Ending Secrecy and Misinformation in Economic Development

For all the concern about “misinformation” in the public sphere, one of America’s biggest crises of public deception is almost completely unchecked. State and local elected officials, agency bureaucrats and corporate PR departments have duped the American public into believing that the massive transfer of public resources to politically connected corporations in the name of “economic development” is necessary to operate. economy.

It is simply not true. There is a massive, cross-partisan consensus among economists and other scholars that have targeted economic development grants in the name of “job creation” that rarely achieve their goals and routinely do more harm than good. As researchers from the University of Connecticut and the University of North Carolina wrote in 2018, “This simple but straightforward finding – that incentives do not create jobs – should prove key for policy makers “.

Yet that is not what their leaders tell the Americans.

According to a new national poll by the State Policy Network (SPN), 57% of American adults believe that “grants from city and state governments are essential to economic development because they create jobs and expenses for local communities” . Additionally, SPN’s poll found that 48% of registered voters think business grants help their local community in the long run, while only 23% think they end up being harmful and 28% think they don’t. make no difference or are unsure.

It’s hard to find another area of ​​public policy where the general public’s understanding of an issue is so far removed from reality. Of course, few other areas of public policy are the subject of such a relentless and well-funded bipartisan disinformation campaign as the government’s “economic development” policy.

In reality, however, the evidence shows that at least three-quarters of grant deals go to companies that would have made the same decision without the grant – meaning these grants are a total waste of public money. State and local incentives are far from the most important factor in influencing business decisions, ranking just above “inbound/outbound shipping costs” but well below labor , infrastructure, energy, labor cost, quality of life, overall business tax climate and other critical factors. factors in Area Development Magazine’s most recent annual survey of corporate site selectors.

Of course, sometimes subsidies are successful in changing corporate behavior. But when they do, it’s usually at an unsustainable cost to taxpayers. In 2020, researchers in Michigan and Indiana found that Michigan grant programs created jobs in the state – at an average cost per job of $593,913 per year.

Local elected officials, who are the least likely to have been captured by the economic development industry, largely understand that greater transparency is needed. In a recent national survey of local elected officials and finance officials, University of Texas professor Nathan Jensen found that two-thirds of these local leaders support the creation of public databases containing information on companies that received incentives. Additionally, nearly half agreed that greater transparency in subsidy reporting is needed, while only one in ten actively oppose greater public scrutiny.

A good place to start with this transparency is to end the ability of economic development bureaucrats to hide information about proposed grant deals before a final vote. Tennessee and Michigan have recently taken positive steps by running their electric vehicle incentive programs for Ford and General Motors, respectively, through their statutory appropriations processes rather than delegating approval to appointees. the state.

In the latter case, the sunlight allowed the media and the public to flag their concerns about the terms of the deals and motivated lawmakers to urge negotiators to make sure the fine print matched the breathless press releases. But after its initial application, some lawmakers are already wanting a return to the days of secrecy and irresponsibility.

That’s why our organizations – along with a wide range of organizations from all political backgrounds – recently launched the Ban Secret Deals Coalition. We work together to promote state-level prohibitions against the use of nondisclosure agreements in economic development agreements, which can keep critical information out of public view until it is too late. Legislation to this effect has been introduced in Illinois, Michigan and New York, with other states soon to follow.

American states and cities are dependent on inefficient and costly subsidy programs. Their reform will require transparency and accountability from the agencies, elected officials and even the companies that benefit from them. The more the American public has access to information about what is really going on, the more they will begin to understand what is really going on in their communities.

David Guenthner is the senior strategist for state affairs at Mackinac Center for Public Policya research and educational institute located in Midland, Michigan.

John Mozena is president of The Center for Economic Responsibility.