Political incentives are part of, not separate from, market incentives
August 27, 2014
This morning I ran across this comment in a letter to the editor of the Los Angeles Times: “Objective analyses have shown that so-called business incentives are ineffective. Such subsidies replace market incentives with political ones.”
The subject of economic development incentives continues to get a lot of attention by studies and commentary, and yet the practice goes on and even grows as evidenced by incentive ads by Texas and New York. It seems that, like the letter quoted above, some people think that political incentives are separate and apart from market incentives. Quite the contrary, business decisions, i.e. economic decisions, have always included political factors. When a business is considering investing in a particular state it takes all factors into account. Political factors, being one of them.
Governments influence markets in many ways, from price supports for agricultural products to loans and advice to companies seeking to export to other countries. All of these are political incentives and are part of, not separate from, market incentives.