Changing Gears: Illinois Fights Back

Think back to Political Science 101 and what you learned about game theory. If you need some help, here’s a pretty good illustration from the 1980s movie War Games.

Computer sounds: Matthew Broderick saying,

The computer is simulating a nuclear war between the then-Soviet Union and the United States. In the end, it realizes no one can win.

That’s kind of what’s happening between Illinois, Ohio and Indiana. These states have spent the past few months waging an economic incentives war worth millions of dollars and thousands of jobs.

The most recent round ended yesterday, when the Illinois Senate approved more than $200 million in tax breaks - specifically designed to keep Sears and the Chicago Mercantile Exchange from leaving Illinois.

Chicago Mayor Rahm Emanuel says a lot is at stake.

Rahm: Chicago Mercantile Exchange allows Chicago and the state of Illinois to be a leader in the futures and risk management industry.

Indiana offered CME a reported $100 million to leave Illinios. Ohio has offered four times that much to try to steal Sears.

This doesn’t just happen with big companies.

Indiana’s Economic Development Corporation earlier this year spent $50,000 on ads asking lllinois business if they were “Illinoyed” by the state’s taxes.

States find themselves over a barrel where officials feel the need to offer millions to lure and retain companies. Jennifer Bradley is a fellow with Brookings Metropolitan Policy Program.

Bradley: For the governors and for the public officials it’s the classic prisoner’s dilemna.

In Illinois the current package for Sears was set to expire. The legislation has extended those credits for another 10 years.

But Bradley says the effort jobs from other states may be misguided. She says 95 percent of job growth comes from existing or new businesses.

But with the current game of incentives, though, no one wants to budge.

Bradley: If you can’t count on everybody to do the right thing, then nobody’s going to do the right thing. So companies have incentives to ask and individual states have incentives, temporarily, to make the offer.

But some states are playing differently. Michigan’s trying something that might break the Midwest out of this prisoner’s dilemma.

Synder: We need to put more emphasis on economic gardening as opposed to hunting. For those unfamiliar with economic gardening, it means we’ll focus first and foremost on building businesses that are already in the state.

That’s Michigan Gov. Rick Synder in January, at his first State of the State address.

Since that address, Michigan has eliminated almost all of its tax credit incentives – including its much publicized film incentives.

Michael Finney is the president of the Michigan Economic Development Corporation.

Finney: We’re really trying to provide key access to tools that will help a busineses’ customer base grow as opposed to just providing them money and hoping that they will be able to grow their business.

For Finney, that means the focus is more on providing help with accessing export markets, debt financing, and the like. He hopes this approach will also make it easier for the Midwest to work together.

Finney: I happen to think if we worked together as a Midwestern region we’d be much more successful.

It’s not unprecedented for states within a region to cooperate. Kathy Geltson is deputy director of Mississippi Development Authority.

Gelston: Our former director used the term ‘coop-er-tition’. And it kind of makes sense, we cooperate in instances where it makes sense, but there are instances when it’s a true competition.

She’s talking about several specific alliances Mississippi and several southern states have for industries like the automotive or aerospace center – there, the states work together to bring companies to the region – and don’t try to compete – at least in this case, with incentives.

For Changing Gears, I’m Niala Boodhoo.

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