On Tuesday, the Charles Koch Institute and The James Madison Institute gathered a panel of experts to discuss one of the most important questions facing state and federal policymakers today: What role should the government play in fostering economic competition and growth?
In Florida, which leads the country along with Texas in job creation and wage growth, legislators recently faced this question head on. Doubts about the fairness and efficacy of the Florida Enterprise Fund, an economic development agency created in 2011 to spur economic growth in part through targeted incentives to certain companies and industries, compelled lawmakers to reconsider the role of government in encouraging economic growth. In March, the legislature denied Governor Rick Scott’s 2016 budget request of $250 million for the Enterprise Fund. In 2015, the fund received $43 million in funding.
With this development still fresh in the minds of many Floridians, panelists discussed what the primary focus of policymakers ought to be: ensuring an open, level playing field for businesses or attempting to spur economic growth through targeted tax incentives, subsidies, and regulatory preferences (a practice often referred to as corporate welfare or government-granted privilege).
Bob McClure, president of The James Madison Institute, provided an introduction to the discussion by outlining Florida’s economic climate and the policy landscape at the state and national level. Moderator Alison Fraser, managing director of policy and research at the Charles Koch Institute, then kicked off the panel by posing a simple question: “What does ideal economic policy look like?”
— Charles Koch Inst. (@CKinstitute) May 25, 2016
Sal Nuzzo, vice president of policy and director of the Center for Economic Prosperity at The James Madison Institute, praised recent developments as a “paradigm shift” and “sea change” in Florida policy. Nuzzo emphasized that government intrusion typically walks hand-in-hand with market inefficiency: “The best policy is the one most limited in government intruding in the efficiency generated from the market,” Nuzzo said. “Enforcing rules about minimum wage and overtime only distort what the market has come to on its own.” As Nuzzo succinctly explained, economic competition is strengthened “when the government is as limited as it can be.”
— Bob McClure (@DrBobMcClure) May 25, 2016
Shawn Kantor, the L. Charles Hilton Jr. Distinguished Professor of Economic Prosperity and Individual Opportunity at Florida State University, agreed with Nuzzo’s point about government intrusion. Economic research, Kantor noted, has shown there is no “secret sauce” to economic growth and that programs targeted at incentivizing growth in specific industries fail to make a lasting positive impact.
Jesse Panuccio, the former executive director of Enterprise Florida, agreed that lower taxes and regulation are necessary conditions for economic competition and growth. However, as the former head of the agency responsible for awarding tax incentives in Florida, Panuccio offered a diverging view from the other panelists on the role of government in providing advantages to certain companies and industries.
According to Panuccio, the government ought to practice “smart spending” on infrastructure and education policy in order to ensure a better workforce. Panuccio also noted that any tax policy that doesn’t impose a single rate on all companies and organizations (including non-profits, which are tax-exempt) is preferential to some extent: “Once you impose taxes on anyone, as soon as you create an exemption from that tax policy or anything else, you are favoring one group and disfavoring another.”
Bill Peacock, vice president of research and director of the Center for Economic Freedom at the Texas Public Policy Foundation, offered two competing visions for how to grow the economy: Confiscate from those who generate wealth and distribute to those who don’t, or allow those who productively generate wealth to keep it and spend it as they wish. The latter, Peacock called the American Dream; the former, he compared to mercantilism and the Pax Romana. Along these lines, Peacock disagreed with Panuccio’s assessment of tax incentives: “By definition, by design, they are inefficient. They’re taking money from somebody who is really good at making money, because they pay taxes, and they’re giving it to somebody who is not as good at making money, and the government takes its cut in the process.”
— Charles Koch Inst. (@CKinstitute) May 24, 2016
Kantor also pointed out that economic development incentives aren’t actually responsible for job creation, but merely for the shifting of jobs from state to state—a policy he referred to as a “zero sum game.” “If a Texas company comes here, it’s not the company moving. … We’re eating their lunch right now, but they could be eating our lunch down the road,” he said. Additionally, Kantor pointed to research indicating that most companies, when deciding where to relocate, focus far more on a state’s overall tax policy, regulatory framework, and workforce quality, with incentives ranking near the bottom of the list.
The prevalence of corporate welfare allows companies to prosper through government-granted privileges such as tax incentives, regulatory preferences, and subsidies, rather than through providing value to customers and society. To further an understanding of the impact and prevalence of cronyism, the Charles Koch Foundation invites proposals for research.