☆ Are business incentive programs just a way for cities like SJ to pick winners and losers? (1/4)
Who can argue against tax credits and other incentives to bring businesses to town, as San Jose and other Silicon Valley cities are fond of doling out? After all, more economic activity brings more revenue. Right? But Mark Moses, author of The Municipal Financial Crisis, warns that when city governments pick winners and losers, “unseen” costs hurt the residents. An Opp Now exclusive Q&A.
Opportunity Now: A lot of people on the left and right would say, "Business is good; jobs are good; therefore, cities should create policies like tax breaks that incentivize business development." Who can argue with that?
Mark Moses: Well, not all business is good, depending on how it’s procured. Not all jobs are good, if they're not the most productive jobs that people are capable of generating.
ON: So you’re saying government business incentives distort the market?
MM: Yes, when you crowd out private investment, you don’t see the jobs that aren’t created because of the lack of private investment that’s been co-opted or taken in the form of taxation to be distributed or determined by the city.
ON: You don’t see uncreated jobs? Isn’t that just a counterfactual? And, like you say, the tax burden is distributed. So what’s the harm in everybody chipping in a tiny bit to cover the cost of bringing a big employer to town?
MM: Frédéric Bastiat and Henry Hazlitt talk about the “unseen.” When you tax everybody, it’s all minimized. People say that it’s just the price of a cup of coffee to pay this tax or that tax. But such costs are real and accumulate over time.
Whether it’s being unable to afford a piano lesson for the kids, or a vacation, or other things that affect quality of life. You don’t have an alternative universe to play out those scenarios, but it doesn’t make the effects of additional taxes any less real.
ON: So serious champions of the free market would have a problem with a seemingly pro-business, pro-capitalist city policy?
MM: The enthusiasm for city governments to pick winners and losers is an odd left–right phenomenon. Although each side caters to a different cast of cronies.
Take the banking industry. Banks aren’t really operating in a free environment. That’s one of the most regulated environments there is. The market, capitalism get blamed for things that aren’t truly free trade. They are prescribed and regulated areas.
And now governments want to go even further. You’ve got cities like San Francisco and Oakland trying to start their own banks, and make public utilities out of banks.
ON: And now the leading mayoral candidate in New York City wants public grocery stores.
MM: What could go wrong with that? Does anybody learn history and understand how things were in Soviet Russia, with the endless lines? People would see shoes for sale and buy them just so they’d have something to trade, because there was a lack of supplies.
ON: So favoritism of a private business ends up looking not all that different from outright municipalization?
MM: Everyone trusts it when they think they’re in control. So you end up with this back and forth between what I would describe as the cronies on the left and the cronies on the right. That tends to be where the struggle is. There’s not a lot of real advocacy for breaking down the cronyism and having a truer open market.
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