I frequently receive critical comments in response to my columns. However, sometimes criticism helps flesh out an issue beyond the (admittedly) narrow viewpoint being expressed.
Last week, I wrote about the hypothetical possibility of a Wal-Mart opening up in the French Quarter. I stated that there was no legitimate basis for opposing a Wal-Mart in the French Quarter if it applied with all applicable laws. One commenter, “Cousin Pat from Georgia,” responded that while a Wal-Mart could certainly open in the Quarter, the city “shouldn’t offer them any tax breaks or subsidies to open shop there.”
Now, to my knowledge Wal-Mart actually doesn’t normally receive subsidies or tax breaks to open new stores, and if anything, government tends to be more of an impediment than a benefactor to their business model.
On the other hand, what Cousin Pat identified is actually common and not something to be overlooked. It’s easy to scoff at those who object to a certain development project without recognizing that monied interests might be compelling the government to subsidize it. That’s unfair. It’s unfair to citizens, to other businesses – to the entire free enterprise system.
There’s a saying I once heard. “Corporations, bad. Government, worse. Collusion between corporations and government, worst.”
I’ve often heard that there’s a distinction between being “pro-business” and being “pro-free enterprise” that is often overlooked in debates over development and regulation. Although I still believe that business in general is at a disadvantage in its dealings with government, there is little doubt that businesses often receive “incentives” so that politicians can claim some kind of fleeting economic victory by buying off a company’s decision to locate in Louisiana.
Louisiana is particularly subject to this dynamic. All of us recall debates over oil facilities, chicken processing plants, automobile production facilities, and behind it all was some government official who was all-too-anxious to offer subsidies or tax breaks to support it.
Of course, these government officials would probably respond that government incentives are necessary to encourage business development because other states employ them. “They’re like nuclear weapons,” this trope goes, “they have theirs so we have ours.” The idea is that our local governments are just leveling the playing field.
What this argument ignores is that when government spends money, it doesn’t come from nowhere. It costs taxpayers and distorts the system. Most of all, it favors big players over the small fish. Politicians want to speak of creating, at minimum, hundreds of jobs. They want to talk about millions of dollars. Established businesses can offer those headlines, emerging businesses cannot.
Oftentimes, you actually find that major corporations support new regulations, far more than smaller businesses. This is because new regulations create barriers to entry, an economic term connoting anything that makes it more difficult to enter a market. Larger businesses are far better able to shoulder these costs, to integrate them into the cost of doing business. For new small businesses with low profit margins, on the other hand, these regulations can be the difference between survival and failure.
The result is that “business” is not really a uniform entity, or at least is torn between two poles – the desire to not be meddled with and the desire for regulation that undercuts potential competitors.
The British Economist has put it this way: “Businessmen themselves—torn between a desire to be left alone and an appetite for special favors—are often unsure quite what they want from government.”
The idea of corporations essentially controlling the agencies that regulate them even has its own term in the field of economics: regulatory capture. When corporations have essentially “captured” government agencies, they can proceed to approve only those regulations that benefit them and more effectively lobby for tax breaks and subsidies.
Again, that’s just not fair. In the ongoing debate over whether to allow a particular project to move forward, it’s a valid question to ask whether a corporate chain is receiving “incentives.” And it’s a reasonable criticism against any argument for unfettered development.
Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.