Most state and local incentive programs measure their success by the number of jobs created and wages paid. Last week we wrote about economic research questioning the value of encouraging investment through tax incentives. Some recent research found that capital investment in equipment – or automation – doesn’t help workers since it does not lead to new jobs or raise wages. The argument has merit, but it is also worth thinking about other economic objectives that state and local governments hope to attain through these incentives.
Smart Incentives and the Center for Regional Economic Competitiveness have studied this issue to understand how economic development organizations look beyond jobs and investment tallies to assess the impact of their business support programs. Here are some of the business dynamics indicators we identified that are relevant to programs designed to increase capital investment:
Metrics related to business formation, growth and survival
- business revenue growth
- technology/innovation collaborations
- number of high- or sustained-growth firms
- firm survival
- growth in output
- private investment leveraged relative to program funds
Metrics related to next generation competitiveness
- number of firms exporting or entering new international markets
- foreign direct investment facilitated
- export totals and trends
- percent of globally connected firms
- technology transfer activity
- R&D contracts or spending
- new technologies developed or deployed
- new products developed or commercialized
- sector-specific investments that build advantage in higher value-added sectors
Businesses are never static; they are constantly evolving. Helping businesses in a community prepare for the next generation economy remains a critical economic development function. Future competitiveness is about more than job counts. Investment incentives are one option to build on an existing industry base and to encourage new business activity to diversify the economy for greater long-term competitiveness and as a foundation for future prosperity.
We invite you to read the full report, Redefining Economic Development Performance Indicators for a Field in Transition, which is available on the CREC website and can also be downloaded from Smart Incentives.