I had finished writing my last post when Amazon announced that it was pulling out of its plan to open a corporate campus in Queens, New York. What followed was an exchange of accusations and counter-accusations that came to echo the theme of that post about views that favor job creation over other interests. In this case, the interests that felt aggrieved by the generous concessions to Amazon were those of the community living around Amazon’s future location. The practice of government concessions to influence corporations and other organizations (like sport franchises) as to where to move their operations is well entrenched in America. This practice raises, however, some inconvenient questions that are worth exploring, especially at a time when the debate about the roles of private and public sectors seems to be intensified.
First. Why do firms ask (or even demand) concessions to choose a place for their operations? Aren’t the other intrinsic location factors (like well-trained labor force, good educational institutions, efficient justice system, reasonable regulations and taxes, quality of life, and safety) enough? Or is it that the prospects of making a profit aren’t strong enough so a firm needs concessions to turn an unprofitable business into a profitable one? If it’s the first case, corporations appear to be greedy. It looks like they practice corporate giving in reverse. They place themselves at the receiving instead of the giving end. If it’s the second case, the concessions granted by local governments enable firms to apply resources to businesses with questionable or perhaps negative economic value. Neither possibility is desirable.
Two. Why are local governments willing to grant concessions to attract firms? Is it because they sense they cannot compete in locational advantages (like those mentioned above) and use concessions as the only competitive tool? If this is the case, the practice of relocation concessions can very well enable a local government to systematically ignore the long-run development of its community. Isn’t then that community right in demanding a more direct attention to its interests so that it develops a sustainable future? Can the dedication of resources and time to develop sustainable locational advantages be a viable policy if business can be attracted through occasional concessions?
Three. Negotiations on concessions are done on a case-by-case basis. Hence, they are transactional. They may favor some firms over others. Thus, they may undermine long-term loyalty and long-term relationships with businesses. These deals resemble marketing promotionals which promise new customers a preferential price while old, loyal customers pay higher prices. Relocation concessions can also distort firm competition. How can we justify this potentially distorting role of government?
Four. Choosing to go to the city or state that grants the biggest concessions is no different than choosing to go to the country that has the most advantages for businesses, be it in the form of lower taxes, looser laws and regulations, cheap labor or absence of labor unions. If relocation within a country based on concessions is a good thing for business, can we condemn firms for relocating or sourcing services abroad? In both cases, the firms’ motives are the same: bring down the cost of business and increase profits.
In fact, the practice of government concessions to influence location decisions is an ideological orphan. Advocates of pure capitalism consider them to be an unwarranted intervention of government in the domain of markets and private enterprise. Liberals, on their side, consider them government handouts, a sort of corporate welfare.
Of course, those who believe that the main priority of an economy is to create jobs, whether the incentives originate with the market or the state, have no qualms about government concessions to attract business. But their cries of “job killers” to the opponents of such concessions cannot be done in the name of unfettered capitalism that disdains government interference in the economy. Liberals are not free of ideological conundrums either. They have to explain their rules and principles in relation to attracting businesses and jobs in their communities.
And for all of us, the relevant question is: If local governments have a useful role to play, what are the fair rules of competing for businesses and jobs? How can we avoid a “beggar thy neighbor” game? Who has the right to be at the table of negotiations?
Let's Reason 
Lots of interesting questions with few easy answers.
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