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Market Manipulation: The Good, the Bad, and the Ugly

While government incentives are typically touted as great tools for economic development and job creation, they tend to have a negative impact on the community.

Should government decide which businesses operate within a market?

Tax breaks for businesses eliminate revenue, while employment incentives create an additional burden on local services, schools, and health systems by bringing in more residents. The net loss to the community can be exacerbated by the taxpayer burden of monetary incentives.

In addition to offering little benefit to the local community, they don’t target what actually drives a business to select a location to establish or expand: talent, geographic location, and markets.

When Bloom Energy located in Delaware in exchange for subsidies amounting to hundreds of millions of dollars, the company promised thousands of jobs. Now, Bloom employs a fraction of what it promised and its officials do not expect the company “to be profitable for the foreseeable future.”

But Bloom isn’t the only example of wasted money from incentives to businesses. In 2010, Fisker was allotted more than $20 million in taxpayer dollars, but went bankrupt three years later and left the plant empty. The company continues to operate in California today because that is where the talent to develop Fisker electric cars resides.

Jeffrey Dorfman, a professor of economics at The University of Georgia and consultant on economic issues to a variety of corporations and local governments put it best:

“When politicians give away six-figure sums of taxpayer money to attract a new employer, don’t think of it as an investment in the local economy. It is better thought of as a vote-buying scheme funded not with campaign contributions but with taxpayer dollars.”

The new Delaware Prosperity Partnership (DPP) offers some hope, utilizing research and data analysis, as well as promotion of the state’s innovation, business, and economic development to encourage entrepreneurship in the First State. However, with the steady stream of bad business legislation out of Dover, it is unlikely that great companies will want to establish in Delaware, no matter the incentive.

To attract and retain businesses, we must improve our business climate, tax rates, regulations, and talent pool. It’s simple: great things require the right environment to grow.