Harvard Professor: Mass. Targeted Industry Subsidies Unfair

January 28, 2011 -

The Boston Herald offers an editorial on state representative Vincent Pedone's proposal to offer tax breaks to the game industry in Massachusetts. The author, Edward L. Glaeser (professor of economics at Harvard University and author of the forthcoming book "The Triumph of the City"), compares it to the disastrous results of Evergreen Solar and ponders aloud if this is all "throwing good money after bad?"

Two weeks ago, a major tax break recipient in the state, Evergreen Solar, announced that it was closing its Devens, Mass. factory. Why are people so ticked off by this news in the state? Because the company took advantage of $58 million in state aid. Evergreen Solar was launched in 1994 as a joint venture of alumni of Mobil's Solar Division and an MIT scientist who pioneered String Ribbon solar cells. As the company matured and prospered the state took notice. In 2007, Massachusetts gave the company $58 million in grants, tax breaks, and other incentives to open a plant in Devens. The company obliged, taking the money and opening the plant. Fast forward to 2001: the company announces that it is leaving the state and moving its manufacturing operation to China. While the state is doing its best to get some of those funds back, the loss of jobs in the region and the investment have given the state a real black eye. In short, the deal seems foolish in hindsight.

Glaeser says that Pedone's proposals for the video game industry seem eerily familiar. While the details are still forthcoming the main part of the deal would be through a transferable tax credit that pays for around a quarter of a video-gaming company's labor costs. The company taking advantage of the bill would get even more credits if the video games are developed in a "disadvantaged community" or if the games prominently feature the "Massachusetts state marketing logo." The logo on the box program sounds exactly like what Georgia does for video game and film companies that promote the state prominently in some way on or in their products.

While the author admits that the video game industry is more likely to succeed because it "plays to the Commonwealth's creative strengths," he also says that that fact "doesn't make it more worthy of subsidy." He also cast doubt on whether the commonwealth's parents "want their children's video gaming supported by state subsidies."

Another point he makes is that the video game tax credit "is paid after, not before, workers get hired, and that reduces the difficult problem of enforcing claw-back provisions."

One of the most ludicrous comments he makes is that some firms that are not in the video game industry might be encouraged "to masquerade as video gamers, even if their main business is something else" to get these tax credits. What?

We will let Glaeser have the last word here - an opinion that many businesses in the state would agree with:

"Targeted subsidies, for Evergreen or video gaming, are neither fair nor likely to engender wide-spread economic growth. The best economic development strategy is to improve fundamentals: fewer regulations, lower tax rates for everyone, good services, and especially good schools."

Source: Boston Herald


Comments

Re: Harvard Professor: Mass. Targeted Industry Subsidies ...

 "Targeted subsidies, for Evergreen or video gaming, are neither fair nor likely to engender wide-spread economic growth. The best economic development strategy is to improve fundamentals: fewer regulations, lower tax rates for everyone, good services, and especially good schools."

Holy smokes, that's about the most clearly sane thing I have heard anyone say about tax subsidies in a long time.

Re: Harvard Professor: Mass. Targeted Industry Subsidies ...

That is true, however he seems to have disregarded the fact (of which I am sure he is aware) that these measures are intended to keep the state competitive with other areas in the US and Canada which offer similar subsidies.

Also, his "doubt on whether the commonwealth's parents "want their children's video gaming supported by state subsidies."" is a moot point that he and many others have tried to apply to the issue. This is not about encouraging the production of video games, it is about maintaining a share in a wealthy industry. Children (and adults) will still be playing video games regardless, but the proceeds would not be going towards jobs in the state if developers move to a location with better trading conditions.

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