Incentive-fueled competition between local governments is a failed experiment

Kansas City is famous for its “border war” between Kansas and Missouri. The city, oddly enough, sits right on the state line and therefore the two states and counties are in constant competition to undercut one another and poach businesses for their side. Cincinnati’s “border war” is perhaps less publicized, but just as significant due to the fact that the greater downtown area sits in two states, three counties and five cities. The competition to lure businesses and people from one side to the other is counterproductive, and should end immediately. More from Governing Magazine:

For several decades we have been conducting an economic-policy experiment in state and local governments, and now it’s time to stop the testing because the results are clear: The dominant paradigm, incentive-fueled competition among these governments, does not create economic prosperity…Two big facts confirm this conclusion. First, as the New York Times reported last December, states, counties and cities are giving up more than $80 billion each year to companies in tax breaks, outright cash payments, and buildings and worker training. Second, the wages of the taxpayers who have been footing the bill for this stuff have been flat since at least 1979.

We need a national law that prohibits corporations from extracting bribes from state and local governments and bans governments from donating tax dollars to private entities — a sort of domestic equivalent of the Foreign Corrupt Practices Act, which prohibits American companies from bribing foreign governments… It’s time for experiments aimed at testing and developing a new paradigm for economic development, one that channels capitalism’s strengths while protecting the commons and producing a more broadly shared version of prosperity.

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  • Sean

    This is classic Game Theory… If you might cheat and offer incentives, the only rational act is for me to offer incentives.

    • Randy A. Simes

      It’s a race to the bottom. Right now Boeing is seeking billions in assistance for its new $10B plant. The City of Seattle and State of Washington didn’t play ball, so now they’re going elsewhere. Would Boeing really take these operations overseas if they didn’t get the massive handouts?