The Palmetto Insider

The blog of the South Carolina Policy Council

The Exception Doesn’t Make the Rule

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Lawmakers in South Carolina, and nationwide, like to point to Research Triangle Park in North Carolina as the model for taxpayer-funded economic development. They call it a success of “cluster theory.” As interpreted by state government, the theory holds that taxpayer-funded incentives will attract a particular industry to an area—film making, aeronautics, automotive, etc.—and that anchor businesses will attract similar or supporting companies.

Cluster theory emerged as a new mantra for government-driven economic development in the early part of the 2000s, including the 2003 launch of South Carolina’s “Council on Competitiveness”—now called New Carolina. But among economists, skepticism was emerging even before state policymakers started to embrace the theory. Economists warned in 1999 that cluster theory might be just another passing fad, and that “cluster theory should come with a public health warning.”

Duplicating RTP, however, will be far more difficult than S.C. lawmakers seem to realize. In fact, not even North Carolina has been able to duplicate its own success. Just look at the Global TransPark Authority, a 20 year old industrial park near Kinston. Today the aerospace cluster venture has racked up nearly $38 million in debt to the state, with no idea how or when the debt will be repaid.

The Carolina Journal reported that even though the park landed an “anchor tenant” in Spirit AeroSystems, a Wichita, Kan.-based company, taxpayers still have to subsidize Global TransPark Authority at a rate of $200,000 per job.

South Carolina has clusters, make no mistake. Textiles, chemicals, forest products, apparel and furniture are just a few. But these clusters evolved naturally—without government incentives other than allowing the free market to create commerce spontaneously. Nonetheless, cluster theory has been exploited by governments looking for a rationale for enacting deals for special interests—and picking winners and losers in the marketplace.

The problem is that nobody, especially not government, can force economic development to happen. South Carolina attempted its own cluster theory economic development experiment, in this case attempting to create a “knowledge-based” cluster. It’s called Innovista. Perhaps you’ve heard of it, or seen its ghost town of mostly unoccupied buildings in downtown Columbia. Either way, you’re definitely paying for it.

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Written by Robert Appel

March 8, 2010 at 2:29 pm

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