I just got word that my article, “Regulating Investment Attraction: Canada's Code of Conduct on Incentives in a Comparative Context,” will appear next month in the journal Canadian Public Policy.
I will post a complete analysis then, but let me leave you with a teaser for now. In the US, we often see subsidies used to move existing jobs from one state to another, or even one city to another. Good Jobs First recently did an analysis of this problem in the Cleveland and Cincinnati metropolitan areas. I have also mentioned how both New York City and Kansas City have been targeted by neighboring states raiding successful companies there. This kind of poaching has no benefit for the country as a whole, yet states and cities continue to give up parts of their tax bases simply to rearrange the deck chairs.
In 1994, Canada's provincial and federal governments signed the Agreement on Internal Trade, creating freer trade among the provinces. The Commerce Clause of the US Constitution serves a similar function in this country. One provision of the Agreement, not explicitly in the Commerce Clause (though the case Cuno v. Daimler-Chrysler argued for such an interpretation), legally bans the provinces from giving subsidies to companies that are moving in from another province. The point of my article, which I researched as a Fulbright Scholar at Carleton University in Ottawa, was simply to determine whether this ban has worked in practice.
The short answer is no: I document at least eight subsidized relocations from one province to another since 1996, and one case where Nova Scotia had to pay a retention subsidy because Ontario was trying to poach the headquarters of the grocery chain Sobey's. The longer answer is “a little bit”: all the relocations were under 100 jobs, far smaller than the 1990s poaching incidents that had motivated the ban in the first place. The lesson for the United States is that if similar rules were in place and enforceable in US courts, they would work better than they do in Canada, where the enforcement mechanism is very weak.
In the course of my research, I also learned why some Canadians call Manitoba's capital, Winnipeg, “Winterpeg;” saw Paul Krugman give a speech to economic development officials in Edmonton; and went to West Edmonton Mall, the largest mall in North America, where I saw a casino, striking casino workers picketing inside the mall, and heard a word I won't let you use in the comments section broadcast on the mall's music system (in Green Day's “American Idiot”).