By William Schweke, CFED
As the price of attracting footloose corporations like Google, Dell and others climbs to new heights and their demands grow more bizarre (e.g. vows of secrecy, country club memberships for relocating executives, etc.), many policymakers and citizens looking to boost their states and communities feel trapped. These leaders perceive that, whatever they may think personally about corporate incentives, they and their communities must “play the game” in order to have dynamic and hospitable economies. In short, they feel trapped on a train that they cannot get off, whether they like it or not.
A closer look at the facts, however, reveals a less dire reality. Indeed, there are credible alternatives to the over-reliance on business incentive that do an excellent job of jump-starting local economies, creating jobs, fostering new industries and leading-edge technologies, and augmenting the tax base.
The key to finding these alternatives is to realize that economic development, like charity, should begin at home. The method? Fostering our homegrown economy.
Let us look at one such approach – business retention, expansion, and modernization (often referred to as BR&E).
An art as well as a science, BR&E involves orchestrating an expanding and constantly shifting range of private, public and non-profit services while, at the same time, managing the delicate balance between being reactive (to what a business says that it needs) and being responsive (anticipating and dealing with a firm’s problems before they become problems, as well helping an enterprise realize its potential for business success).
National sources estimate that 75 percent of new jobs are a result of expansions in existing businesses. And in a single state, helping existing industry expand can generate lots of jobs, given that established firms vastly outnumber the numbers of new projects recruited by a state economic development department each year. Even small increases can add up fast. Imagine, for instance, that 10 firms created ten jobs in each of North Carolina’s 100 counties: 10,000 jobs in total. And this state boasts tens of thousands of the small- and mid-sized firms that are most likely to grow! Furthermore, the cost per job created (or retained) is a fraction of the cost of incentive programs. Additionally, while it can take months to successfully court a new project from out-of-state and a year or more to build the new facility and open for business, BR&E can often work much faster.
The only major drawback to BR&E is political: Its accomplishments are largely invisible in the short run and do not provide elected officials with access to a steady stream of ribbon-cutting events.
In order for a state to maximize the effectiveness of BR&E programs across varied localities and create a system that is proactive enough to prevent unnecessary business shutdowns, it’s important that it enact a proactive, state-level partnership program aimed at existing industry that includes the following elements:
• A professional, statewide, and uniform business visitation and survey system to troubleshoot problems before they get too big to solve, nurture and cultivate firms with promise, become a rich data base for analyzing industry trends, and constitute the start of an early warning network.
• Outreach and educational workshops on succession issues, targeting older owners, to help avoid the eventuality of messy transitions and unnecessary closings.
• Protocols, which identify and specifically define the roles of key organizations and service providers in layoff aversion cases.
• Forward thinking and well-financed initiatives to improve supply chain productivity, help small and mid-sized firms crack foreign markets, strengthen so-called “cluster” strategies, and adopt higher value-added product lines and high performance workplace organization.
• Increased brokering of business and technical services through contracts with private sector consultants and training organizations.
• Exploration of better ways of motivating employees and sharing productivity gains through employee ownership, bonuses, profit-sharing, open book management, stock options, and gain-sharing.
The bottom line: North Carolina is blessed with scores of options for renewing our economy that do not involve costly subsidies for out-of-state corporations. Let’s hop off the incentives train and give them a serious try.
William Schweke is a Vice President at the Durham office of the national, nonprofit think tank, CFED.