Idaho's Economic Development Strategy

An In-Depth Analysis

Economic Development has 3 Approaches

   -Business Attraction
   -Business Retention and Expansion
   -Business Creation – Entrepreneurism

What is Idaho's Strategy?

What is Economic Development?

Economic development is a concerted effort on the part of the responsible governing body in a city, state, or county to influence the direction of private sector investment toward opportunities that can lead to sustained economic growth. Economic Development is NOT community development. Community development is a process for making a community a better place to live and work. Economic development is purely and simply the creation of wealth in which community benefits are created. Both are important, both are related, but they’re separate.

As it relates to Economic Development, Community Development is primarily important for Business Attraction - making a location more attractive to out-of-state businesses. Effective policy and execution come from focus. Community Development needs to be a separate agency or group to avoid undue influence. Making a city, state or county a better place to work for out-of-state businesses is focusing on the wrong constituency. Community Development must focus on Idahoans' wants and needs and listen to their voice, not out-of-state corporations.

What is Idaho's Strategy?

Rather than dissect all the rhetoric and lip service given to Business Creation and Entrepreneurism - aka Small Business - let's start with the Dept of Commerce. They lead Idaho's Economic Development.

We can start with their Strategic Plan, but like a Corporation Mission Statement or About Us pages, there's a lot of high-level, non-specific, well-written content.  If you really want to know what happens between a Corporation and its Board or Shareholders, or between Employees and their Employer, look at the Performance Plan.  That is where the rubber meets the road.  IF there are no metrics for statements and elements of the Strategic plan, it is doubtful there is an execution plan in place to bring that language into fruition.  If he lofty goals in the Strategic Plan cannot be measured, how is success measured and demonstrated to the voters of Idaho?

The Dept of Commerce Performance Report is insightful.  First, do a word search on "small".  It comes up zero.  No metrics for Small Businesses.  Then do a word search on "entrepreneur".  All you will find is the IGEM program which is only for the commercialization of University research technology.  It does not address the other 98% of the untapped entrepreneurial resource we have in Idaho in the Small Business sector.  This report validates the claim made on this website that the vast majority of Economic Development in Idaho is for Corporations and Big Businesses, NOT Small Businesses. 

The best way to cut through the noise in many situations is to follow the money. If you click on the Business Incentives link toward the bottom of the Department of Commerce home page, the above question is answered.  Idaho's Economic Development strategy is focused on Big Business.  Idaho ED is about Business Attraction, Retention and Expansion.  It is NOT about Entrepreneurship and Business Creation which comes from Small Business, especially the 180,000 in Idaho that are under 19 employees (SBA data).

Idaho uses tax payor money to provide incentives to attract out-of-state corporations.  This strategy hasn't changed since 2013 and the despite the growth in Idaho and the cost of living, still gives our tax dollars to corporations who only have to promise an average salary of $40,000.  In addition to touting that Idaho is the Least Regulated State to attract Big Business to Idaho to create jobs, we also tout our low-cost labor force.  If we were serious about providing high paying jobs to Idahoans, why hasn't this average salary metric been raised after 10 years?  Why is the benchmark ONLY the average salary for the county an out-of-state corporation is moving to?  Why is it not above average so the tax payors of Idaho get a meaningful ROI on their investment in these corporations..

"Understanding the Harm Caused by ED Subsidies"

The Mercatus Center does far more than research State Regulations. They have published extensively on the Economic Development strategy deployed in Idaho. It does not work, and per their quote above, it causes harm (click on the title to view their report).  View the video for a succinct 5 min explanation from Michael D. Farren, PE, PhD from the Mercatus Center.

An estimated $95 billion is spent annually by state and local governments on economic development subsidies.  Academic research consistently shows that economic development subsidies fail to achieve their stated goals.  They do not result in broad improvements in local and state welfare, nor are they likely to sway corporations’ decisions of where to locate or expand.

Why do Tax Subsidies Fail?

According to Mercatus, the taxes or diverted funding that pays for economic development subsidies create a negative economic effect that can reduce—or even exceed—the stimulating effect of the subsidy.  The average accepted subsidy is likely to change only one out of every eight corporate location or expansion decisions. This means that almost 90 percent of subsidy spending is completely wasted, failing in its primary goal.

Subsidies disrupt the normal workings of a healthy market and cause economic waste by:

  1. protecting privileged companies from competition,
  2. enabling less efficient production, encouraging companies to make excessively risky bets, motivating investment and production decisions that are suboptimal, and
  3. inducing companies to pursue politically derived profits rather than focus on satisfying customers.

Why are Subsidies Used Given Adverse Outcomes?

According to Mercatus, development subsidies are beneficial for the policymakers who support them.

  • Academic research has shown that politicians benefit by being seen as “doing something” to improve the local economy.
  • Good intentions and the short-term goal of good optics matter more (especially with regard to reelection campaigns) than the real long-term economic effects (which are hard to accurately measure).
  • Most nonacademic studies of economic development subsidies use a “benefits-only” analysis that ignores costs (especially the economic impact of the taxes needed to fund the subsidies) creating a culture of misinformation regarding the expected effect of the subsidies.
  • The uneven distribution of benefits (which are concentrated on the subsidy recipients) and costs (which are spread out across all other taxpayers) means recipients have a strong incentive to lobby for their subsidies, whereas the many dispersed taxpayers have difficulty mounting an effective protest.
  • The pressure to offer subsidies is particularly difficult to resist when politicians in other cities and states engage in the practice, creating a prisoner’s dilemma where a policymaker feels compelled to support offering subsidies, even if doing so doesn’t seem right.

However, when taxpayers and voters are informed of the tradeoffs required by subsidies—higher taxes and reduced public services—their approval of these policies disappears.

Conclusion

ALL of the above is sourced from the Mercatus Center.  In fact, it is all compromised of their quotes.  The Mercatus Center is the same source used for the Least Regulated State claim. That title has a singular purpose - Business Attraction and Big Business Expansion and Retention.  1+1=2.  The source of Little's claim completely debunks the primary business purpose of his claim, Executive Orders, and Red Tape Reduction efforts, as long as tax payer money is used to provide subsidies every time a business moves to Idaho.

One starts to wonder what the purpose of the Least Regulated State title is.  If it is for business attraction, why are we using outdated, counterproductive tax subsidies that do harm?  Do corporations know we're not the least regulated state and perhaps harder to do businesses with due to the obfuscation of the restrictions so during negotiations Idaho is forced to offer subsidies to close the deal?  Or is the title just meant for voters as the campaign and PR talking point it has been for the past 4 years?

We look forward to hearing from our leaders on answers to these questions.