Harsh words are flying between New York City and Connecticut over Swiss Bank's decision to move its North American headquarters from midtown Manhattan to downtown Stamford, lured by tax concessions and energy discounts offered by the Nutmeg State.
The Giuliani administration accused Connecticut of "poaching" New Yorkbased companies and threatened to launch a border war by offering incentives for Connecticut firms to relocate in the city. But, as often in diplomacy, the accusation contained a bit of hypocrisy. New York had offered an incentive package of its own to Swiss Bank, which chose Connecticut because its deal was better.
The practice of offering tax incentives to favored corporations, I've argued ("State Capitalism, New York Style," City Journal, Summer 1994), is a foolish strategy for economic development. If companies already in New York find taxes high enough to drive them out, how will the city ever attract the small startup businesses that account for most of the nation's job growth?
Some Connecticut residents realize the futility of such an approach. In response to the Swiss Bank deal, a group of Connecticut small business organizations protested the arrangement on the grounds that they and their neighbors will ultimately have to pay for the subsidies Swiss Bank received for moving to Connecticut. We can only hope that New Yorkers—and their leaders—come to the same realization.