Drawing the right conclusions from the Dell closure

Reactions to this week's announced closure of Dell Computer's incentive-inspired, Winston-Salem manufacturing facility are already coming fast and furious. Incentive opponents have been swift to display the "we told you so" banner and with some justification. In today's light speed world of commerce, the idea that any state would realistically expect to create decades' worth of jobs in one company – especially one that didn't even exist that many years ago – always seemed fanciful. Anti-incentive crusaders like the conservative Institute for Constitutional Law can thus be forgiven if they're crowing a little in the aftermath of Dell's downsizing.

Incentive supporters, however, are not about to wave the white flag. As many have already noted, Dell will not receive all the money that state and local governments committed as part of the deal and will even have to pay some back. For incentive stalwarts like the state Department of Commerce and their pro-business supporters in the General Assembly, these facts will be touted as validation of their "nothing ventured-nothing gained" approach to business recruitment and development. When they look at the gains that did occur in Forsyth County (at least a few years of decently paid employment for a not insubstantial group of people and some new infrastructure) these people will conclude that North Carolina has no choice but to keep taking part in the great incentives "buffalo hunt."

And much as the two sides will differ over the meaning and significance of the Dell decision, it's a safe bet that they'll continue to take opposing positions on the broader question of government's role in the field of economic development.

Hard line incentive opponents on the anti-government right seem certain to adhere to their longstanding position that government's only task when it comes to growing business is to "stay the heck out of the way."  From this perspective, about all that public institutions should do to help the economy is to cut taxes and regulations to the absolute minimum and leave things up to the "invisible hand."

In contrast, business-friendly government officials and less-ideologically pure conservatives will continue to defend the idea that state and local governments "have no choice" but to play the incentives game. These forces will continue to defend direct subsidies and incentive "deals" as a pragmatic acknowledgement of "the way the world works" and deride the absolutists on the right as hopelessly naïve and unrealistic.

A better way?

What both sides fail to understand or acknowledge, however, is that (as is so often the case in public policy) neither hard line position has a monopoly on the truth. In fact, there is a third and better approach to economic development that embraces the best of both sides' arguments and that could, if implemented, spare North Carolina from future Dell disasters while still permitting public officials to play a very active, engaged and high impact role in the world of economic development, job creation and business preservation.

That solution lies in a renewed commitment to what many experts refer to as "high road economic development." In this approach, North Carolina would avoid a "race to the bottom" predicated on giving giant out-of-state corporations virtual blank checks, but would also reject the simplistic and obsolete "cut and deregulate" approach in which public institutions and officials have no role at all to play in advancing the private economy.

In the high road approach, North Carolina would follow the lead of some of the more prosperous and progressive American states and First World economies in which it is acknowledged that the real challenge is not merely to create or save any job at all, but to discover and implement creative ways to combine increased competitiveness with better jobs and a higher quality of life.          

As a practical matter this has two general implications for state policy:

1)    North Carolina should dramatically overhaul the way it handles business incentives. As one of the nation's best thinkers on the subject, Durham-based Bill Schweke of the think tank CFED has explained, this would mean asking several tough questions about state business subsidy policies, including:

• Does the incentive strategy encourage private investment in areas that are either chronically disadvantaged, or being hit hard by economic restructuring, layoffs, and dislocation?
• Does it improve the reemployment prospects of displaced workers?
• Does the state's incentive "toolkit" help state businesses and sectors compete successfully on the basis of innovation, productivity, timeliness, flexibility, and quality in the new economy?
• Do development strategies help to ensure that the state doesn't overbid?

On most of these questions, Schweke gives the state's current approach a below-average grade. Much of this, it seems, is the result of the state's stubborn adherence to the traditional "good ol' boy" approach to incentives. With this approach, state officials do their best to act like business big shots by wining and dining prospects in search of "the big deal." Usually this means wooing some big, out-of-state multinational with secret negotiations that resemble the hiring of a high profile college sports coach. The only role for most other state and local officials (and the public at-large) is to stand by and hope for the best. As Dell proved, this is a high-risk model.

2)    North Carolina must "do" economic development in a much more holistic fashion. This means that in addition to changing its approach to incentives, the state must have a lot more than incentives (reformed or otherwise) in its toolkit. Ultimately, no business recruitment wizardry – however well-conceived and executed – can take the place of an economic development strategy that emphasizes long-term investments in human and physical infrastructure.

For North Carolina to develop a truly robust and sustainable new century economy that will last, it simply must do more than curry favor with giant corporations (however progressive or well-intentioned). Rather, it must invest huge new resources in building the kind of state that can produce and retain the Dells and Googles (and SAS's) of the future.

The path to real prosperity lies not with lassoing buffalo from elsewhere but with producing a critical mass of smart, modern, homegrown inventors, entrepreneurs and workers and in building a state in which they'll want to live and stay. This means new and significant investments in K-12 and higher education, public transportation, sustainable energy solutions, environmental protection and all of the cultural amenities that make a community worth inhabiting.

In short, to "do" economic development in a truly effective and lasting way, it must be dramatically transformed and elevated – from a niche activity conducted by a small cadre of "recruiters" into a central, overriding function of state government. Good ol'boy deal-making must be replaced with serious, wonkish, long-term policy thinking that produces a host of societal improvements.    

Setting the record straight

In the days ahead, as the aftermath of the Dell decision continues to shake out, North Carolina policymakers will hear much about the need for change in the state's approach to economic development. As they consider this discussion, let's hope they avoid the temptation to be constrained to a narrow debate between the usual suspects over incentives. Yes, incentives reform is important, but it is ultimately only small part of what is needed. The true lesson of the Dell deal is not that we need less or more of the same; it's that we need a lot more of something very different.