Industrial investment in a community is usually welcomed by most people, and the value of having a company offering long-term jobs is obvious. However, recently in the Baton Rouge area, the practice of granting tax incentives to lure companies to locate here is in question.
So how can we, as a community, actually measure the value of economic development incentives?
The answer to this question is akin to the old saying that “beauty is in the eye of the beholder.” Some may believe that economic incentives are a thing of beauty, which result in positive forces of development that benefit all. Some may believe they are like the ugly duckling who starts out ugly, but eventually becomes a beautiful swan over time. Some believe economic development incentives are akin to sink holes, sucking resources out of a community.
If a person believes that their community, which today has relatively low population, little traffic issues or crime, and its rolling hills of farmland, rivers, and forests, is heavenly bliss and a perfect place to live, then an industrial investment means an unwelcome change.
On the other hand, another person may view the same community as one with no movie theater, only one dilapidated school that has trouble attracting talented teachers, and crumbling roads with Barney Fife at the helm of order.
That person would see industrial investment as welcome to bring new people with new ideas and resources to the area.
Of course, most communities and people fall somewhere in the middle, and most people believe that their community is nice, but also could benefit from growth, if managed properly.
Of course, the word “properly” means different things to everyone as well. That’s like the word “fair.” What is a “fair” tax to one is not to another. It might seem fair to reduce economic development incentives for businesses, but DO NOT touch the homestead exemption! Again, the perspective of each person is what makes the difference.
So what is the best way to measure an investment opportunity that takes into account a balance of diverse view points on the future direction of a community?
Surely a model exists, n’est pas? It appears, mon cher, that the models out there are rather narrow in scope—though I’m no economic developer, and maybe I’m not aware of the latest tools available. However, it seems that most development models focus mainly on the number of jobs that the investment (industrial plant) will generate for just that project against foregone taxes granted by the economic incentive.
A more holistic approach might be to consider the entire “value chain” as a possible, improved model to evaluate economic development incentives.
Below is a depiction of a traditional value chain model pioneered by Michael Porter in his 1985 book, Competitive Advantage. The context of this value chain is an entity such as a manufacturing plant; however, each area shown in the model could be applied or modified to match a community’s needs.
Communities that ask and place value on an expanded list of factors can get a better idea of the impact of a new firm to all the stakeholders that government (the entity granting incentives) must serve. And with this information communities and companies will have a more complete understanding of whether to offer or accept economic incentives.
The trick in thinking in this new way is to ensure that the model is simple enough to be understood by all and doesn’t hold up investment decisions. Another problem with existing models is that they rely on future performance of a company for the “pay out.” Markets change rapidly and, as well-meaning as a company or a community may be, things such as hurricanes, stock market crashes, major customer problems and more can wipe out a well-thought-out plan.
But perhaps finding ways to measure more accessible things can help a community steer clear of such pitfalls.
I certainly do not have all the answers, but I am putting forth these thoughts as a starting point to continue dialogue on growing the Baton Rouge region in a purposeful way.
An organization called wealthworks.org may offer some clues. Wealthworks provides guidance for economic development organizations on how to choose whom to offer incentives to. For example, they ask about what is in demand given the area being operated in. For us, that would be natural resources such as oil, natural gas and the river.
From there they recommend expanding offerings and connections in the economy based on local supply strengths. For example, if there is a market demand for strawberries, then seek ways to connect local jam makers or a school or hospital who may want to buy from a local grower. The model also helps us to think in more dimensions, including sustainability, the environment, and area problems such as crime and unemployment. Of course this is just one example; I’m sure there are more.
GBRIA’s tag line for 13 years now has been “Adding Value to Your Community.” The members who developed that idea did it in a purposeful way, and local industry truly is adding value. So what’s in it for you? A job, a church, a school, a hospital, a neighbor, a friend, a mate, a baseball team, a grocery store. Improved roads, entertainment venues, and hotels come with plants.
Some noise, smells, traffic, and the railroad do come with industrial plants (and other industries), and there is an environmental impact that our government and community decide to permit.
We also get stores full of great cleaners, lotions, fresh foods, the latest medicines, comfortable cars and so much more. Let’s keep and grow industry and our community by working together for lasting solutions.
Connie Fabré is the executive director of the Greater Baton Rouge Industry Alliance Inc.
