One thing I have yet to see clarified from the Obama team is what, if anything, it plans to do about state and local government use of subsidies to attract economic activity, everything from auto and aircraft plants to retail facilities. We are talking big money here: I estimated in my book Competing for Capital (Georgetown University Press, 2000) that state and local governments spend close to $50 billion annually in such subsidies. This spending is often pure waste (the facility would have located in the same place without the subsidy) and is mainly an effect of firms' ability to locate somewhere else, or threaten to do so.

This silence on the part of the new administration is particularly odd when you consider that its agenda at change.gov lists action against foreign subsidies as an important element of its economic policy. Many state and local subsidies are big enough to affect international trade, most notably the $3.2 billion Boeing received for building its new airliner in Washington state, which is already the subject of a European Union complaint at the World Trade Organization (which won't be resolved until sometime next year). It's not good to appear to be the pot calling the kettle black.

These subsidies often lead to economic inefficiency (overcapacity in the auto industry would be one example), inequity (average taxpayers paying corporations) and sometimes even environmental harm, so they need a lot more scrutiny than they usually get. Moreover, the states have shown that they can't even keep voluntary no-raiding agreements with each other, so federal action is needed. In the European Union, such "federal" action is already a reality. Member states' governments have to notify the European Commission in advance when they want to give a subsidy, and wait for Commission approval to do so. There are clear-cut rules governing when subsidies will be allowed (investment in objectively low-income areas of the EU, R&D, and environment are three important reasons), and sanctions with teeth for governments that violate the rules. The outcome has been a steady decline in subsidies there, in sharp contrast to the continuing increases here (see data at http://ec.europa.eu/comm/competition/index_en.html). The notification rules also provide a level of transparency that is far above that in the U.S. (though our situation is improving, as you can read at goodjobsfirst.org). While we can't simply adopt EU rules in the context of our institutions, we do need to think about what we can borrow from their practice, starting most importantly with transparency.

For way more about the issue of investment incentives, see my report to the Global Subsidies Initiative, "Investment Incentives: Growing Use, Uncertain Benefits, Uneven Controls," at www.globalsubsidies.org

P.S. I put the scare quotes around "corporate welfare" because I don't like the implication of that term that there is anything wrong with welfare payments to individuals.