of aid and assistance.

But they may very well do that for your out-of-town competitors, to lure them in. Capitalism is for the little guys.

Meanwhile the fundamentals of business – make a good product that people like and sell it – get increasingly de-emphasized the more government hand-outs are normalized.  The more government money big businesses can get simply for existing, the less they actually have to focus on being efficient and effective.

So essentially we’re creating a system in which businesses put on pageant shows for state governments in order for public funds to be invested picking winners and losers out of industries whose only tie to a region is that they chose it for their bribe-of-the-month.

If this is the case – if this is actually an accurate description of the current state of affairs with state government and economic development – then I understand why Cuomo feels he has to participate, but I’d like to ask him to reconsider.  Because, by his own admission, this creates a “race to the bottom,” and that’s not really good for anyone.

If the only reason we’re incentivizing businesses is that somebody else will if we don’t, then maybe there’s a better use for that money.

Take the investment in SolarCity, in Buffalo.  It might be a great company – I’ve heard good things – but if the only reason it’s locating in Buffalo is that we’re throwing money on it, then that can’t possibly be good for the business.  Let it go where it would actually want to be under the free market, for crying out loud.

Meanwhile, is it really the best use of state funds to spend $750 million to create an estimated 3,000 jobs?

Would we be better off giving 3,000 people in Buffalo $250,000 each?  Or 6,000 people $125,000 each?  Or 12,00 people $62,500 each?  Or, heck, start a $50 million business incubator for local people, and give the rest as cash handouts?  We might very well be – especially if some of these people use their money to start local businesses of their own.  They’d definitely use it to support the local economy by shopping at businesses that are already there.

I’m not saying it’s not vital to have a thriving local business community – of course it is.  But if that community is only present because of government handouts, and if we’re only giving them handouts because they’ll create jobs … why do we need the middle man?  Businesses are supposed to generate wealth, not suck it up.

I agree that it’s problematic for the government to give cash handouts directly to citizens … but according to Governor Cuomo that’s what we’re doing anyway.  We’re just giving them to the rich citizens of other states to come in and sometimes compete with local companies.

If the situation is really this bad, maybe we should go back to first principles and see if there’s a better option