Paying a business to set up shop in your town

[member 5645]

Paying a business to set up shop in your town...

Not quite WORLD, but a story anyways...

Locally,two cities in the area are paying Delta and Target Corporation $750,000 and $975,000, respectively, to set up businesses here.

Why you say?

Both companies label the area as a risky place of business for their model (population, income, tort problems, etc.) The money isures that the companies aren't all lost for setting up shop if it fails.

NOW, my question is why do the mayors in those two cities think they know more about these two companies chances of success in this area, than the companies themselves (who spend millions doing demographics studies)? Would you support this move?
Wouldn't it be better to put that money into other things, and inact laws that foster a better business climate? Rather than a pseudo bribe to get them here?

 

[selfAdjoint]

I agree. Yet this is a common strategy. Related is the tax incentive, agreements to forego civic taxes on companies that locate in the town for a number of years. Just anecdotal, but the town I used to live in did that, and I don't think they've seen any plus for it. They had companies build a bunch of buildings under the plan, in hopes of creating a "vibrant down town" in our basically bedroom community, and it's pretty much come down to a failure.

 

[Njorl]

Communities are guided by different principles than corporations. If a location is unprofitable, the corporation can just dismiss it. If this community were run like a corporation, the mayor would likely tell the citizens, "This venture is unprofitable. We are selling off all of the assets and dissolving before we lose any more money." That isn't really an option.

These bribes are only sensible if economic conditions warrant them. They are useful if a community is on the edge; if the relocation of one or two big businesses attracts others in. I can understand Delta, but the Target confuses me. A retail outfit is not going to attract other big businesses. If it is Target's corporate headquarters, or some sort of regional depot that would be different. Ideally, you want an industry that does not depend on local people buying from it. This way, the company puts its wages into the local economy, but does not need to sell products to the people.

On the whole, even when these bribes are good for a community, they are bad for the people as a whole. They don't create new business, they just make it profitable to pull business from one locality and put it in another.

Njorl

 

[Zero]

Good point, Njorl. For instance, the FedEx hub that is planned in NC is good sense, because it creates new jobs without taking away from local business. Putting in a Target isn't going to do much except spread jobs and consumer dollars between the Target and other local businesses, creating little overall growth.