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Tuesday, November 20, 2007


An article on TCS on how those US States which invest public money in "development projects" as Scottish Enterprise spends £600 million a year to do here, tend to have lower growth than those which cut taxes (about a tenth of that on the recent business rate cut) or regulations & corruption (the only suggested reason why building projects like the £2.4 billion for a new Forth Bridge are 8 times what they should be).

Here's a dirty little secret about economic development: across the United States, there is a depressing correlation between the incidence of economic development programs and low levels of economic growth. That's right - statistically, the more economic development programs you have in your state, the more likely it is to be mired in sclerotic annual growth levels. Is this just chance? Maybe, but probably not.

A perfect example of this phenomenon is tiny, proudly anti-tax Delaware. A feisty little state of hardly more than 700,000 people, it wields an impressive Gross State Product of over $60 billion and grew 3.3% in 2005. Compare this with neighboring Pennsylvania, a state inundated with layers upon layers of economic development authorities (see: Pennsylvania Economic Development Association, Governor's Action Team, Team Pennsylvania Foundation, Delaware River Port Authority, et cetera and et cetera), who registered barely more than half that growth (1.7%) in the same year. And Connecticut, according to the Commonwealth Institute, has invested some $622 million in public money to business subsidies since 1991 with little in the way of results. The same study shows that the subsidized parties produced less than half of the jobs forecasted, costing taxpayers over $50,000 per job. Jobs aren't a perfect indicator of economic expansion, but it stands to reason that programs meant to create jobs that aren't have little public utility besides keeping some bureaucracy or another on the payroll. These should stand as a sobering lessons to those reactively advocating development programs without thought to providing a genuine structural environment to encourage growth.

........many cities consistently fail to leverage what mechanisms they have to promote growth and instead jealously protect existing industries and cobble together policies that more resemble scrambling for leftovers to prolong the appearance of economic health....

Many a municipal or state government's economic policies, which have often amounted to little more than papering over inherent structural and systemic inadequacies, must be retooled to accommodate, rather than supplant, private interests within their communities. Higher per-capita income will improve standards of living, not flagrant subsidy programs. Greater worker productivity will most effectively help generate revenue, not draconian tax policies. Innovation and expansion will help foster a deeper business environment, not protectionism. In order to make such economic development market driven, sustainable, and publicly beneficial, it's time to bring it off its rhetorical pedestal and reaffirm proven policies of productivity and growth.

PS Delaware being able to give the sort of example mentioned is why I think a federation is, on balance, the best sort of government - because the examples of success & failure provide proper feedback to other states - which is why I think devolution has been a good thing for Britain & that it should be continued with a fully federal Britain.

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