Gullible's Travels Bredesen Swallows Dell Whole; Should We? This is not about Dell. The Dell Computer Corporation appears not to be a sinister firm ruthlessly exploiting resources (physical, natural, or human) in the naked pursuit of greed and profit. It has a reasonably pleasing corporate personality, a decent reputation for community investment and involvement, and generally favorable ratings for its workplace practices in such areas as diversity, labor relations, and environmentalism. For a city doling out hefty economic incentives, the social character of a corporation is relevant – at a minimum, we ought to avoid firms that are unlikely to add social and moral, as well as economic, value to the community. When Nashville gave the keys to the treasury to Columbia/HCA in 1995, The Tennessean editorialized that we had landed "a cutting edge corporation" providing "innovation and leadership to the industry." Cooler heads could see in the company’s rapacious modus operandi a fiasco of corporate responsibility waiting to happen. Dell appears considerably less likely to rain embarrassment on the city as an FBI corporate-crime poster child. But if the scent of Dell has a more enticing whiff than, say, Columbia/HCA, the core civic mischief of fiscal groveling for business relocation is just as misguided. The Dell deal is multifaceted and complex, involving free land, tax breaks, infrastructure improvements, training grants and other inducements. Phil Bredesen’s preferred rhetorical strategy is to assert that the benefits outweigh the costs while offering no persuasive calculation that yields this conclusion, and no calculation of any substance that similar incentive deals in past years (most notably Columbia/HCA and Gaylord) have yielded promised benefits. What Phil Bredesen, Don Sundquist, and their kindred Dellophiles aren’t telling you is that the obsessive pursuit of business relocation through competitive economic incentives is an increasingly discredited vehicle for the fiscal management of cities and states. Academic and foundation-sponsored research on development incentives point to the folly of reckless public incentives for relocating corporations. Some quick examples: Incentive programs like the Dell deal are highly suspect in low-unemployment areas like Nashville, where the social benefits of new jobs created are likely to be misrepresented. Thousands of new jobs at Dell will either shift the existing labor force around, which means that the economic ripple effects of job creation at Dell are overstated, or else attract large numbers of new workers, which means the cost impact on public services is understated. Incentives generally mean that existing businesses subsidize new business, with money for other services (schools, roads, etc.) coming from somewhere else. Yet the evidence suggests that businesses are more likely to base location decisions on such factors as the labor force, the quality of public services (schools, infrastructure, other public services) than on tax incentives.   Large new branch plants like Dell’s are sexy and attract attention, but incentives would provide greater benefits at lower cost were they targeted toward firms that hire the local unemployed and disadvantaged rather than extract employment from other existing firms. Enlightened cities require firms receiving incentives to adopt specific social or economic practices such as wage floors, targeted hiring, plant closing provisions, and the like. Bredesen extracted no such commitments from Dell.   The underlying system of competition among state and local governments using economic incentives and subsidies – the Dell-baiting system embraced by Bredesen – is based on flawed assumptions that states and cities are engaged in zero-sum competition leading to market-driven economic efficiency. Economists have demonstrated that this competition encourages government leaders to use incentives in ways that are politically expedient rather than economically efficient. The result, all too frequently, is subsidies for large employers and land developers at the expense of public services provided to small business and low-income residents. In response to these concerns, a growing number of municipalities (but not Nashville, of course) are building accountability into their incentive deals – writing what are sometimes called "clawback" provisions that force firms to repay subsidies if they underperform or otherwise fail to deliver on their investment promises. More broadly, policy analysts at the Washington-based Center for Enterprise Development argue that local governments offering incentives should adhere to a range of accountability and disclosure provisions, including full public disclosure of costs, standardized approaches for calculating job creation expenses, regular reviews to assess the impact of tax incentives, and the setting of return-on-investment targets to which the continuance of incentives is linked. Other than a couple of very soft contingencies keyed to the number of people employed at Dell five and ten years down the road, Bredesen’s sweetheart Dell deal meets none of these accountability and disclosure tests. Does all this mean the Dell deal is lousy? Economically it is hardly the slam dunk advocates claim it to be – assumptions seem overly optimistic and the full range of costs is not yet clear. But even if you buy the numbers, this is execrable public policy making – a capstone achievement in Phil Bredesen’s reign of corporate appeasement. The "world class" cities he so envies have figured out that urban quality of life drives value-added economic investment. Create a city where people want to be and you won’t need to bribe ‘em to move there.

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