Op Ed: Limited government is the best incentive for prosperity
Image attached is Rep. Destin Hall, Sen. Phil Berger, and NC GOP Chairman Jason Simmons hold press conference the day after the election. Image by Brianna Kraemer for CJ.
by Jeff Moore
Two weeks ago, the NC Department of Commerce released a report highlighting our state’s dramatic reduction in poverty rates over the decade spanning 2013-2023, registering one of the steepest declines in poverty across the country. It’s powerful news, indicating something profoundly positive about the economic landscape in the Tar Heel State.
There are, of course, a number of things one can point to as contributing to such a marked improvement in the poorest North Carolinians’ financial fortunes during this period: business-friendly reforms to spur job growth, flattening and lowering the tax burden on all North Carolinians, slashing red tape for job-creators, or a robust university and community college system empowering a capable workforce, among other factors.
One thing you’d be hard pressed to credit with reducing poverty in North Carolina? Targeted economic incentives, aka corporate welfare.
overpromise, underdeliver
North Carolina has been offering targeted incentives of one form or another since the 1990s. The “wins” have made for plenty of ribbon-cutting ceremonies and headlines, but the actual economic impact is diluted by companies that fail to meet targets or leave the state after the incentive period ends.
And more often than not, these targeted incentives fail to deliver on job creation as advertised. For example, the Job Development Investment Grant (JDIG) program has a history of overpromising and underdelivering: A 2022 report from the NC Department of Commerce showed that only 60% of JDIG projects since 2002 met their job creation targets, meaning taxpayer money often subsidizes unmet expectations.
The numbers are worse if you extend the timeline. From the program’s first award in 2003 to June 30, 2024, according to a 2024 NC Commerce report, 426 JDIG awards have been announced totaling $4.8 billion. Of those, only 173 grants awarded since 2003 are still active, but that’s not because the others all simply ran their job-creating course. Far from it: 187 grants have been terminated, 96 of them after some funds were disbursed and another 91 before any funds were disbursed. Sixteen have been withdrawn by the recipients before disbursements were even scheduled.
Only 50, less than a fifth, have satisfied their grant terms and closed with funds disbursed.
Despite this, each new JDIG award is announced enthusiastically, and elected leaders have made a public showing of using such incentives in luring companies like VinFast, Toyota, or Apple to the state with huge price-tags.
Aside from the political boosts from the ribbon-cutting, the general practice of targeted incentives mirrors central planning — a concept Friedrich Hayek critiques in “The Fatal Conceit.” Hayek argues that central planning fails because governments lack the “dispersed knowledge” of individuals and markets to make efficient decisions, leading to a misallocation of resources. Just think of expensive government-sponsored economic development failures like the Global TransPark for context.
Programs like the Economic Development Fund give large corporations tax breaks or grants, while smaller businesses — often the backbone of local economies — receive no such support. Such overreach causes an uneven playing field, stifling competition and innovation.
Based on the numbers, the allure for such policymakers can’t possibly be based on a record of success, or even the mere hope of success in such programs bringing overall prosperity to the state.
More explicitly, experts, such as Brent Lane, have repeatedly offered such insights to policymakers. A professor of Heritage Economics at the University of North Carolina at Chapel Hill, where he served as director of the Center for Competitive Economies (2007-2017) at the Kenan-Flagler Business School, Lane has for years asserted the relative inefficacy of targeted tax credits and incentives, and had the data to back it up.
I witnessed one of these presentations over a decade ago, in 2013, entitled “Economic Incentives: Costs and Benefits for North Carolina” (co-authored by Lane).
The insights were presented to the NC General Assembly’s Joint Economic Development Committee, in which Lane asserted the state’s focus on incentives often overlooked broader, more effective reforms such as broad tax reductions and investments in education and infrastructure. While many feel incentives are a “must-have” “arrow in our quiver” that North Carolina could not afford to forgo — always citing competition with other states offering their own incentives — Lane’s analysis showed that incentives fall pretty far down on the list of what companies consider when evaluating a state for investment.
Topping the priority list were workforce, infrastructure, tax and regulatory considerations. Playing the targeted incentives game was nothing more than a race to the bottom. Instead of pursuing short-term political wins to earn positive media mentions, lawmakers would be better off pursuing broad tax reforms and ensuring more opportunities for workforce development to bring widespread prosperity to North Carolina.
limited government, unlimited opportunity
Fast-forward a decade and we see lawmakers elected a “both/and” approach, pursuing transformational reforms of income taxes and regulatory burdens, while also pushing for more JDIG and alternative “closing funds” to close economic development deals.
The former has resulted in a growing economy that has consistently ranked tops in the nation for business; the latter has little more to its name than cut ribbons and broken promises.
The reforms of the 2010s really set up tighter statutory limits on the government, allowing for fuller realizations of open-ended economic opportunity. A level playing field with lower taxes and simpler regulations benefits all businesses, especially those small and medium-sized enterprises responsible for such a huge portion of our jobs and economic activity. Small businesses accounted for 44% of private-sector jobs in North Carolina in 2022, per the US Small Business Administration.
Moreover, companies are more likely to invest in our state for the long term — and homegrown businesses and workers more likely to thrive — if the state offers a stable, low-tax environment rather than temporary incentives that play favorites with our tax dollars.
Yes, other states do it; but we already have incredible (and more powerful) competitive advantages to leverage. Our skilled workforce is a massive attractor, thanks to universities like UNC, NC State, and others; a growing tech sector acts like a magnet for the build out of tech business ecosystem; and, a relatively low cost of living within one of the nation’s most beautiful states elevates our quality of life.
We didn’t cut poverty in North Carolina by nearly a third since 2013 with JDIG grants; we did it with a concerted pivot towards limited government. To continue our growth, we should acknowledge and reinforce economic liberty as the best incentive for prosperity and stop pretending corporate welfare is a good thing.
Jeff Moore is Carolina Journal's deputy editor. Moore has worked extensively in conservative politics, policy, and media in North Carolina, including most recently as the North Carolina Republican Party's communications director.
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