Association for Public Policy Analysis & Management

Despite long-standing criticism, state and local governments often use business incentives to induce firm location decisions as they compete against one another in a spatial market for jobs. Scholars have traditionally told two straightforward stories of how politics influences incentive granting. In the first—the ribbon-cutting story—elected officials pursue economic growth and job creation as a normative good in order to win re-election, and securing ribbon-cutting ceremonies with newly located or expanding businesses is one of the most publicly visible means of showing job creation to the electorate. In turn, elected officials exert pressure on practitioners to “win” a firm location decision at any cost. This leads to higher rent extraction than would otherwise be the case and is especially true during times of economic distress. The second story involves regulatory capture. Business interests hold elected officials in thrall through campaign contributions and an array of cultural ties that privilege business in the setting of policy. As the business lobby’s influence over the policy process increases, elected officials are pressured into increasing the public rents available for business to extract.

Yet these traditional stories about the role of politics in incentive-granting ignore the extent to which a community’s institutional context shapes the bargaining process over firm location decisions and incentive offers. While the traditional focus on economic growth remains normative among policy makers, the policy question of how to best promote growth has become increasingly contested as partisan realignment and ideological competition have brought into question previously sacrosanct economic development tools like business incentives. In turn, this more complex political map is mediated by a governance regime that yields economic development policy outcomes often quite at odds with what the traditional stories would predict. These governance institutions—including the growing use of accountability standards—set the rules by which incentive decisions are made and, by extension, the ways in which political pressures are brought to bear on these decisions.

This project attempts to address the shortcomings of the traditional stories by exploring the role played by an ideologically contested political environment in shaping incentive-granting decisions in the context of a common institutional accountability regime.

The project answers this question through a critical case analysis of the incentive policy decisions made across eight legislative sessions of the NC General Assembly, 2007-2014. The study period includes four sessions on either side of the Great Recession and the realigning 2010 elections, allowing me to study policy decisions in the context of economic distress and partisan control of government as they change over time. In a critical case approach, the project then tests the empirical reality of these policy decisions (and why they were made) against what the traditional stories about politics and economic development would predict under these changing conditions.

For data collection and analysis, the project codes interviews, media clips, and legislative debate records related to common categories of incentive policy decisions made across all eight legislative sessions. This provides a unique dataset for understanding the complex political and governance-related factors driving incentive policy decisions.