Purpose-Built Incentives: Benefitting Business and Regions
Sound incentive decision-making will make for a more perfect union between your company and the community in which it has chosen to locate.
Adam Prager, President, Prager Company (April 2012)
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Since the advent of incentives, governments have been preoccupied with the notion of structured programs delivered with rigidity rather than flexible solutions to address a particular business need. In many communities and states, these programs have been misdirected silos laden with Catch 22s. For instance, the desirable company in need of tax abatement could only procure the incentive if it were willing to locate in an area for which there was no suitable real estate; the cutting edge, tech-driven, efficient business could not receive financing because it created too few jobs, etc.
This too is changing. New incentive creation is shifting away from the generic and toward incentives that are purpose-built. This makes perfect sense because the sweet spot of incentive utilization is where one scratches the itch of both business and community. While these incentives may address a recognized corporate need, they are designed at least as much to satisfy a specific community objective.
For example, customized skill development programs may target a work force deficiency of the prospective investor, but they also raise the bar for community work force competency. If these skills are relevant to multiple industries rather than one specific job, then employment opportunities exist even if something happens to the job at hand. Industry or cluster-specific incentives commonplace in much of the country help diversify the economy and/or attract businesses that can leverage and benefit the existing supplier base. Beyond promoting economic stability, they attract businesses to locations where direct competition is minimal but suppliers and service providers plentiful. Property development assistance as well as infrastructure incentives can produce long-term, fully served inventory previously deficient, while addressing a site selection elimination factor.
Further, international incentives pique the interest of foreign nationals, unleash foreign direct investment, and forge other overseas linkages that may otherwise not materialize. The U.S. State Department's EB-5 program is a prime example where qualified foreign nationals receive a Green Card in exchange for modest investment and job creation in high unemployment or rural areas. For many, securing permanent U.S. residency status is priceless.
Forming a Better Union
Communities now have a much greater appreciation for business climate causality. A dearth of lifestyle amenities is not just a quality-of-life issue; it requires businesses to try harder, wait longer, and pay more to attract labor desirous of these amenities. Cumbersome, unpredictable permitting and regulatory processes can result in costly start-up delays. A glut of competing businesses in overlapping industries leads to premature defection of workers and the choice between hefty retention bonuses or lost productivity as replacement workers get up to speed. Public schools out of tune with the business community and emerging market trends fail to prime the work force pump with properly educated, technically astute youth. Incentives in remote, inhospitable locations that are ill suited for business investment are hardly incentives at all.
As understanding of location characteristics and their impact on business challenges and opportunity grows, so will the variety and mutual benefit of incentives crafted to address them. Finding the incentives sweet spot will make for a stronger relationship between communities and the companies they are intended to attract.