Make New Friends, But Keep the Old

By October 12, 2017Blog

By Tim Shea

Special Contributor


When I was a wee lad, perhaps ten or so, I overheard a memorable conversation between my parents. They were discussing their long-distance phone plan, because such things actually mattered back in the day. Basically, their current provider was offering ridiculously generous service packages in an attempt to lure new customers. When my parents approached them about getting a discount on their existing plan, however, they were met with a flat and resounding “no.” Their answer to this intransigence? Simple: find a new provider.

There’s a powerful if indirect economic development lesson to be found somewhere in this anecdote, and it’s not just that I’m a peculiar cat with oddly specific childhood memories. No, the real moral of the story is that attracting new businesses is great, but if it comes at the expense of those companies that already call your community home, then you’re doing something wrong. To put it another way, the incentives packages offered to current businesses should be as generous—if not more so—as those offered to new prospects.

Bluntly speaking, this should be the case for no other reason than it’s the right thing to do. Economic development organizations (as well all other government and pseudo-government entities) should exist to serve their communities, not the other way around. Yes, attracting new businesses expands the tax base and thus helps the community as a whole. But are not the existing businesses also a part of that same community?

Of course they are, and an important one at that; they’re the foundation upon which economic success is built. Therefore asking them to foot the bill of lucrative incentives for new businesses, sometimes forcing them to effectively subsidize their competition, makes no sense. It’s mistaking the letter of economic development mandates—broadening the tax base—for the spirit of said mandates, i.e. fostering comprehensive and sustainable economic growth that increases quality of life across the entire community.

Beyond this implicit moral rationale, there are also strong practical arguments as to why ignoring current businesses when crafting incentives packages is a bad idea. First, these businesses are proven economic development engines. They already have an established footprint and vested interest in the community. Because of this, incentives that support the growth and expansion of these businesses are among the safest investments that EDOs can make.

Then there’s the fact slighted businesses can always vote with their feet. Going back to my parents’ long-distance plan, their provider’s unwillingness to offer any kind of discount turned out to be a really bad business model because they had competitors who were willing to offer a better deal. The same is true for business owners. As we’ve noted previously, business poaching is a serious threat to broad-spectrum economic growth. Regional economic development alliances are one way to mitigate this threat. Giving businesses no reason to look elsewhere in the first place is an even better one.

And that feeds nicely into a broader point that needs to be made: incentives are fine, but they’re just a tool, a vehicle to bring your community towards a desired end-state. What is that end-state? A business-friendly environment that fosters economic progress for both millionaire business owners and low-income workers alike. This doesn’t just mean lower taxes. It means robust workforce development programs. It means streamlined permitting processes and common-sense zoning laws that serve as a compliment to economic development, not a roadblock. It means being receptive to criticism, and proactive in bringing about effective change, so that businesses feel EDOs are responsive to their needs. It means fostering a quality of place that facilitates attracting and retaining top talent.

The bottom line is that, if EDOs can effectively shape these and the myriad other issues that affect businesses climate, incentives become redundant. Companies will want to relocate or expand into your community not because they get a sweet tax rebate, but because it’s a place where they know they can succeed. Likewise, if current businesses know they’re being taking care of across the full spectrum of their concerns, they’re a lot less likely to be wooed by free nights and weekends poachers’ incentives. 

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