A common complaint about corporate incentives is that the corporations often don’t live up to their end of the deal. Sometimes these complaints are misplaced since it is often the politicians who overstate what a company has promised. Foxconn did not promise to create 13,000 jobs, but the Wisconsin governor gave the impression that 13,000 jobs would be created. The company should not be faulted if that number is not reached. As to the true promises of the corporation, however, they should be made as explicit as possible and with deadlines. The agreement should say, “We, the corporation, will put this amount of capital into the project by such and such date. We, the corporation, will hire this number of people for these kinds of jobs at defined starting salaries by such and such a date.” And so on. If the corporation does not fulfill these promises, then penalties spelled out in the agreement should be automatically imposed. The company should have to pay the governments certain sums or tax abatements should end. If the government commits itself to actions, then the corporation should also commit.

The negotiating governments, however, often seem to be reluctant to play hardball. A good negotiator must be willing to walk away. The corporation can easily do this if it knows that other localities are willing to offer incentives. If New York is not offering enough, Amazon can rightly think, “Let’s see what St. Louis has to offer.” Amazon has many places it could go, but if New York thinks Amazon is demanding too much, it can’t simply say we will negotiate with someone else. If Amazon walks away from the discussions, another company is not waiting outside the door to talk with New York. When one party can easily quit the negotiations, and the other cannot, the bargaining positions are not equal, and in this game, the corporation holds the upper hand.

Several states sought Foxconn. The company could play one locality against the other to create a bidding war. If Arkansas is competing against Wisconsin, Arkansas will probably not withdraw until it must offer too much. Wisconsin will have to offer what Arkansas will not, and if that was too much for Arkansas, it is likely to have been too much for Wisconsin. And since the corporation is not in competition with other companies, it does not have to increase its bid. This unequal field means that it will be normal for governments to make risky offers.

In assessing the deal, however, we should not just focus on one total dollar amount as if it were all going to the corporation. Money that is spent on infrastructure that will aid the larger community should be seen differently from simple tax abatements or credits or outright grants to the corporation. The widening of roads; the upgrading of subways; the additions of buses are not just giveaways to the corporation if many will use the new or improved facilities.

And we should also realize that some of the laments are not about corporate giveaways. More than a few New Yorkers bemoan the Amazon move for what it will do to housing costs around the new headquarters and for the strains it will add to an already overburdened transportation system. Of course, if Amazon came without governmental incentives, these increased pressures on housing and subways would still exist. The complaints are not really about the incentives; the complainers don’t want Amazon to come at all.

New York already has affordable housing and transportation issues. An Amazon move may intensify them, but it will not create them. They are difficulties that ought to be addressed with or without the move. Corporate incentives are not the real villain here.

Corporate incentives granted by localities to attract corporations highlight the fact that we do not have a national economy. We may talk about gross domestic product numbers or look at the national unemployment data. We may give our presidents credit or blame for how the economy is doing, but we don’t have a national economic policy. If we did, states and localities would not compete against each other to get corporations. With a true national economic policy, Amazon would have decided what location made the most sense for its new headquarters, and no locality would have offered it incentives. From the nation’s perspective, the same number of jobs would have been created at the same salaries without any governmental incentives.

At least with Amazon incentives, the country has new jobs, but often incentives are offered to lure a factory from one part of the country to another. These do not create employment for the nation. A company employs, say, 100 people in Wisconsin at a prevailing wage of $45,000. Texas comes along and says, ‘Move to the Lone Star State. Our prevailing wage is only $35,000, and we will give you some tax incentives.’ If the plant moves, Texas politicians may claim that they have created 100 new jobs, but is the country as a whole better off? The same number of people are working, but wages in the country will have dropped by a million dollars. Corporate profits will be up while the overall tax revenues in the country will have dropped. But Texas will, no doubt, proclaim a win and announce the arrival of 100 “new jobs.”

A final concern. If an American factory moves from Wisconsin to Texas, overall wages will have dropped, but the increased corporate profits are likely to stay in the country. In deciding whether the Wisconsin-Foxconn deal is a good one, how should we weigh that corporate profits will flow out of the country?

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