This destructive race-to-the-bottom has been going on for quite some time. For more than a century, public-private partnerships dedicated to securing investment have been carefully crafting the handouts that cities and states offer companies to lure them to the area.
Before the Great Depression, Southern and Western small-business owners and professionals, known as “boosters,” convinced governments to offer attractive packages to manufacturing companies. They considered such investments a welcome source of employment and income in these largely rural, generally poor states. Many Northeasterners and Midwesterners derided these efforts as “buying payroll,” since these ad hoc campaigns promised no unions, low taxes, few regulations and cheap land.
These desperate bids morphed into systematic efforts to recruit industry during the collapse of the farming, ranching and mining sectors in the 1930s. Mississippians went a step further than most when Governor Hugh White dedicated the state government to “Balance Agriculture with Industry” (BAWI). That revolutionary 1936 program created a whole new executive bureaucracy dedicated to harnessing state resources to entice Steel Belt investors with heavily-subsidized factories, tax advantages and union-free factory floors.
Many Mississippians, noted economists and federal officials, worried that BAWI might undercut New Deal efforts to raise wages, regulate businesses and stabilize the economy. They doubted businesses would come and feared Mississippians would not gain nearly as much as they gave away. Initially, the evidence seemed to confirm these fears: By 1940, eight deals had fallen through in final arrangements and only seven ventures, mostly low-paying textile factories, had opened.
Despite Mississippi’s struggles, the spirit of the BAWI prevailed regionally. By the end of World War II, many Americans feared another Depression. Southern and Western boosters promised their neighbors prosperity — if policymakers cut business taxes, reduced regulations and restricted unions.
Assuring jobs convinced voters to reduce business taxes, repeal workplace rules, pass right-to-work laws and even elect boosters, like former department store magnate and U.S. Sen. Barry Goldwater, who first developed his leadership skills in Phoenix’s tiny Chamber of Commerce, which undertook one of the most sophisticated efforts to recruit investment.
Goldwater and his compatriots had a lot of competition in what journalists called “The Second War Between the States.” Across the South and West, local business organizations fought for corporate investment with the same anti-union, anti-tax, anti-regulation promises.
Northeasterners and Midwesterners, who had once scoffed at these efforts, began to fear the steady disappearance of jobs, production lines and even whole factories. By the early 1950s, they added trimming business taxes and regulations to their industrial recruitment arsenal. But Steel Belt policymakers struggled to repeal the worker rights that Midwesterners and Northeasterners cherished for empowering blue-collar workers to bargain for the benefits that gave them middle-class livelihoods.
By the mid-1950s, the derisive moniker of “buying payroll” had died out, replaced by widespread praise for creating good “business climates.” As the nationwide competition to lure businesses escalated, executives demanded much more than the usual array of low taxes, few unions and less regulation. By the late 1950s, cities everywhere had to offer cheap utilities, good transportation options and excellent schools, which investors needed for research, development and workforce training.
The long-term effects of this prolonged warfare are still visible. Poaching corporations turned backwater Southern and Western states into the booming Sun Belt by the 1970s, but at a price for everyday Americans.
Citizens, of course, used the roads, utilities and schools promised to executives. But this infrastructure was built with outside investors, not locals, in mind. As a result, residents have been left with transportation options, waterlines and degree programs tailored to companies that have often closed or moved on to another desperate city.
And citizens footed a disproportionate amount of the bills to pay for these business climates. Across the country, individual property and sales taxes climbed throughout the 1940s, 1950s and 1960s to offset the corporate tax reductions foundational to the increasingly ubiquitous business climate.
Taxpayers never received a guaranteed return on this investment. Manufacturers had already begun shifting production overseas after World War II and long embraced automation as a way to cut labor costs.
Now many American cities and states, including in the South and West, struggle to hold on to investment and attract more through the same tried-and-true handouts, as well as the more outlandish promises recently made to Amazon.
Yet the HQ2 bidding frenzy included signs that Americans may finally be battle-weary.
Journalists openly mocked crazy proposals, economists emphasized that giveaways may not yield long-term gains and big-city mayors openly declined to compete or publicly refused to promise excessive tax benefits to put their constituents, not corporations, first.
There’s even evidence that companies may now come to cities who invest in their citizens, not outside investors. Mayor Bill de Blasio, for example, made headlines when he refused to simply buy the payroll from the potential 50,000 new Amazon jobs. “We win it based on the talent of our workers and the incredible diversity of industries in this town,” he predicted back in October. “Those are the strengths you can’t buy with tax breaks.”
He may very well be proved right: New York is one of the finalists.