It’s a common economic development strategy in the South: State policymakers offer deep tax incentives and relocation subsidies to lure big corporations from elsewhere, a tactic sometimes called “smokestack chasing.” New evidence, however, suggests supporting in-state startups and existing local companies is a far more effective strategy for creating jobs and building strong economies. In “State Job Creation Strategies Often Off Base” the Center on Budget and Policy Priorities analyzed new data from the Labor Department, the Census Bureau and business analysis firm Dun & Bradstreet. The numbers show homegrown business contributed more than 80 percent of total private-sector job creation in every state from 1995 to 2013. Jobs that moved into one state from another represented only 1 to 4 percent of total job creation each year.
In a survey, entrepreneurs of fast-growing companies overwhelmingly said they started their businesses where they lived at the time, and they decided where to live based on personal connections, the talent of the local workforce and quality of life. Therefore, study authors Michael Mazerov and Michael Leachman conclude, “States can add certainty to the equation by showing businesses a commitment to a skilled workforce, good roads for moving goods to market, fostering research on campuses and offering communities where people want to live. … Policymakers should avoid frittering away precious tax revenue on scattershot tax cuts for small businesses and yet more incentive programs aimed at poaching today’s hot out-of-state industry. Such actions will only harm their state’s ability to provide the high-quality public education, transportation, and recreation that build the skilled workforce and quality of life that today’s high-growth entrepreneurs seek.”
States wouldn’t have to look far for the kind of readymade support startups need. There is a robust and growing network of community development corporations and community development financial institutions (CDFIs) offering training, technical assistance, capital and risk support for entrepreneurs. One example is Hope Credit Union, itself a startup success story. Hope started in a church 20 years ago to provide financial tools for Jackson residents. It now has 26 branches across Mississippi, Arkansas, Louisiana and Tennessee and has generated billions of dollars in financing for entrepreneurs, homebuyers and community development projects. “CDFIs help foster equity and stability through small business lending programs that support job creation and affordable housing development, as well as community infrastructure expertise that expands access to high quality health care and education,” says CEO Bill Bynum. “By financing entrepreneurs and affordable housing development and making other investments that improve lives in low-income communities, CDFIs help mitigate the rampant disinvestment that plagues poor areas.”
The South is also dotted with workforce development organizations like NOVA Workforce Institute of Northeast Louisiana that train people for available jobs and connect them with employers. The Foundation for the Mid South helps job seekers, including ex-offenders, develop skills for high-paying positions in fields like transportation, distribution and logistics. Oxfam America, which is working on coastal restoration projects in Louisiana and Mississippi, has partnered with Moore Community House in Biloxi for its highly successful program training women in construction, welding, shipbuilding and other high-skill jobs.
While the CBPP study points to new data to argue against smokestack chasing, organizations across the South have been observing those policies’ harmful effects for years and making the case for stronger investment in the public good. The Kentucky Center for Economic Policy (KCEP) conducts extensive research and advocates for stronger investments in vital public infrastructure. This week, KCEP released a report identifying more than 30 options for reforming the state tax code and restoring investments in schools, higher education, health, transportation and more. KCEP also helped build a broad coalition of organizations making the case for sustained funding for the Commonwealth’s infrastructure. Kentucky Together tells the stories of families who stand to benefit from such reforms, including an Elsmere family with two special-needs children and a Harlan mother seeking welding skills from a community college. A teacher in Paducah who’s concerned about her retirement says she prints materials with her own ink at home so she can teach her students colors. Mostly, though, she worries about the impacts of drastic cuts to textbooks and after-school programs on the next generation. “I don’t know how I would react if we had full funding, if the state invested in our children,” Mattie Morris says through tears. “These children are our future, and the more that we can give to them now, the more they can give back to us later.”
The Mary Reynolds Babcock Foundation supports the Center on Budget and Policy Priorities and other organizations mentioned in this article.