4 ms·

>All it produces a race to the bottom where businesses win and people lose. If only businesses win, then why do cities want the business to come to them in the

>All it produces a race to the bottom where businesses win and people lose. If only businesses win, then why do cities want the business to come to them in the first place?

caust1c 8y ago
There are some small economic kickbacks for local economies, but realistically I would guess that it's probably small-scale bribery. That or local governments are just really bad at math. Do they really think a business starting in their community is going to give back more than the billions in breaks they're giving?
- TangoTrotFox 8y ago
  Remember government is really just a collection of individuals. You can't discount the basic human motivations in things like this. Competing is fun, competing and winning is much more fun. Getting a big company/sport/etc to sign on to your city means you beat everybody else they were negotiating with, and those were all big players. That's a big win. It also helps build your legacy. The guy who brings "The SportsTeamers" to a city is going to be remembered for exactly that, not the net economic effect. And yeah that does no doubt open the door to 'consulting positions' after leaving office though I do not think that's a primary driver in the deals, just icing.
- defertoreptar 8y ago
  It depends on how many billions, how many jobs, how much tax revenue, how much projected population growth and average wage growth and how the local economy will respond to that growth, etc.
- LeftTurnSignal 8y ago
  Wisconsin is going to find out: http://money.cnn.com/2018/06/28/technology/foxconn-wisconsin-plant/index.html http://money.cnn.com/2018/06/28/technology/foxconn-wisconsin...
opportune 8y ago
Why do poor people work for low wages?
Obi_Juan_Kenobi 8y ago
Very basic game theory. Let's say there's 10 arbitrary 'units' of positive externalities, i.e. economic activity in a region, that comes from HQ coming to town. If no subsidies/tax-breaks/etc. are allowed, then those 10 units go to some town, chosen by some other merit. The 'people' win with 10. If those 10 units are large in proportion to the marginal advantage a town has for selection (i.e. workforce availability, business fundamentals like logistics, etc.), then it's obvious what competing towns do: they offer up a slice of those 10 units. If town A offers 1 (keeping 9), town B can just offer 2, etc. So it's a race to the bottom, where nearly all the positive externalities are passed to the business in a bid to capture whatever remains. Even if you give up 9, it's worth it to have 1 vs. 0. This kind of competitive behavior is fundamental to markets, and is the reason why price is so very often right at the 'pain point' for buyers and sellers. The remaining question is whether those positive externalities (the jobs and economic activity a business can bring to a region) are rightly held by the people or by the business.
- defertoreptar 8y ago
  Competition lowers the price, but once the price becomes lower than the "profit point," let's say, then people generally don't agree to the deal. I'm not seeing where you show that people are making a deal against their interests.
- sf_rob 8y ago
  I wish I could remember the details, but one of the articles I read about this went a step further and suggested when the sell side is limited (a single company moving to a region like Amazon) and the benefits are hard to estimate (community utility) then the best bid will inevitably be deriving negative utility due to over-bidding. In your example, one city might bid 11 because they wanted to beat 9 and estimated the total utility at 13, not knowing it would be 10.
AmericanChopper 8y ago
The nature of these deals themselves is not one sided. They’re supposed to create more jobs, more local consumer spending, which means more tax collected and more revenue. The body making the concessions can very well come out ahead, and an everybody-wins outcome can be reached. Theoretically the deal could also be so one sided that only one side wins. But that really comes down to the specifics.

>All it produces a race to the bottom where businesses win and people lose. If only businesses win, then why do cities want the business to come to them in the first place?

caust1c 8y ago

There are some small economic kickbacks for local economies, but realistically I would guess that it's probably small-scale bribery. That or local governments are just really bad at math. Do they really think a business starting in their community is going to give back more than the billions in breaks they're giving?

TangoTrotFox 8y ago
Remember government is really just a collection of individuals. You can't discount the basic human motivations in things like this. Competing is fun, competing and winning is much more fun. Getting a big company/sport/etc to sign on to your city means you beat everybody else they were negotiating with, and those were all big players. That's a big win. It also helps build your legacy. The guy who brings "The SportsTeamers" to a city is going to be remembered for exactly that, not the net economic effect. And yeah that does no doubt open the door to 'consulting positions' after leaving office though I do not think that's a primary driver in the deals, just icing.
defertoreptar 8y ago
It depends on how many billions, how many jobs, how much tax revenue, how much projected population growth and average wage growth and how the local economy will respond to that growth, etc.
LeftTurnSignal 8y ago
Wisconsin is going to find out: http://money.cnn.com/2018/06/28/technology/foxconn-wisconsin-plant/index.html http://money.cnn.com/2018/06/28/technology/foxconn-wisconsin...

opportune 8y ago

Why do poor people work for low wages?

Obi_Juan_Kenobi 8y ago

Very basic game theory. Let's say there's 10 arbitrary 'units' of positive externalities, i.e. economic activity in a region, that comes from HQ coming to town. If no subsidies/tax-breaks/etc. are allowed, then those 10 units go to some town, chosen by some other merit. The 'people' win with 10. If those 10 units are large in proportion to the marginal advantage a town has for selection (i.e. workforce availability, business fundamentals like logistics, etc.), then it's obvious what competing towns do: they offer up a slice of those 10 units. If town A offers 1 (keeping 9), town B can just offer 2, etc. So it's a race to the bottom, where nearly all the positive externalities are passed to the business in a bid to capture whatever remains. Even if you give up 9, it's worth it to have 1 vs. 0. This kind of competitive behavior is fundamental to markets, and is the reason why price is so very often right at the 'pain point' for buyers and sellers. The remaining question is whether those positive externalities (the jobs and economic activity a business can bring to a region) are rightly held by the people or by the business.

defertoreptar 8y ago
Competition lowers the price, but once the price becomes lower than the "profit point," let's say, then people generally don't agree to the deal. I'm not seeing where you show that people are making a deal against their interests.
sf_rob 8y ago
I wish I could remember the details, but one of the articles I read about this went a step further and suggested when the sell side is limited (a single company moving to a region like Amazon) and the benefits are hard to estimate (community utility) then the best bid will inevitably be deriving negative utility due to over-bidding. In your example, one city might bid 11 because they wanted to beat 9 and estimated the total utility at 13, not knowing it would be 10.

AmericanChopper 8y ago

The nature of these deals themselves is not one sided. They’re supposed to create more jobs, more local consumer spending, which means more tax collected and more revenue. The body making the concessions can very well come out ahead, and an everybody-wins outcome can be reached. Theoretically the deal could also be so one sided that only one side wins. But that really comes down to the specifics.