competition

Amazing But True

© Can Stock Photo / kryzhov

The twin pillars of American prosperity have been relative freedom for each person to make the most of what they have to work with, and a generally competitive marketplace for goods and services. Count us among the fans. But this essay is about one of the worst features of modern American capitalism.

Some of the world’s largest corporations often receive incentives from governments at various levels to encourage them to bring their businesses. These incentives are paid by tax dollars from the rest of us that are not fortunate enough to receive them.

Local governments are currently engaged in a bidding war to lure a headquarters of a major retail giant. Newark, New Jersey has supposedly offered $7 billion and other locales are also bidding billions.1

It is not hard to imagine that Newark contains storekeepers and shop owners who compete with the company Newark is trying to woo. These people and other citizens ultimately are the ones who pony up the money to subsidize this powerful competitor. Other enterprises are taxed by the government so one enterprise can obtain huge favors from that government.

The Fourteenth Amendment to the Constitution of the United States guarantees us equal treatment under the law by state and local governments. We believe it isn’t happening in this case.

Local governments struggle to find money to pay teachers adequately, keep roads and bridges in good repair, and provide amenities like parks and transportation systems. It isn’t as if money grows on trees.

The justification made by economic development bureaucrats is that the incentives paid to large companies will be repaid with jobs and economic growth. But that conveniently ignores the underlying fundamental fact. Every facility of every type needed by every for-profit enterprise will get built somewhere, whether there are incentives or not.

Imagine if the U.S. government or court system adopted the protections of equal treatment under the law to this economic arena. Local governments could still compete for new facilities. But they could do so on the basis on the quality of the schools and workforce and infrastructure and public amenities.

The equal treatment approach to economic development could strengthen and build our communities as leaders seek to make the most attractive locale with the best-educated workforce. Contrast that with the current mess: taxes on the little guy are given to the large and powerful, at the expense of public necessities and amenities.

Clients, if you would like to talk more about this or anything else, please email us or call.

1Bloomberg, Christie Backs Newark’s Amazon Bid With $7 Billion in Tax Breaks. October 16, 2017.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.