EcoDevo vs. Deregulation: Close to a Free Lunch

March 3, 2008

Indiana Writers Group column for release March 5 and thereafter (450 words)b

by Cecil Bohanon, Ph.D.

There's no free lunch but deregulation is as close as you get.

In 2006, Indiana ended local regulation of video franchise services. Since that time telecommunications companies have hired or stated an intention to hire around 2,000 additional workers in Indiana. Those same companies have made just over a half a billion of new investment in the state since 2006.

Around the same time, after much courting and a well-tailored state and local economic-development package, Honda motor company announced it will open a new $500-million auto assembly plant in Indiana projected to employ around 2,000 workers.

The above mentioned figures do not include any spin-off effects of either the Honda plant (think of the small machine shops that make auto parts) or the telecommunications investments (think of small business start-ups facilitated by fast affordable wireless Internet connections).All this is good news for the Indiana economy. Nevertheless, economists have the temerity to ask the following question: What did all this cost taxpayers? And did one success cost more than the other?

Although boosters often imply that job creation is akin to the divine act described in the book of Genesis (”Let there be light), economists know better. When new digital services are offered in a community or a new manufacturing facility is opened, new and better job opportunities displace less-advantageous job opportunities. Workers wiring up communities with broadband are workers no longer picking apples: investment dollars spent on digital routers are dollars no longer being spent expanding apple orchards.

Of course, we have every reason to believe both that the workers are better off in their new occupations and that the consumers are better off through the newly available products. This is precisely because it is a voluntary, undistorted market process that orchestrates such a rearranging of scarce resources to higher valued uses.

And again, what cost did government impose on the process?

Getting the Honda plant entailed the state and local governments giving a lot of incentives such as training grants, tax abatements and state-financed infrastructure. This is not to automatically condemn the Honda plant; perhaps the incentives were worth it and on net Indiana is ahead. Nevertheless, it is clear that taxpayers chipped in for the economic development.

The story is different for the telecommunication investment. True, governments did provide some treasury-draining incentives for some of it. It is fair to say, however, that for much of the digital investment all government did was streamline the regulatory process and then get itself out of the way.

In an increasingly competitive economy it is reassuring to know that Indiana economic development need not rely exclusively on taxpayer-funded lures. Ending barriers to profitability through reasonable deregulation and streamlining can yield a big payoff, too
.
Cecil E. Bohanon, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is an economics professor at Ball State University and a member of the university’s Digital Policy Institute. An earlier version of this essay was published by the institute and distributed by the university. Contact Dr. Bohanon at cbohanon@inpolicy.org.



Comments...

Leave a Reply

Your email address will not be published. Required fields are marked *