I recently attended the NC Chamber and North Carolina Bankers Association’s 21st Annual Economic Forecast Forum. I would guess well over 1,000 people packed into the Sheraton conference center in Durham to hear from economic development luminaries on the state of the economy going into 2023.
Federal Reserve Bank of Richmond President and CEO Tom Barkin was the keynote speaker and was refreshingly candid in addressing questions about targeted growth rates, unemployment, and economic headwinds while hedging about future interest rate hikes. An unexpected teachable moment came in answering a question about cryptocurrencies. I was pleasantly surprised to learn something that afternoon and genuinely appreciated his talk.
Unfortunately, the learning stopped as the event segued into the well-worn and all-too-familiar territory of megadeals, a.k.a. public subsidized expansion incentives for large established companies. The CEOs of the NC Chamber and EDPNC had a cozy fireside chat where they extolled the virtues of continuing North Carolina’s ambition to entice large companies to move or expand to our state.
Offering economic fruit baskets overflowing with millions in tax subsidies and infrastructure improvements, we are among the top states in the nation giving big businesses incentive packages to choose our state for expansion. Instead of relying on the many naturally occurring reasons for moving to the number one state in the nation for business, our thirsty economic development priorities continue to overshadow much more efficient and sustainable practices. And it does so under the cover of attracting jobs and investments.
A look beyond the headlines would reveal a truth less worthy of the hype.
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For one thing, most investment is more accurately characterized as the cost of constructing the factories and offices they need to operate in our state. But these facilities aren’t public assets. You can’t rent their shiny new offices for your daughter’s quinceañera. So, when a political official refers to the company’s build-out expenses as an investment, the average constituent assumes it is something more than it is, with more public benefit. These buildouts generate welcome (but temporary) construction jobs and related economic activity, but at a fraction of the amount touted in the pressers. Frankly, it is mostly irrelevant, to the public at least. It is simply an estimate of the costs the companies will incur for doing business.
This brings me to the other thing most used in these proclamations: the promise of new jobs. And these deals do bring jobs – that would otherwise exist in other states. Obviously, more jobs are a good thing. But exactly how many jobs eventually manifest after the headlines fade, and at what cost? So many of these mega deals have now been scored and shown to have a cost-per-job that defies any sound economic reason. To defer (give away) six figures in tax revenue for five-figure jobs doesn’t make sense. Many of these deals’ return on investment (ROI) is so tenuous that they are often given decades to make good on the promise. Stringing out the time to realize the return is one of economic development’s sleight of hand in rationalizing this largess.
But don’t take my word for it. Our friends at GoodJobsFirst have been tracking these deals for years. They posted an exceptional recap of 2022 megadeals (nationally) which offers a master class in understanding the actual economic development implications of these practices. The author of the summary (Kasia Tarczynska) also addresses the social implications, which are rarely – if ever – addressed, of such practices:
“Massive megadeals come with opportunity costs that can exacerbate racial inequality too. Every dollar not collected because of economic development subsidies is a dollar lost from public services such as schools, food assistance, health care, or affordable housing.”
So why am I beating this drum and writing an agonizingly long dispatch about this? Because there are more efficient but woefully neglected sources for new job creation hiding in plain sight. Specifically, I am referring to the job-creating capacity of new and young firms with high-growth potential that chose to start in North Carolina. Estimates vary by source, but they range from asserting that half of all new jobs are created by startups to all net new jobs in the country. While acknowledging we would benefit from more definitive data, one point that is easy to make is that the cost-per-job (as measured by public subsidies received) is a fraction, a rounding error, a pittance compared to these megadeals.
2022 closed as the second-highest year on record for new firm filings (170,000) in North Carolina, on the heels of our best year in 2021, which saw 177,000. Collectively, these companies dwarf the job numbers promised in mega deals. Yet you hear very little about them, and they do not receive financial incentives or other assistance from the officials crowing about giveaways for billion-dollar companies.
When I see accomplished professionals swooning over the privilege of giving away billions in subsidies for 28,690 jobs promised by outside companies, I have to acknowledge that there is cognitive dissonance with what is really driving job growth in our state. Hometown heroes work night and day to create 10X the jobs without a fraction of the help, resources, or attention from those they elect to office. Why a policymaker will give deference and financial assistance to a company that won’t pay taxes for years but doesn’t work on policies and programs that will help their constituents organically grow the companies that are strengthening our communities is a headscratcher.
To be clear, I am not implying anything nefarious or incompetent beyond the garden variety existing in most bureaucracies. In my opinion, the disparities come from a deficit of curiosity, creativity, and courage. Helping start and grow vibrant companies is hard. That is why it is easier to entice them to move to your state. It requires patience, skills, resources, and experience in short supply. It also requires a leap of faith and willingness by people to support activities that may not give them the immediate gratification our political cycles feed upon.
For our part, this year, we will work (harder) to make a case for supporting our startup ecosystems. You can expect to see more storytelling about those we support. They are the ones who are creating the companies and jobs, as well as the programs and investments that are creating the economic vibrancy and amenities we (ironically) flaunt when recruiting firms to our state.
Helping people become economically emancipated by realizing the American Dream of entrepreneurship is a BIG Tent activity, and all are welcome. We want to encourage others to take up this effort. Equitable economic development efforts grounded in the entrepreneurial potential of us all will pay greater dividends than hoping corporate titans from other states will select us for the honor of subsidizing their growth ambitions.
If you have read this far and have thoughts, questions, or critiques of my theory for equitable economic development, feel free to let me know. We will be happy to facilitate the dialogue if there are additional or contrary cogent points to make.
President and CEO
NC IDEA Foundation