Last updated on 2013.01.18
Intelligent conversation does happen on Facebook. Last night I found some smart South Dakotans having a civil and substantive discussion about Referred Law 14, Governor Daugaard's corporate welfare slush fund plan. Injected into the conversation was a review of a book on local economic development. The review is by Augustana economics professor Reynold Nesiba, who finds authors Daphne Greenwood and Richard Holt telling us to focus less on government handouts to out-state corporations and more to investment in our small local entrepreneurs and broader quality-of-life issues:
In terms of policy, the authors call for a limited role of government in influencing individual private investment decisions. They emphasize an integrated approach to improving quality of life, sustainability, and growth assessed through the use of measurable local indicators. Thus, as part of a comprehensive approach to development, state and local governments should fund education, encourage local entrepreneurs, and confront the "negative trickle-down" effects that growing income inequality has on reducing social trust, affordability, and economic opportunity. A state or city's quality of education and the creative and skilled workforce resulting from this are likely to be far more important than any tax incentives or cheap real estate handed out by state or local governments. Similarly, the authors' more integrated frame of reference for development leads them to assert that creating incentives for local entrepreneurs to start and grow local businesses makes more economic sense than paying outsiders to move in who have no historical, personal, or social ties to a community [Reynold F. Nesiba, review of Local Economic Development in the 21st Century: Quality of Life and Sustainability, by Daphne T. Greenwood and Richard P. F. Holt, Journal of Economic Issues, 45:2 (March 2012): 249€“251].
Dr. Nesiba then puts Greenwood and Holt's conclusions in terms of Referred Law 14:
On March 17, 2011 South Dakota Governor Dennis Daugaard signed a budget cutting state aid to education by 6.6%. In the same session the Governor signed HB 1230 that intends to divert 22% of the contractor's excise tax from the state's general fund (that supports health care and education) into a new "large projects fund" used by the Governor's office to entice corporations to move their operations to South Dakota. This example illustrates and highlights the crux of the issue. South Dakota needs both education and economic development. The folly is that the policies being enacted pit these goals against each other instead of seeing them as inextricably bound together. Greenwood and Holt's book helps us overcome this economic myopia and makes clear that targeted local incentives like the Governor's proposed large project fund "do not create broadly based and sustainable economic development." (p. 18). The fact that these targeted local incentives often lack either transparency or accountability makes it unlikely than anyone can accurately assess their effectiveness. The voters of South Dakota will have the final say on HB 1230 in November 2012 because it has been referred to them through an initiated measure. Voters convinced of Greenwood and Holt's views will be expected to vigorously oppose this measure [Nesiba, March 2012].
Governor Daugaard and other backers of Referred Law 14 offer no similarly well-grounded economic arguments that their corporate handouts have produced or will produce the results they promise. Their justification for corporate welfare boils down to, "Everyone else is doing it; so must we!"
I suggest we drop out of the competition to outbid other states for the footloose vulture capitalists who can be induced to leave a community by a mere fraction of a percentage point taken off their taxes. Let's invest in our kids, our local businesses, our roads and parks and other public goods, and watch South Dakota prosper in the long term.