This story in Business Week “The High Costs of Wooing Google” shows (yet again) the inanity of incentives.
Business-development
incentives, while hardly new, are proliferating as never before, and
the dollar values are soaring. Lenoir’s courting of Google offers a
case study of how elaborate the inducement ritual can get. Today it’s
not just carmakers promising thousands of jobs apiece that are getting
rich deals. From New York to Washington State, IT, biotech, and
financial-services companies have incited frenzied bidding for their
business and the spirit-elevating buzz they bring. States and
localities bruised by globalization view these knowledge-based fields
as the foundation for economic rebuilding. Reliable current estimates
of the number of deals don’t exist, but those who study the field all
agree that the total is rising. Peter S. Fisher, a professor of urban
and regional planning at the University of Iowa, pegs the aggregate
value of incentives at about $50 billion a year.
A total waste of money. Just think what the town could have used it’s $200 million for (that’s the endowment of a good small university) or what that $50 billion total might be used for?
July 16th, 2007 at 11:33 am
When Carly Fiorina was CEO of HP, she said:
“Keep your incentives and highway interchanges. We will go where the highly skilled people are.”
Incentives may work to locate a low-skill, back office in one place versus another. But it’s hard to see incentives — rather than talent availability — being the main draw for an R&D facility. Therefore, what a waste of money as you said.
If the facility is for low-skill labor,then there is nothing other than government hand-outs keeping it around. This means the $200 million could all be for not if Google moves in 3 years.
July 16th, 2007 at 1:41 pm
This is an interesting phenomenon, and there are good and bad incentives.
This isn’t a R&D facility, it’s a hardware hotel with hundreds of stripped down computers with their CPU’s networked into a supercomputer. So it’s a big capital investment and not something they’re likely to move soon. If they did move, or fall short on some agreements, they lose the incentives.
Part of the search dominance Google is developing is computing power, they’re building these server farms around the world to have redundancy and location (users get faster response from a server within something like 500 miles of them). We think of Google as a software company, but they’ve got tons of hardware on these farms. It’s an advantage that Microsoft hasn’t got (yet) and that no other search engine company can dream of affording.
They’re also building one in The Dalles, Oregon about 100 miles up the Columbia from Portland. As in North Carolina, they’re looking for land, cheap electricity, fiber optics and water — and probably a region with lots of users. Probably also quality of life, but most of the employees won’t be creative class geeks, they’ll be working class folks keeping the hundreds of networked computers operating.
Most of the incentives are foregone taxes on the capital investment, by making the land around the facility an enterprise zone. So it’s not money that’s being spent (like bond measures to build a stadium) and arguably if the city couldn’t attract another employer for the land, they’re not losing much because they wouldn’t have gotten the taxes anyway. On the other hand, it’s only 100 jobs so not enough to save a struggling local economy by itself.
Part of the reason the Portland area has become a high tech region has been by providing these kind of tax breaks on expensive capital building for companies like Intel, H.P. etc. It really depends on the state and local government being smart, thinking long term and bargaining hard.