Yet the ambition of neoliberals did not stop at shoehorning people, companies, and parts of our societies into the great sausage machine of the price system; they wanted to shovel in whole countries. And Tiebout opened up this wonderland for them. Like two powerful magnets brought into close proximity, the two bodies of thought—the neoliberals arguing that parts of society should be made to compete (efficiently) with one another, and Tiebout arguing that states and jurisdictions could compete efficiently with one another—were inevitably going to come together.
The full merger happened when a Princeton economist called Wallace Oates wrote a paper in 1969 with some measurements that seemed to confirm Tiebout’s thesis.18 Oates looked at fifty-three communities in New Jersey and studied their property taxes, along with local authority spending on schools. Then he looked at how this related to local house prices. And his results were just as Tiebout had predicted: higher local property taxes seemed to mean lower house prices, while more school spending meant higher house prices. People did “vote with their feet” after all, moving in and out of communities in response to taxation and spending packages. Tiebout, it seemed, was right!
Oates’s results may not seem so surprising today, but this idea was radically new then. As the scholar William Fischel put it, “everyone knew that Americans were mobile, but no economist had previously connected mobility with demand for the services of local government.” The model grew and grew in stature and has now become, according to Fischel, “pretty much the touchstone for local public economics in the United States … its influence has expanded beyond economics and beyond the public sector.”19 Those arguing for greater tax and spending powers for local governments around the world draw support from this model born out of Tiebout’s and Oates’s work. Behind the scenes, Tiebout’s big idea is everywhere.
For the neoliberals, the idea of states “efficiently sorting” was thrilling: a mechanism for shoveling districts, states, and even whole countries into their competitive models at last, enabling them to declare the whole process a good thing. Even better, it could justify the view that public services and tax systems and even laws were just another commodity to be bought and sold in the marketplace. “Law became one of many ‘assets’ through which a nation can compete,” wrote Will Davies; tax “becomes nothing but a ‘cost’ for the [company-nation] to minimize.”20
It’s not hard to see how subversive all this was. The rule of law has a monetary price, and so does your corporate tax rate and regulatory environment. Once this awesome intellectual land grab by corporate and financial interests began to enter mainstream politics in the late 1970s, it would lead inevitably to corruption, oligarchy, bank bailouts, and the growth of international organized crime.
As these changes unfolded, a series of events was starting to play out on the ground in the United States that would expose Tiebout’s ideas in ways he would never have intended. Rather than local governments competing with one another and thus increasing efficiency, as he had once thought, the emerging “competition” among the states was revealing itself to be a powerful tool for big financial and corporate interests to get what they wanted from states by playing them against one another in a vicious race to the bottom. (For the rest of this book, I will call this latter form “competition”—with scare quotes—as opposed to competition between private actors in markets.)
In 1973, just four years after Oates published his paper, Idaho’s Democratic governor Cecil Andrus had a meeting with David Packard, the boss of the fast-growing computer company Hewlett-Packard. The company was looking to build a major new computer plant and had narrowed its options down to Idaho or Oregon. Andrus described in his autobiography how he pitched his state’s attractions in the face of an attractive counteroffer from Oregon. “Packard listened politely,” Andrus remembered, “then asked in a level voice, ‘What type of tax concessions is the state willing to give?’” Andrus’s answer would seem quaint today.
I took a deep breath and set out to sell him on a difficult argument. “We don’t believe in existing businesses subsidizing new businesses,” I told him. “When you come to Idaho you become a citizen, and we all play by the same rules. A few years down the line and you’ll be an old-timer. Do you want to subsidize the next guy who comes along?” It was a nervous moment. After a brief pause, Packard grunted: “Makes sense. That’s the way to go.” He moved on to other questions. We captured the computer plant and gained a top-notch corporate citizen.
At that time the old consensus was still alive, which held that corporations were not just machines for creating profit but had a wider purpose: they were stable social institutions that created useful goods and services, well-paying jobs, tax revenue, and, ultimately, thriving communities.
That consensus was about to come under threat and eventually change beyond all recognition. One of the least well-known instruments of change was a new industry that was already stirring in America by the time Andrus spoke. This industry had first emerged in 1934 when a businessman called Leonard Yaseen created the Fantus Factory Locating Service in New York. The company set out to provide expert local guidance for companies that wanted to relocate or expand into unfamiliar parts of the country. This was in itself a perfectly reasonable idea. The problems soon began, however, when companies went beyond looking for the good stuff that benefits everyone in a locality, such as strong infrastructure or a healthy and educated workforce, and into searching for wealth-extracting free rides such as special tax treatment, exemptions from pro-union laws, lax environmental standards, or outright financial inducements from politicians at the expense of local taxpayers.
By the time Oates popularized Tiebout’s paper in the late 1960s, the relocation industry was already maturing, with secretive consultants playing local areas off against one another and constantly pushing states to get the “business climate” right—which meant extracting maximum subsidies from local taxpayers. In the words of Greg LeRoy of the US nonprofit group Good Jobs First, a veteran observer of these changes, these consultants are now “the rock stars in expensive suits at economic development conferences,” or “the speaker-bait that brings in hundreds of public officials who hang on their every word”; they are the “shock troops of the corporate-orchestrated ‘economic war among the states’ that is slashing corporate tax rates and manipulating state and local governments everywhere.” While “cities and states are ‘whipsawed’ against each other to maximize subsidies,” they “have played our state-eat-state system like a fiddle.”21
LeRoy outlines fourteen free-riding scams the site consultants deploy, including job blackmail, creating a “bogus competitor,” receiving “payoffs for layoffs” in the form of subsidies while firing workers, and paying poverty wages while sticking taxpayers with hidden costs. A presentation by Ernst & Young, one of the players in this game, was entitled “Turning Your State Government Relations Department from a Money Pit into a Cash Cow.” Since the 1970s this race among US states has been getting faster and faster, and today the system has run amok.
One of the best petri dishes for studying this at close quarters is Kansas City, where the state border between Kansas and Missouri runs through the middle of town. Companies here can relocate across the state line simply by crossing the street, and this has sparked especially fierce local border wars on incentives, even calls for “cease-fires.” On a visit to the Kansas City area one icy December morning in late 2016, I met Blake Schreck, president of the Chamber of Commerce in Lenexa, a prosperous municipality in Johnson County