The Outstater
More ‘Press-Release’ Eco-Devo
HOW DID INDIANA and its largest cities come to believe that prosperity could be achieved by simply leveraging government money to bribe investors? They call it economic development (eco-devo) but no economist we respect recommends it. They say it defies the laws of economics. Investigative journalists now suspect malfeasance if not fraud. So what happened?
Here is the morning coffee club’s explanation: Former governor Mitch Daniels, who set eco-devo in motion, was clever enough to know that it was a limited morale booster for a state economy falling behind its competition — “press-release economics,” our Tad DeHavens called it.
Successive Republican administrations, not so clever, took it seriously. They adopted it not as a public relations stunt but as their economic strategy. The problem is it is a 400-year-old strategy, “mercantilism” being all the rage when Shakespeare was writing sonnets. It contends that governments can manipulate money and regulatory favors to gain advantage over competing states. It has never worked.
As practiced today by the Indiana Economic Development Commission (IEDC) and related municipal and regional agencies, it offers tax relief and other subsidies without true market tests to politically selected business ventures.
Gov. Eric Holcomb boasted in his State of the State this year that the IEDC had attracted a “jaw-dropping” $28.7 billion worth of new investment.
From the start, questions have bedeviled these claims: 1) If such enticements are good for certain companies, why not offer them to all companies, including those already within the taxing district; 2) how many of the investments counted as IEDC “successes” would have been made in any case; and 3) is it government’s business to dedicate tax dollars in ways that compete with existing businesses?
Over the last decade, the Indiana Policy Review has asked those questions repeatedly, publishing dozens of articles by credentialed authors warning of the consequences. Some of those articles are listed at the end of this essay.
Now a team of investigative journalists from Fox59/CBS4 and State Affairs is taking a close look at the governor’s numbers. Despite his political claims of new investment, it turns out we can’t determine whether or not the strategy is effective. Indeed, it looks like Indiana is getting played.
The journalists, Kaitlin Lange and Steve Brown, believe that as much as half of the projects touted by the governor’s office could have failed to meet investment targets. The reporters weren’t able to say for certain because the IEDC routinely stops publicly tracking projects before the companies meet or miss their goals.
“Almost all of that information is hidden by government leaders from Hoosier taxpayers in the accountability and scrutiny of those dollars,” Rep. Greg Porter told Fox59. “It is truly troubling that we hear of those commitment numbers, but we don’t see the real results.”
Lange and Brown explained that secrecy is employed in the name of protecting the business interests and trade secrets of the companies that receive public subsidies. “A consequence is that it’s often impossible to confirm how many companies are meeting their obligations,” the journalist concluded. “The same people who brag about job creation are the ones tasked with oversight.”
What could go wrong? — tcl
From our archive:
“The Governor’s ‘Press Release’ Economics.” Tad DeHaven. The Indiana Policy Review, March 25, 2010.
“Indiana Eco-Devo: Progress With Transparency.” David Penticuff. The Indiana Policy Review, Dec. 30, 2012.
“Keeping the Crony Out of Capitalism. Craig Ladwig.”The Indiana Policy Review, Sept. 28, 2014.
“The Folly of Tax Abatements.” Barry Keating. The Indiana Policy Review, Dec. 7, 2015.
“Better Angels: An Eco-Devo Alternative.” Jason Arp. The Indiana Policy Review, Fall 2017.
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