It doesn't work to offer tax advantages to one industry that may not even be a good fit for Minnesota. Better to create a friendly climate for whatever might sprout.
Gov. Tim Pawlenty proposed a new program last month to create more green jobs in Minnesota. Modeled after JOBZ, the rural job creation program, Green JOBZ intends to spur green investment in Minnesota by offering various tax incentives to businesses that promote the state's ambitious renewable-energy mandate.
The proposal embodies the sort of policy that Pawlenty believes will appeal to, as he coined them, "Sam's Club voters, folks who are just focused on bread-and-butter issues." Ever since he first ran for governor, Pawlenty has been contending that his party needs to do better at delivering positive policies that show results for middle-class voters. More recently, he's upped the rhetoric, calling his party "too cynical" and in need of new ideas.
No question, Pawlenty's critique is spot-on. Two election cycles marking historic losses for his fellow Republicans prove that. Yet while Pawlenty has offered a number new ideas that will show results for middle-class voters, Green JOBZ is not one of them.
While tax credits and other tax cuts often fit the conservative mold and might appear an ideal way to enlist conservative values to grow jobs, Green JOBZ targets tax advantages only on businesses that create "green jobs." Targeting a particular region or industry or business for special advantages is not conservative. More importantly, it doesn't work.
Once the government starts playing favorites in the economy, look for big-time distortions. The current market chaos stands out as a prime example. By favoring home ownership over renting, government policies enabled some people to buy homes they could not afford, resulting in a severely overvalued housing market. Or consider ethanol. Subsidizing and mandating ethanol usage increased demand for corn, which raised corn prices so high that, since 2006, food riots regularly erupt across the globe.
Why is Minnesota such a great place for green jobs anyway? The U.S. Conference of Mayors report cited by Pawlenty to show that green jobs will be the wave of the future also ranks metropolitan areas by their potential for total number of green jobs. The Twin Cities -- the 16th-largest metro area in the United States -- ranked 27th, behind cities like Indianapolis, Albany, Knoxville and Durham. If we must play favorites, maybe "BioPharma JOBZ" or "Service JOBZ" or possibly "Debt Collector JOBZ" makes more sense?
But beyond all that and getting right down to it, using targeted tax advantages to lure business investment and grow jobs just isn't all that effective. According to a Minnesota House Research report on economic development programs like JOBZ, "most studies suggest no significant and prolonged increases in employment from enterprise zones."
When a program does create jobs, it's expensive. In the JOBZ program it can actually cost more to create a job than the job pays. The Office of the Legislative Auditor issued a report last February reviewing the JOBZ program and estimated that "the average annual cost per new job created by JOBZ would be about $26,900 to $30,800." Yes, that read annual cost; it recurs year after year. To be fair, that's a ballpark estimate based on educated assumptions derived from tax studies, not a scientific measurement. But even using more generous (and less-educated) assumptions, the report arrived at an $11,300 to $12,900 annual cost -- still real expensive.
What kind of job does $11,300 to $30,800 per year buy? On average, a job that annually pays $30,700. Not exactly a sound investment for Minnesota taxpayers.
The sort of conservative policies that can create jobs and show real results for Sam's Club voters focus on a welcoming business climate and a high-quality workforce. Instead of targeting the next hot industry, the state needs to guarantee a fair, level, low-tax and hassle-free playing field where businesses can succeed or fail on their own merits. That means, in part, lowering Minnesota's corporate taxes -- ranked the seventh most punitive corporate tax structure by the Tax Foundation -- and also answering why Minnesota dropped from the second-best legal climate for business to 11th in the latest Harris Poll.
Finally, and just as important, we need to consider all educational reforms that better prepare our kids to compete for high-paying jobs. By taking these steps, Minnesota will more likely retain current businesses and attract the next hot industry, whatever it might be.
Peter J. Nelson is an attorney and policy fellow with Center of the American Experiment in Minneapolis.
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