Backgrounder: Indiana after Brexit

June 28, 2016

by Craig Ladwig

“While Europeans are accustomed to being ruled by presumed betters whom they distrust, the American people’s realization of being ruled like Europeans would shock this country into well nigh revolutionary attitudes.” — Angelo Codevilla, “America’s Ruling Class — And the Perils of Revolution” in the July 16, 2010, American Spectator.

THE EDITORS of the Indianapolis Star have asked readers to help them answer the question: “What does the United Kingdom’s decision to leave the European Union mean for Indiana?” They will want to brace themselves. The answer may get personal.

For the public discussion has shifted away from the Star on economic development, a favorite topic in the Indianapolis salons. After almost a decade of stagnation, Hoosiers are less inclined to trust the elite-minded sitting in the Star’s board room or across town in the executive offices of the state Chamber of Commerce.

“It’s reached a point now where people not in these august, small groups are not going to take being ignored and impugned and laughed at and used and lied to anymore,” Rush Limbaugh commented yesterday. “It really isn’t any more complicated than that.”

You can expect the crony-capitalist impulse to be curbed in the legislatures and the councils. Indeed, a Fort Wayne city councilman this week wondered aloud why we don’t just ditch economic development altogether and repeal the business personal property tax.

Jason Arp, a financial analyst, said his city abates about $6 billion each year. It spends another $2.5 million on economic-development corporations and an economic-development department, whose primary tool is tax abatement, and gives out grants and other economic development money equaling more than $10 million a year. By comparison, it collects only $17 million a year in business personal property taxes.

A few days ago, the Indiana Economic Development Association released its study on Tax Increment Financing (TIF). It was meant to be a favorable report. It found, however, something discomforting. The authors’ example of a typical TIF district can be read to show that $200 million in TIF-related investment creates 180 jobs. That’s $1.1 million of investment per job.

Another downside of the crony impulse is that local economic-development plans, as costly as they may be, don’t develop the economy. The Ball State University’s Center for Business and Economic Research finds that accidental movement of the more attractive companies would account for a good part of eco-devo “success.”

“It is likely that less than 1 percent of all jobs are potentially ‘attractable’ to a region,” economist Michael Hicks said, “and fewer than 100 factories of 500-plus workers open in the U.S. in any given year. At that rate, random distribution of factories will happen in each county every 35 years.”

Hicks noted that Indiana over the last six years gave out $2.2 billion in state incentives to attract 50,600 jobs. That is $43,700 per position in a state where the average income is $38,812 per person and existing firms created 84 percent of new jobs between 1995 and 2013.

Finally, in this new economic discussion, the Star editors will need to know that the purpose of the economy is not to grease officialdom. Rather, since Magna Carta at least, it is the opposite.

Some years ago, a powerful member of the state Senate argued against a tax reform meant to attract more businesses to Indiana. He liked the general idea, of course, but said there was no guarantee that the lost revenue could be recouped.

In other words, a self-described Indiana conservative leader, speaking from the secure platform of a GOP super-majority, begins the discussion — begins it — by holding the position that government budgets are sacred but jobs for constituents are only negotiable.

This spring, that same senator got a scare in the primary election. That was so despite outspending an unknown, late-filing opponent more than 20 to one. The editors might want to put their question to him.

Craig Ladwig is editor of the quarterly Indiana Policy Review.



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