STATE AND LOCAL "INCENTIVES" TO BUSINESS ARE JUST MORE STUPID SOCIALISM

Excerpt:

Money doesn't grow on trees, but that hasn't stopped Dollar Tree Stores from generating forests of revenue. In 2006, sales at the retail chain, where every item costs a buck, were $4 billion. That's up 17 percent from the year before. The company now operates more than 3,200 stores around the country, as compared with just over 2,900 a year ago - an increase of more than one per weekday last year.

So this capitalist success story is an obvious candidate for a taxpayer subsidy, right? That's what Virginia thinks. On February 12, Democratic governor Tim Kaine announced his plan to award $200,000 in state money to Dollar Tree for an expansion of its corporate headquarters in Chesapeake. The cash comes out of something called the Governor's Opportunity Fund, which spends more than $15 million per year on companies that seek financial help. "We view it as a deal-closing fund," says Christie Miller of the Virginia Economic Development Partnership, a state agency. "It's for attracting business to Virginia and keeping it here, too."

Giveaways to flourishing companies may not sound like a discount-store bargain for taxpayers, but they're standard operating procedure just about everywhere. Even local governments are getting in the act: The city of Chesapeake agreed to inject $200,000 of its own money into Dollar Tree's project. Around the country, this marriage of Big Government and Big Business carries a price tag of $50 billion each year, according to an estimate by Alan Peters and Peter Fisher of the University of Iowa. For the most part, however, these so-called business incentives "don't accomplish much of anything," says Peters.

That's not entirely true. They can accomplish quite a bit for politicians such as Kaine, who wasted no time in issuing a boastful press release about his Dollar Tree deal: "Governor Kaine Announces 100 New Jobs for Chesapeake." Yet these little exercises in industrial policy rarely drive economic growth. And sometimes they aren't so little: Last summer, then-governor George Pataki of New York, a Republican, approved a $1.2 billion package of grants and tax reductions for AMD to build a microchip factory in Saratoga County. The project is supposed to create 1,200 jobs, which works out to a price of $1 million apiece for New York taxpayers - a deal that might make even George Steinbrenner blush.

Perhaps these corporate-welfare schemes would be worth it if they created more jobs, helped depressed areas, or expanded a region's tax base. Evidence suggests that they don't accomplish any of these goals. "After decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated," wrote Peters and Fisher in their exhaustive analysis. "Indeed . . . there is a good chance that all of these claims are false."

This should come as no surprise. Politicians and bureaucrats in the grip of what Hayek called the "fatal conceit" - the notion that they can pick economic winners and losers better than the invisible hand of the market - have an exceedingly poor track record. The Mackinac Center, a think tank in Michigan, analyzed the performance of the Michigan Economic Growth Authority (MEGA), the state's most visible corporate-subsidy program. It found that among 127 deals whose employment promises were fully measurable through 2004, only 10 had met their projections. "MEGA is another in a long line of political programs disguised as economic ones," says Michael D. LaFaive, a co-author of the study. "They're great for giving politicians cover but do little to produce real job growth."

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