Louisiana’s Blueprint: Visible Benefits Vs. Hidden Costs
Originally published in The Daily Comet on June 28, 2019 by Gwayne Gautreaux
One of the most harmful side-effects characterizing the scope of Louisiana’s economic environment has been the extent to which the state has come to rely on limited commercial interests. The blueprint for prosperity has essentially been to ‘live and die by the sword’ of politically motivated incentives that permit government to dictate the parameters of success rather than competition. This has forced enormous pressure on the resources tied to certain industries, while it has restricted the state’s ability to supplement economic growth with wider sectors of investment opportunities.
The state has frequently depended on huge tax incentives and subsidies to promote capital investment, and, although it has somewhat provided Louisiana with a boon of industrialization, it has subsequently induced a wide range of burdensome unintended consequences.
The danger of using business incentives as the criterion for investment is the ease to which the visible gains can be identified but the difficulty to which the hidden costs go undetected. This becomes a great selling point for politicians who can easily quantify the direct visible results while concealing the excess harm. Unfortunately, it has been almost impossible to determine the unseen effects of lost revenue and jobs relinquished by businesses that have alternatively sought more profitable investment shelters, knowing that bureaucratic provisions for some meant higher costs for others.
No one proclaims that incentives are devoid of capital flow, and even the harshest critics won’t deny the business opportunities that have come into Louisiana because of them. However, these are opportunities that have come with an enormous price-tag. The costs of minimized competition and foregone investment may well outweigh the benefits, but because of its ‘invisible effects’, there is no way to accurately measure the loss of economic revenue from incentives that discourage investment in the first place.
Moreover, the additional effects of taxation absorbed by the middle class distort the tax base in such a way that forces one group of individuals to bear the excess burdens caused by another group, resulting in Louisianans having much less disposable income. The disproportionality of lost revenue and misallocated resources must be made up to maintain revenue neutrality. As long as an imbalance exists, one group will either continue having to bear the current rate of taxation, or the state will feel obliged to raise taxes unilaterally to make up the difference.
I’m all for individuals keeping more of what they earn, provided others do not have to endure the direct liability.
Transforming Louisiana’s top heavy politically intensive investment process into one that is lean and economically competitive would enable businesses to utilize the necessary resources to compete for innovation rather than incentives, while eliminating the cronyism that has become common practice. The state would then be able to offer lower tax rates across the board without distorting the tax base, thereby making it much more conducive to market-based competition.
The staple that politicians have come to rely on for commercial diversity has ironically created barriers to diversification. The few have essentially been chosen over the many, mostly decided on by a group of politically motivated bureaucrats. In turn, countless businesses have sought investment in neighboring states, thus eliminating an abundance of jobs and revenue.
Consequently, Louisiana has become a state dominated by a small number of very large conglomerates rather than one encompassed by a large number of smaller enterprises, resulting in less innovation and more corruption.
Ultimately, because private companies aim to maximize profit, businesses will seek out the most strategically resourceful location in order to gain a competitive advantage over others. Louisiana is the natural selection to which many industries could operate most efficiently, regardless of incentives. If an area of investment is potentially profitable, (as this state has proved to be), billions of dollars of incentives would not be needed to attract investors in the first place.
Continuing the same routine over again while expecting different results is the definition of insanity.
