Public economic development funding does no good


The Club for Growth's blog links to an op-ed that says government economic development programs don't work, but they do encourage businesses to spend lots of time and money trying to game the system:

Yet, the sad truth is: Government economic development programs rarely have lasting benefits -- for the simple reason that they run counter to good business practices.

The most glaring flaw in these programs is the fact that they increase a behavior known to economists as "rent-seeking," a euphemism for business efforts to secure government favors. Businesses pay lobbyists, lawyers and consultants large sums of money to help them obtain economic development funds. Unfortunately, this makes less money available for higher priorities, such as capital investment.

Besides, when a business succeeds in gaining government favor -- the $40 million Texas Enterprise Fund provided Sematech for an "Advanced Materials Research Center," for example -- the recipient firm gains an unfair advantage over other businesses, both direct competitors and those competing indirectly for capital and workers. ...

The Government Accountability Office in Washington has attempted to measure the impact of economic development programs using sophisticated econometric modeling. The agency (then called the General Accounting Office) reported nearly a decade ago, in 1996, that it was "unable to find any study" by any reputable organization "that established a strong causal linkage between a positive economic effect and an agency's economic development assistance." Yet, the spending continues.

What should government do to encourage economic development?

Unsatisfying as it may be to the many proponents of economic development programs, government can best promote economic growth and prosperity by sticking to the basics: protecting private property rights, enforcing the law, providing basic services, and keeping taxes and regulations to a minimum. It should then do one final thing: Get out of the way and let the economy work.

How boring! How will the politicians take credit for creating jobs if we stick to the basics?

Meanwhile, Tulsa Mayor Bill LaFortune is off to Tiberias, Israel, to tell them that their 38,000 residents can be as prosperous as Tulsa if they raise local taxes and build a 20,000 seat arena downtown.

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This page contains a single entry by Michael Bates published on December 27, 2004 12:16 AM.

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