The Koch-ie Monster Strikes Again

Local economies are propelled by politicians and city officials and not by economists.

If politicians and city officials paid more attention to economists, cities wouldn't be throwing incentives at firms and proposed hotel and convention centers would die a quick death.

That is the message from Old Dominion University economist James Koch, co-author of the just released 2014 State of the RegionReport, a compendium of economic commonsense.

In the chapter, Economic Development Incentives: Competing Against Ourselves?, Koch surgically dissects the prevailing notion that economic development incentives actually work.

In The Answer Is Always “Yes”: How Our Cities Repeatedly Ignore The Evidence And Choose To Construct Unprofitable And Unneeded New Convention And Hotel Capacity, Koch scoffs at the rush to build more hotel and convention centers.

Koch, former president of ODU, scans the horizon with a keen and careful eye. He evaluates and analyzes and lards his narrative with tables, charts and illustrations. His conclusions are often irrefutable. Yet Koch has this bothersome tendency to contradict and refute many monuments to monstrous self-aggrandizement.

The impotency of economic development incentives is a foregone conclusion and studies have proved as such for decades: they don't sustain a city's economy.

Hotel and convention centers are Hollywood sets with Internet models in cool and sublime poses; they sell a lifestyle that is false and misleading.

In his analysis, Koch shows that cities spend more time and money competing against each other for fame and fortune rather than cooperating. 

Which points out that each city is a political island, connected precariously to every other city in the region. Yet each city depends upon other cities, more or less, for its economy. Some are robust and some are anemic.

Each city has its own incentives. Each city has its own image to promote and protect. And each city has its own political machine. In other words, each city is egocentric and self-centered.

Koch on economic development incentives.

Too often, our economic development agencies and elected officials persist in looking for quick fixes that somehow will catapult our region forward to fame and fortune. Absent the next Microsoft fortuitously being invented by an enterprising student in the Frank Batten College of Engineering at Old Dominion University, it isn’t going to happen.

Koch on hotel and convention center madness.

Unfortunately, most (though not all) investments governments make in convention venues, arenas and attached hotel capacity fall into this latter, suspect category. Such investments usually do little more than redistribute existing sales and do not actually produce any incremental tax revenue. Further, they favor some firms and entrepreneurs over others, and therefore often do not pass the proverbial smell test.

All of this occurs in city after city, year after year, despite the accumulated negative empirical evidence. Some elected officials in our region appear to be seduced by their own flashy announcements of large projects that falsely promise economic growth.

“Our city is on the move!”

Unfortunately, in the wrong direction.