Regulating Location Incentives

Abstract

In recent years, a growing share of state and local budgetary resources has been diverted to a small number of firms through multi-billion-dollar location incentive megadeals, as represented by Amazon’s HQ2 search and Wisconsin’s Foxconn boondoggle. These companies have become adept at devising new mechanisms for extracting the public resources of local communities to secure a competition advantage over their market rivals. But legal scholarship has not considered the possibility that dominant firms’ incentive demands might implicate the statutory protections enacted to protect against unfair methods of competition and corporate dominance more broadly. This Article develops a historical, economic, and institutional case for using latent authority under the FTC Act to study the market consequences of inefficient incentive megadeals—and regulate certain anticompetitive practices that cause cognizable harms. 

This Article uses location incentive megadeals to explore how federal regulation could help address a classic concern of state and local governance: structural corporate power over local communities. I demonstrate that the populist movement responsible for the enactment of our initial antimonopoly protections was substantially motivated by opposition to the lavish incentives demanded by private railroad companies, from competing towns, during the late 19th century. When Congress later strengthened those protections by creating the FTC in 1914, legislators were addressing harms understood to be created by unregulated interstate competition for mobile corporate tax location. Reviewing recent reporting and empirical findings, I suggest that contemporary megadeals create harms directly analogous to those of concern to past legislative drafters: to healthy product competition; to consumers of private and public goods; to labor market structure; and to democratic self-governance. Finally, I argue that federal market supervision offers various institutional advantages as compared to previous (unsuccessful) attempts to rein in this source of public resource misallocation—accommodating key policy considerations and overcoming the coordination challenges that prevent localities from acting on their own.

Keywords: location incentives, fiscal federalism, competition policy, legal history, law and political economy

JEL Classification: N81, R12