Study blasts federal economic development initiatives

Study blasts federal economic development initiatives

September 28, 2012
Originally published in Lehigh Valley Business

From Brian Pederson's article in Lehigh Valley Business:

A new study blasts the federal Economic Development Administration (EDA) and calls for its abolishment, charging that the agency encourages economic waste, over-taxation and the misallocation of valuable resources.

In “The Case for Abolishing the Economic Development Administration: A Great Society Relic That Robs Peter to Pay Paul,” Competitive Enterprise Institute Policy Analyst David Bier argues the EDA is essentially a “prop” for politicians, who tout EDA grants as major accomplishments when running for re-election. CEI is a nonprofit, nonpartisan public interest group that studies the intersection of regulation, risk and markets.

“It doesn't really create economic development,” said Bier. “It's always at the expense of someone else.” EDA investments do little more than shift resources from one area of the country or the economy to another, said Bier. Because government has no resources of its own and relies on taxation for revenue, it can only rearrange resources rather than create them, he added.

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While many local communities, including those in the Lehigh Valley, are waiting to develop projects until state or local grants can be obtained, Bier said a lot of these projects could move forward in a more limited fashion.

“It creates competition between cities and businesses know this,” said Bier. “They base their location decisions based on where they will get the biggest handout.”

He noted that in 2011 the EDA awarded $2 million to Visalia, Calif., to improve the Visalia Industrial District and attract new businesses. Shortly after, manufacturer VWR relocated a warehouse from Brisbane, Calif., to the newly subsidized zone in Visalia. Jobs were created in Visalia, but even more jobs were lost in Brisbane.

Bier also noted how the EDA awarded $35 million for construction of a convention center in Cedar Rapids, Iowa. After the city received the money, it used eminent domain authority to seize a private hotel for the construction. The city admitted that the convention center — unlike the private hotel — would not make money. In fact, the city's own projections showed that it would lose more than $1 million by its fifth year. “I see it as corporate welfare or a handout,” said Bier. “There are so many groups entirely dependent on government handouts.”

He also took county economic development agencies to task and said these groups waste resources spending tax dollars lobbying the federal government full-time for funding.

“In my view, it's really wasted resources… it really slows things down and makes things inefficient,” said Bier.

These projects that would probably move forward are being delayed by government, he added. Bier said EDA's funding should be immediately revoked, allowing private entrepreneurs to direct capital to the best projects.

Does competition provide all the incentive U.S. businesses need to innovate, compete, and succeed in the global economy?

Bier says “yes,” but many professionals in the economic development field say EDA funding is critical to making these projects happen.