Economic Development and Maximizing Profit
Home Economic Development and Maximizing Profit
October 17, 2017
One of the better economic development professionals in the Greater Phoenix area made a good point a couple of weeks back. After I was complaining about Amazon’s tactics of aggressively soliciting incentives, he noted it was their job to look out for investors and maximize profit. This was a very good point.
Corporations build their economic and financial strategies around the system that is provided. The current system across the country is to incentivize certain business operations. However, is seeking extraordinary incentives solely a decision about maximizing profits, or should there be a higher standard? I formed my opinion by thinking about my own small business and government involvement in general.
One could argue it’s my job to maximize profit for myself, my employees, and my family. Yet, I behave irrationally when I distance myself from paying projects that are not good policy or economics. Why? At the individual level decisions are made based on maximizing “utility”, not just profit. Utility is a broader measure of value. I gain greater utility by running a profitable business and by trying to do the right thing. I believe this also occurs in the corporate world when there is a connection with a community.
But, what happens when a state is trying to lure a business that has no local connection? In this case the government needs to help with the decision by being responsible. Much like businesses have a responsibility to the shareholders, the government has a responsibility to the taxpayers. The perfect “deal” would include a cautious government entity that is seeking a business location where the CEO wants to be involved in building the local community.
For the other deals that are reduced to a simple incentive value, stay in the game but be willing to walk away when needed.