By Eleanor Luken
Municipalities spend a large portion of the community’s budget providing subsidies and tax abatements to attract corporations. The city hopes that increased economic activity will spur other investment and provide a larger tax base for social services.
There are several problems with this practice; in fact, it is so flawed that it actually produces ill effects. First, the city assumes that the corporation will provide jobs for residents and increase the surrounding land value. However, companies are reluctant to put their plant or office in neighborhoods of high poverty where the jobs and opportunities are needed most. Second, the exorbitant amounts of money spent attracting the businesses translate primarily to private, company profits and do not “trickle down” to the community as much as one might think.
Because of the nature of the new economy several other complications arise. Corporations are increasingly mobile and it is easy and profitable for them to relocate to areas around the country (and globe) where they will have the lowest costs. Cities must provide ever-increasing incentives to remain competitive. If not, the company can easily move, leaving behind abandoned structures and equipment (and sometimes, depending on the nature of the corporation, large amounts of hazardous waste) that give the city a negative image and cost a great deal to remove.
Furthermore, manufacturing and production-oriented corporations are most commonly attracted by cities. However, it is becoming impossible for any American city to compete with the low wages and productions costs worldwide; it is hard to keep such businesses in the country let alone a certain city. Additionally, the U.S. economy is becoming focused on professional and service oriented jobs. While at one time attracting a factory was an investment in the city’s future, with the fate of the company and the town often very much intertwined, it can no longer be assured that these companies will still be profiting in the next decade.
A normative critique of the situation is that it is not the proper role of the local government to be so heavily involved in private interests. Because these companies require so much from the city budget and do not proportionally help local residents, the effects of local tax money are rarely seen by the taxpayers themselves.
It is true that a city must invest in economic growth and that 100% of the tax base cannot be spent on social services. However, another condition of the new economy is that a city does not necessarily have to attract businesses to provide jobs. Conversely, a metropolitan area with a large number of educated and skilled professionals will attract jobs on their own; cities like Denver and Portland, Oregon are increasingly successful at creating the kind of communities that young professionals want to live in, and in many cases, economic opportunities have followed.
Also, these skilled workers are able to translate their knowledge into entrepreneurial careers. Small businesses are often tied to the community and not able to so easily relocate the way a large corporation can. They also provide jobs for local residents without as much possibility of recruitment from surrounding counties and cities. Perhaps cities would do better to provide aid for small business startup than to woo a corporation who might just as likely be gone next year.
Readers should become more informed as to how their local taxes are being spent, and encourage the local government to focus their investment on the residents of the city. Let the professionals attract the jobs.
