Founders, we should be outraged over unfair economic incentives.
From January 1, 2007 to June 30, 2017, the North Carolina Department of Commerce report announced 803 economic development awards exceeding $1.5 billion. One of its funds, the Job Maintenance and Capital Development Fund, announced the cost per job created is approximately $5,631. Metlife got $1.4 million. GE got $1.25 million. New Belgium Brewing got a cool $1 million. Herbalife got $604,000. Butterball got $112,500. Check out this report to read about hundreds of other prize winners.
My company, Vertical IQ, has created 16 jobs. If we received a disbursement at $5,631 per job created, we’d rake in $90,096. Of course, we’ve received nothing. How many jobs has your startup created? How much have you received?
Like you, we risked our own capital and hard work to create Vertical IQ’s new jobs. The risk we took is the hallmark of any successful capitalist society. So why are we considered less important than the larger, more established businesses?
Startups Deserve Job Creation Incentives More Than Established Firms
In the article, “State Job Creation Strategies Often Off Base,” economists Michael Mazerov and Michael Leachman of the nonpartisan Center on Budget and Policy Priorities say, “The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms.” This animated graphic in another article by The Center on Budget and Policy Priorities shows how startups fuel growth – despite the fact that many startups fail.
The irony is that many of the companies that receive incentives aren’t in the mode of creating jobs. They’re mature companies that aren’t growing and are often moving to new locations to reduce costs.
Economic job creation incentives are just another example of the rich getting richer.
Here are three ideas for how founders can help improve the situation with unfair economic incentives:
1. Demand a “Startup Job Creation Fund”: Tell your government representative that you expect them to create a “Startup Fund.” This fund should pay out incentives per job if you start a company and maintain the jobs for three years.
2. Sue for your rights: If any of the companies on this report are your competitor and received an incentive, and you’ve lost one or more deals to them, sue the state of North Carolina for unfair competitive advantages and resulting damages. I once spoke with a North Carolina Supreme Court Justice about this topic, and he told me that while the court hears very few cases, that this case would be one the court would absolutely hear. He agreed with me that economic incentives are unfair and perhaps unconstitutional.
3. Demand economic incentives stop altogether: Some have said economic incentives are a “necessary evil.” They have the evil part correct, but not the necessary part. The best solution is eliminate incentives all together.
Several years ago, while working for my previous startup, First Research, I asked an economic developer, “We’ve created more than 40 jobs. How do we get our economic incentive for job creation?” He laughed in an arrogant tone, “That’s not how it works.” WTH ever. How does it work?
Founders, let’s rise up! Spread the word by passing this on and becoming the catalyst for change.
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I wonder if this state incentive should also be applied to 8a companies, Native American companies, etc? These small businesses create jobs as do those who worked with SBIR/STTR awards. Thoughts?
I actually believe the simplest thing to do is not to provide incentives at all. Otherwise, they should give everyone who creates a job an incentive. Incentives are clearly unfair.