Start-Up NY – The Wrong Way (2015 Mar)

by Barry A. Liebling

On many occasions during the past year I have seen a disturbing television commercial for Start-Up NY. In 30 seconds the announcer entreats the viewer to move, expand, or start a new business in the Empire State.

Of course New York has earned its reputation as having a government that is hostile to private business. It has among the nation’s highest taxes along with the most onerous regulations. Firms that survive and thrive do so under the heavy hand of government. Astute observers are prudently suspicious of the good will of officials in Albany.

And the burden of government-imposed difficulties is exactly what Start-Up NY pretends to address. The program promises to grant special privileges to businesses that qualify. According to the official site, participating companies will pay zero state taxes for 10 years. To be eligible a business has to “relocate to or expand” to one of several special zones in New York, “align with [a] college or university’s academic mission, create new jobs and contribute to the economic development of the local community.” Note that the program is restricted to certain types of businesses – mostly biotechnology and information technology firms. Also note, that to participate in the program a firm must promise not to compete with – or recruit employees from – existing local businesses.

What is wrong with this picture? Let’s consider five conspicuous flaw of this tainted initiative.

First, a firm that participates in the Start-Up NY program has turned to the dark side and is no longer (if it ever was) a private company. Its overall orientation is to be a junior partner to the powerful state. A healthy private company focuses on creating value and making a profit. New jobs and economic development in the surrounding community are the natural (invisible hand) consequences of the company’s success. This is conceptually different from concentrating (or pretending to concentrate) on job creation and on the economic development of the local community as primary objectives (goals that are typical of Soviet-style economic planning).

Second, the program promises special privileges to its participants for 10 years. And the time limit hints that the state is up to no good. What happens after 10 years? When entering Start-Up NY do company owners develop a plan to escape as soon as the “no taxes” agreement expires? Alternatively, do top executives spend substantial time, money, and resources to lobby Albany politicians to extend its sweetheart deal? Either way reflects badly on the program.

Third, if a company in the program fails to achieve economic success, will the state of New York bail it out? The architects and supporters of the program have their reputations on the line. Will they use tax dollars to assist their cronies? There is a long history of “private-public partnerships” where the government supports companies (especially those with politically-connected investors) well past the natural expiration date.

Fourth, Start-Up NY sends a clear message to existing companies in New York. The government is essentially saying, “We have you trapped. We will continue to treat you badly and squeeze taxes out of you because we know that we can. We are counting on you to stay because relocating to another state is difficult and requires a lot of effort and money.”

Fifth, the program signals that New York is a state that treats businesses abusively. If New York had an inviting environment then Start-Up NY would not be needed. Firms would be flocking to the state as many are now trooping to Texas. If Start-Up NY gives the “right kind of businesses” (biotechnology, information technology) a leg up the inescapable conclusion is that it is keeping other types of firms down. In telling newcomers what a good deal Start-Up NY is, the state is confessing that everyone else is getting a rotten deal.

The proper alternative to Start-Up NY is obvious and simple, but it is not palatable to government top-down enthusiasts who are intent on controlling and meddling as much as they can. All companies should be treated the same. Taxes should be significantly reduced for all firms, and regulations should be limited so that only the use of force and fraud is prohibited. If the state of New York were genuinely friendly to free enterprise a huge boost in prosperity would be the result. The big challenge is to help more Americans see the situation accurately.

*** See other entries at in “Monthly Columns.” ***

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