Labor Chief Blasts Recruitment Incentives Secretary Labels Industry-Recruiting Competition ‘Vicious Contests’

Bidding wars to attract companies through incentives such as tax cuts are “vicious contests” between states and localities that threaten funds for education and other priorities, Labor Secretary Robert B. Reich said Wednesday.

There are no winners in these “zero-sum contests,” he said in an interview shortly before delivering the keynote address at a conference on “The Economic War Among the States” sponsored by Minnesota Public Radio.

The national economy does not benefit, Reich said, because bidding wars merely transfer jobs from one area to another.

At the same time, he said, they often drain resources for education and infrastructure from winning localities that are necessary to keep industries and to attract more.

“As states and localities rush to attract business investment through tax cuts and subsidies, it can become harder to sustain spending on education and training,” Reich said in his speech.

Reich said companies have a major stake in developing their work forces’ skills and noted that many are engaged in improving education and training in their communities.

But he warned of “a poignant irony” in the dynamic leading to bidding wars.

“Even companies that know full well that the education system is the pipeline for their most important productive assets are pressing states and localities for financial benefits that risk blocking that pipeline,” the secretary said.

Reich said that as the federal government moves toward greater use of block grants, it must ensure that such funds are not diverted for use as “fuel for interstate bidding wars.”

“The current enthusiasm for turning federal programs into block grants to the states must be tempered by an awareness of this possibility, and further curbs against interstate bidding must be built in,” he said.

Reich also said excessive demands for tax breaks and subsidies “must be seen as a violation of the code of corporate citizenship” and “can be among the most insidious kinds of corporate welfare.”