Business incentives: More harm than good?

The town of Pullman, Wash., got its name in a failed scheme to recruit a job-creating business. The town was originally named "Three Forks" after the local rivers. But city fathers switched it in the 1880s to "Pullman," hoping to lure George M. Pullman's new railcar manufacturing plant to town. Instead the plant was located in Pullman, Ill. - once known as the "world's most perfect town."

The Washington Pullman got Washington State University, and the better future. When was the last time you rode in a Pullman car?

So, today, how do you create economic growth in a community?

It is a myth that high-tech manufacturing firms were attracted to the Northwest in the 1990s by protected forests and recreational opportunities. It may be easier to recruit employees with nice scenery out the office window, but microchip makers were attracted to the Northwest by cheap power and water - and tax breaks totaling tens of millions of dollars.

We now find that companies that can locate anywhere in the world, can also move someplace else. These days manufacturers like China.

Oregon's Lane County was held up as a shining example of high-tech jobs created in the wake of the timber industry decline. Last month, Sony closed its plant there, joining other shuttered high-tech buildings in the county.

Sony was not a start-up in need of financial aid. Yet government agencies gave Sony $8 million in tax credits, incentives, and other help to locate there. Sony got a reduced price on the land and the government also waived $4 million in property taxes. Others got even more.

Recruiters argue that Sony's loss is a reason to pursue other multinational companies more aggressively.

"Just because you land a business doesn't mean they'll be here long-term, so we have to constantly be looking for new jobs," said Jack Roberts, executive director of the local economic development group that courted Sony and others.

But shouldn't communities focus on creating businesses that will be here long term, so they don't have to be constantly looking for new jobs.?

"The best recruiting strategy for a municipality or a state ... is to do well what they're supposed to do well, namely pay attention to roads, sewer systems, schools, and parks," says Ed Whitelaw, a University of Oregon economics professor. "If you don't do those right, then no amount of recruitment strategy will keep these firms here and viable over time."

Oregon and Washington are losing business because they didn't take care of those things.

How could states that saw such an influx of wealth during the 1990s have so little to show for it now that the boom is gone? The answer is simple: During the boom, these states cut taxes and didn't invest in the future.

Microsoft CEO Steve Ballmer says Washington State needs to invest in education. Only 8 percent of Microsoft's workers were educated here. Washington ranks 46th out of 50 states in residents enrolled in college courses. The vaunted high-tech economy relies on imported workers from other states and overseas - an unsustainable proposition.

Sadly, Washington State University is facing cuts.

"Demand has never been higher," WSU's president Lane Rawlins said. "But the truth is, we in Pullman are trying to figure out how to cut programs."

Yet the tax cutting goes on.

Washington State lawmakers extended high-tech and biotech tax exemptions for 10 years more last week. Exemptions for those industries have totaled $508 million since 1995. Meanwhile, lawmakers are cutting education and human services to close a $2.65 billion budget gap.

Lawmakers approve such tax exemptions out of fear. While there is widespread belief that such tax incentives create jobs, "there is virtually no evidence that that is the case," explains David Brunori, who teaches tax law at George Washington University in Washington, D.C.

One of the few studies available found high-tech tax breaks cost Washington State $588,000 in revenue for each state resident hired.

The businesses that will stay in the Northwest - that won't leave when some other state or country makes a more lucrative offer - have roots in the community and ties to the land and people. Microsoft is in Washington because its founders grew up here, not because of the $117 million in sales-tax exemptions it applied for.

Oregon and Washington won't be successful recruiting - or keeping - jobs if they can't keep their schools open, create an educated workforce, provide basic services, or maintain their roads.

Even if the environment is preserved, if these other things aren't taken care of, jobs may visit, but they won't stay.

• Ed Hunt is the editor in chief of the Tidepool.org news service.