RESEARCH TRIANGLE PARK – A Duke University professor and a colleague from the University of Texas who are co-authors of a new book that labels tax incentives for economic development projects as “pandering,” believe the Triangle area could land both the Amazon HQ2 and Apple campus projects.

Edmund Malesky

“I think the Triangle has a very good chance at both,” Dr. Edmund Malesky tells WRAL TechWire. “The infrastructure, human capital (from several great universities), and quality of life in the Triangle is extremely hard to beat.”

Malesky, a political science professor, co-wrote Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain. He worked with Dr. Nathan Jensen, a professor of government at the University of Texas in Austin. Oddly, both the Triangle and Austin are both finalsists among the 20 sites Amazon says it is considering. The book was published by Cambridge University Press last month.

Jensen also responds positively when asked if the Triangle could land both projects – especially Apple.

“Sure,” he says. “I think the key for Amazon in particular is that there is no single location with all of the human capital they need. They need to move to a location where there is an incredible infrastructure – universities, existing companies, [more] –  but also a place that they can get young, educated people from around the world to come.”

As for Apple, he adds: “I hear the Triangle is a front-runner for an Apple investment, but I don’t know the actual scale and terms of the investment.”

WRAL.com and WRAL TechWire have reportedly previously that North Carolina is negotiating an incentives deal with Apple.

Incentives, pro and con

In Q&As about the book and the big Amazon as well as Apple projects, the professors’ comments came after Republican leaders in the General Assembly revised the state’s economic incentive packages to make the state more appealing to Apple.

Malesky is certainly not against the tech giants expanding in North Carolina. He sees Amazon, with its stated plans to invest $5 billion and create 50,000 jobs, and Apple, with a deal said to be on the table offering several thousand jobs and investment of up to $2 billion, as positive contributors to the Triangle.

“Amazon and Apple would also bring a lot of positive benefits to our community,” he says.

But when the topic is incentives, Malesky is more cautious.

“Let’s just hope that our politicians prove to be ace deal makers and are able to structure our offer to these behemoths in a way that ensures us the long-term health and shared prosperity of our economy,” he says.

Nathan Jensen

Pointing at the revised incentive package, Jensen sees a possible negative for North Carolina.

“What I think is a huge PR mistake is that the currently draft of the JDIG [Jobs Development Investment Grant] incentive will not count foreign workers on a H-1B visa as jobs created,” he warns. H-1B visas are awarded to immigrant workers with high-tech skills and have been a flash point in the immigration debate for years.

Malesky points out that their research doesn’t question the impact of incentives in all cases.

“The Apple and Amazon incentive packages may turn out to be good ideas and create a large number of jobs,” he explains. “Our book does not deny that under some conditions incentives can be fruitful.  We simply offer two notes of caution.

“First, citizens of the triangle need to be properly informed about the true costs of the packages.  How will revenue gaps be paid for? And what are the estimated increases in costs resulting from the projects?

“Second, realistic job creation numbers need to be put forth.

“Arguments for the package should include not just the numbers based exaggerated multipliers, but the minimum jobs that will be created just from direct employment in the HQ2 and Apple buildings.  If citizens still want the package with full information on the true costs and benefits, then politicians can feel free to offer it.”

Secret neogitations

However, both the Amazon HQ2 and Apple recruitment processes have been cloaked in secrecy. While the North Carolina budget includes details about how incentives might work, specifics about what have been offered to either company is not known. Public officials at the state and local levels have declined to talk about the recruitment negotiations.

Jensen says trying to predict where either Apple or Amazon will land remains a “guessing game” and he’s not ready to dismiss the Triangle as a landing spot for either – or both.

“We are all really in a guessing game here and Amazon has been very tight lipped about the process and definitely their decision. A lot of people are guessing that the DC area is probably the first choice, but the Triangle has a lot going for it and I think it is a real possibility,” he says.

In his view, the incentives package is not a deal closer.

“But I honestly don’t think the modifications to your incentive programs will increase your probability of landing HQ2,” he explains. “You’re probably burning your children’s (and their children’s) tax dollars for nothing.”

As for Apple, the negotiations are more opaque.

“Apple has publicly said that they are going to avoid an Amazon style beauty context and Amazon has tried to quiet down this search with non-disclosure agreements in the later part of this process,” Jensen says. “Both Amazon and Apple have so many possible investments in the works, it is hard to sort out their overall strategy.

“It’s not clear to me that Apple will even invest in a single campus or spread this out over multiple locations. I hear the Triangle is a front-runner for an Apple investment, but I don’t know the actual scale and terms of the investment.”

Incentives to Pander – The book

Incentives to Pander

A summary about the book at Amazon.com:

“Policies targeting individual companies for economic development incentives, such as tax holidays and abatements, are generally seen as inefficient, economically costly, and distortionary.

“Despite this evidence, politicians still choose to use these policies to claim credit for attracting investment. Thus, while fiscal incentives are economically inefficient, they pose an effective pandering strategy for politicians.

“Using original surveys of voters in the United States, Canada and the United Kingdom as well as data on incentive use by politicians in the US, Vietnam and Russia, this book provides compelling evidence for the use of fiscal incentives for political gain and shows how such pandering appears to be associated with growing economic inequality.

“As national and subnational governments surrender valuable tax revenue to attract businesses in the vain hope of long-term economic growth, they are left with fiscal shortfalls that have been filled through regressive sales taxes, police fines and penalties, and cuts to public education.”

In an interview with CityLab, a website devoted to economic development issues, Jensen talks about the point of using “pandering” in the book’s title.

“There are consultants, there are companies, there are elected officials, there are NGOs [non-government organizations]. There are a lot of different actors at fault here,” he says. “But what we focus on is politicians pandering to voters. These politicians are offering these incentives not in smoke-filled rooms, but in ribbon-cutting ceremonies. They are trying to show voters that they are doing something to attract investment, even if they believe that incentives actually might not be effective.”

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