Racing to the bottom

The New York Times has written several great pieces on incentives state and local governments use to attract companies. Their goal: to bring new jobs. The outcome: as game theory would predict, a classic race to the bottom where everyone who plays loses. Except, of course, the corporations. The reason: you don’t want the kind of corporate love money can buy.


Creating their own version of the prisoner’s dilemma, corporations can and will play cities and states off one another as they decide where to locate their facilities (and jobs). As the Times writes in As Companies Seek Tax Deals, “Granting corporate incentives has become standard operating procedure for state and local governments across the country.” To the tune of at least $80 billion a year. But all too often, the prize isn’t worth fighting for.

The cities and states that pay to play tell themselves this time will be different; that the costs of moving in, coupled with the value of an established workforce, infrastructure, and favorable terms, will keep the corporations happy. Texas, for instance, provides more incentives than any other state, $19 billion a year, and argues that this has bought them “half of all the private sector jobs created over the last decade nationwide.” (Texas Gives Industries a Bonanza).

But the work that money buys is often the kind that’s divorced from both corporate strategies and local communities: low-margin activities, unskilled labor, and low capital investments. If it’s mobile enough to move there while the money’s good, it’s mobile enough to move out when the money’s gone.

When corporations look for the best deal in locating their people and facilities, they’re often offering up the worst of their wares. But when it comes to the future of companies — the innovation frontiers of their businesses — location means more than the best tax breaks. It means regional economies and communities that enable corporations to grow and thrive. And it means corporations that enable economies and communities to grow and thrive.

Another way…

Consider how some other companies have chosen to locate in — and chosen to invest in — the economies and communities they did.

For example, New Belgium Brewing’s decision to open up their eastern front with a new distribution center in Asheville, NC was a decision to join, and add to, the community and region. In particular, New Belgium chose Asheville because their facility would become part of the town:

“Jenn Vervier, [New Belgium]’s director of sustainability, led the Fort Collins, Colo., brewery’s search for just the right site to serve the East Coast. Many cities got knocked off the list quickly, trying to ghettoize industry in parks far away from their downtown or neighborhoods…”

It wasn’t easy to build near downtown, but the company chose to anyway.

Old-school businesses would call it folly to actually pick a brownfield site, spending big bucks to restore the old livestock yard and former city landfill before you even start building a 150,000-square-foot brewery pumping out 400,000 barrels of craft beer annually, to the tune of $175 million.

Just getting trucks on and off the interstate and down to the river looks like a daunting task, let alone the bike paths and greenways New Belgium wants to add for the 154 workers and the thousands of visitors expected at its tasting room.

But New Belgium is not an old-school business.

Or take Zappos, the online shoe and apparel retailer that is moving from suburban Henderson, Nevada into downtown Las Vegas (not the glitzy part, the old run-down part)

Zappos Founder Tony Hsieh, with parters, is investing $350 million to transform Las Vegas into “the most community-focused large city in the world.” As Tony Hsieh describes to Joel Makower of Greenbiz.com, their goal is to have,

Everything you need to live, work and play within walking distance. And making it the co-working and co-learning capital of the world. So part of the investment is to invest in small businesses that help build a sense of neighborhood and community so things like cafes and coffee shops and bars and restaurants and so on.

Granted, not every region has an educated workforce, a vibrant culture, and easy highway access. But selling themselves cheap won't, in the long run, change that.

Rather than offering tax breaks and incentives to corporations that aren't interested in contributing to the local economy (beyond the typical low wage jobs bargain-hunters bring), cities and states can and should expect companies to invest heart and soul in those communities they see as long term partners. 

You can’t buy that love — you gotta earn it and you gotta hold out for it.