Could governments ever stick to “nonaggression pacts” involving companies?

As companies like Amazon look for good deals from local communities, one economist suggests non-aggression pacts:

It’s hard to draw conclusions about how much local economies gain from fulfillment centers and whether incentives are warranted from the experience of individual towns or counties, said Tim Bartik, senior economist at the Michigan-based W.E. Upjohn Institute for Employment Research.

Fulfillment centers likely do benefit the surrounding community, but the gains may be modest compared with other types of economic development projects that could generate more business for local companies, Bartik said. The jobs have modest wages, limiting the amount workers would potentially spend at local retailers, and warehouses generally don’t patronize local suppliers, he said…

He advocates states form “nonaggression pacts” to contain costs of incentives that simply shift jobs from one part of the country to another, though he acknowledges those pledges are unlikely to stick.

“The next company comes along, and they decide it’s an exception,” Bartik said. “We haven’t seen one that’s really survived.”

Here are at least four arguments I could imagine people making against such pacts:

  1. Competition is central to the American economic system. Why shouldn’t local communities be able to offer whatever they want to attract a company or development? Having and sticking to such pacts is collusion by communities.
  2. If companies cannot get good deals from communities, they will leave the country. This would not make much sense to me as the American market is a pretty lucrative one but it could apply more for certain companies or industries.
  3. Local officials need to be able to show local results, not that they are cooperating with other places. They want to be able to say that they brought specific jobs or benefits to their community, not that the whole region is benefiting (though this may be true).
  4. What is good for companies is good for communities and America. This is a tricky argument all around: thriving companies are important yet it is much harder to figure out whether firms are helping communities in the ways they should. (This is an open question these days involving Walmart, Amazon, and tech companies.)

Perhaps the best argument that could be made for such pacts is that the general public – in the abstract – wins if companies are unable to obtain massive tax breaks or incentives for certain actions.

For better or worse, the decision Amazon makes about where to locate its second headquarter will keep this issue in the spotlight for a long time.

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