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The Folly of Corporate Relocation Incentives

The Folly of Corporate Relocation Incentives
Julie Irwin Zimmerman
7:58 AM ET

Christmas came early this year for retail giant Sears, which is weighing offers on whether to move from its suburban-Chicago headquarters. Ohio officials have put together a package of incentives worth a reported $400 million to convince Sears to move to Columbus, while Illinois lawmakers are offering at least $371 million for the company and Chicago’s financial exchanges to stay in the state.

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In these tough economic times, cities and states are more desperate than ever to attract or retain jobs, and companies are cashing in through tax breaks and other economic incentives. It’s a practice that drives a diverse array of advocates crazy, from libertarians to environmentalists to opponents of corporate welfare. Government officials say they don’t like it either, but as long as even one entity continues the practice, no one else can afford to quit.

“They persist because the states are caught in a collective action system,” says Kenneth Thomas, associate professor of political science at the University of Missouri at St. Louis. “They’d be better off if they all didn’t do it, but as individual entities they’d be better off if they made the offer and it was accepted. Everybody responds, so they’re all worse off.”

Governments offer companies nearly $50 billion a year in location incentives, designed to convince them to either stay put or move, Thomas says.

The result doesn’t create any new jobs, but merely moves existing jobs around while fostering economic war between the states.

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