Effects of Big Business Subsidies on Local Economies

Topics: Economics, Chain store, Small business Pages: 5 (1882 words) Published: November 14, 2012
Julian Diaz
Eco 212
Tax breaks
Big Business Subsidies

Across the nation corporations have realized that they hold the fundamental building block to the growth of their revenues, and economic growth of small economies. Claiming that merely their presence are the key to fixing local economies. Politicians are willing to funnel, in some cases, millions of dollars from taxpayers pockets and into the wallets of corporations to set up shop in their town. Corporations with capital and willingness to invest are waiting around for the highest bidder, our bidders being the local governments attempting to find a way to a better local economy . These techniques are essentially paying the corporation to set up shop in their local economies. Local governments need to realized that big business as effective as it is in creating new jobs in the short run and stimulating the economy on a macroeconomic scale, are not benefiting the local economy in the long run and some cases short run. In order to truly understand the whys and wherefores for big business’ to not receive local government subsidies, a look into the negative effects of these business on the local economies, and how these subsidies should be allocated to maximize the positive growth of a local town are essential. The use of tax incentives to lure in big business may seem appealing at first but there are both short and long run negative effects, allowing these tax incentives to continue is not benefiting the economy just the large corporations who do not reallocate these resources into the local economy, and what do local governments and economies really see as a result of these tax subsidies. “Traditional economic development approaches have focused on trying to fill the bath tub while neglecting to plug the drain. An increasing number of communities are now seeking ways to “plug the drain” and limit the dollars that leak out of their local economy”1

Corporations are misleading government officials with ideas centered around the creation of jobs and economic growth, what they happened to leave out during negotiations are the negative effects that big retailers have on the local economy. The past success of our nation’s economy has been driven by the ability to have free competition among business, a free market allows for the allocation of labor, and prices based upon demand. Major national retail chains and small businesses do share the need to consume in order to operate. However, the economic impact of small business to a local economy triumph that of the national chain stores. A study performed by the Maine Center for Economic Development consumption of small business benefit the local economy compared for every 100 dollars spent by a business how it impacted the local economy. “MECEP’s analysis found that in general every $100 spent at locally owned businesses generates an additional $58 in local impact. By comparison, $100 spent at a representative national chain store generates $33 in local impact. Stated differently, MECEP found that money spent at local businesses generates as much as a 76% greater return to the local economy than money spent at national chains.”

This data was collected from 350 small business in the Portland area. The reason for such a higher effect being produced from the small business is derived from the fact that the goods they purchase are from other locally owned business. Government officials who feel that luring in these big businesses with tax incentives will benefit the economy need to find a way to improve local businesses first and “plug” the drain. Let’s assume that our local economy is like a city’s economy, if they allowed a major corporation to step in and open up shop, and increase sales revenue by 50 % wouldn’t that sound great. Add in the creation of new jobs for this economy, even better. However, where are the revenues from this increased sales going? They are not benefiting the government or local citizens...
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