Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

As a growing number of small business organizations pursue a policy agenda distinct from that of corporate America, they may be able to nudge state and local government toward new economic development strategies.

Today's Economist Perspectives from expert contributors.

Currently, the businesses best able to garner generous grants and tax incentives by promising to create jobs within specific political boundaries are large, mobile corporations that can pit communities against one another, demanding ever-higher subsidies.

Greg LeRoy wrote about the problem at length in “The Great American Jobs Scam.” In his 2010 book, “Investment Incentives and the Global Competition for Capital,” Kenneth Thomas estimated the total cost to American taxpayers at about $70 billion a year.

A number of technical issues regarding treatment of tax expenditures and property tax abatements come into play in such estimates, but another accounting based on investigative reporting by The New York Times generated an estimate of $80 billion a year. The details unearthed in the Times series, United States of Subsidies, show that 48 companies have received more than $100 million in state grants since 2007.

A bias toward large companies has been particularly obvious in the retail sector, where big-box stores have been big winners, with adverse effects on small independent businesses. Critics of Walmart have developed an entire Web site devoted to monitoring the public subsidies it receives.



The state of Texas touts its success in luring large companies from other states, offering generous tax subsidies financed by cuts in spending on local education, infrastructure and other public services. But critics of the Texas model contend that corporate relocations have had a “microscopic” impact on the state’s economy.

Meanwhile, alternative economic development strategies are gradually gaining traction. Littleton, Colo., a suburb of Denver, has pioneered an “economic gardening” approach that rejects a “hunting” model in favor of growing its own small businesses, providing supportive services and planning assistance. Its success has inspired pilot projects in several states, including Florida, Iowa, Kansas and Louisiana. The Colorado legislature is currently considering a statewide pilot project.

Economic gardening tends to focus on companies that are well established but ready to move into a growth phase. Many efforts to foster and develop new businesses fall under the rubric of “localist incubation.” My University of Massachusetts student Joseph Costello just completed an undergraduate honors paper on this topic, including a detailed account of the efforts of the Franklin County Community Development Corporation in nearby Greenfield, an area that includes many small farms growing high-quality organic produce.

Their Western Massachusetts Food Processing Center offers food entrepreneurs an industrial kitchen space meeting federal standards for commercial food production, as well as large refrigeration and storage units, and packing machinery. One of its success stories is Real Pickles, a company that supplies high-quality naturally fermented products to about 300 local stores. In business for 11 years, with a current staff of about 12, the company just announced plans to transition to a fully worker-owned cooperative model.

Promotion of worker-owned cooperatives is a way to create entrepreneurs and jobs at the same time. The Evergreen Cooperatives of Cleveland represent a stellar example, recently called out by the Federal Reserve Board member Sarah Bloom Raskin as an effective model of local economic development. A similar effort is on the verge of starting in Springfield, Mass.

States and cities have carried out a variety of other efforts to help small businesses grow. But the level of public investment in such efforts seems tiny compared with the amounts spent on incentives for large companies to relocate. The governor of Texas may dream of winning jobs from California, but the country as a whole would benefit more from the creation of new jobs.

It would be interesting to estimate what $70 billion to $80 billion in subsidies to economic gardening could yield, relative to economic hunting.

Mr. LeRoy explains that the nonprofit organization Good Jobs First has begun a study of relative spending on subsidies for small versus big businesses. In the meantime, he asserts, “Small business groups should put their shoulder to the wheel on state economic development policy reform.”

The jobs they could create, after all, would be their own.