• Alan Hall

The Missing Element in New Mexico Economic Development

Updated: Apr 28, 2020

Each year, it seems, we offer more in the way of subsidies to attract businesses to New Mexico. And each year it is more and more evident that we cannot bribe our way to prosperity. That’s because competition, and not subsidies, is the best approach to economic development. New Mexico has a plethora of protectionist and anti-competitive laws on the books, and I will work doggedly to repeal them, one by one.

Students of Russian culture need always to bear in mind the word nash, meaning “our own”, as in “Nash girls are prettier”, or “Nash sentiments are more noble.” Once nash enters the discussion, objectivity goes out the window.

The New Mexico economic development community has its own counterpart to nash. It is the phrase “support New Mexico business”, which invariably heralds serious confusion.

The unstated assumption is that New Mexico businesses are worthy of support, or at least, more worthy than other businesses. But why? “Businesses” come in all varieties, and some, including certain monopolies and oligopolies, can consume more value than they create. Instead of pampering our fair-haired children, we should be focusing on the real generator of wealth: competition.

It is said that we should favor New Mexico businesses because the state “lacks capital”, as if that commodity were hauled around in ox carts. Hence the arguments in favor of in-state preferences for public procurement contracts, so that the money will “stay” in the state. In fact, we don’t have a lack of capital; we have a lack of attractive investment opportunities. When those happen to exist, as with wind farms, the capital rushes in at, literally, the speed of light.

It is not that we spurn all out-of-state businesses. New business entrants that have no in-state competitors, like Intel and Facebook, are welcomed without reservation. But when Tesla proposed repealing the stranglehold of automobile franchisees on new car sales, the shudders and frowns were beyond parody.

For years, Republican and Democratic administrations alike have advanced the idea that cutting business taxes would bring an economic revival. Multiple cuts later, that theory has yet to bear fruit, as of course it wouldn’t, if the affected businesses are simply content with their existing slices of the pie. Nor have generous subsidies succeeded in moving the overall economy forward. IRBs and similar tax abatements may be regarded as necessary evils to counter the blandishments of other states, but the only real lesson of this never-ending interstate war is that we cannot bribe our way to prosperity.

Numerous flabby business sectors could benefit from a healthy dose of competition.

Whereas other states see nothing wrong with title insurers competing by price, in New Mexico generously fixed premiums guarantee the industry a quiet and untroubled existence. Interstate motor carriers were deregulated during the Carter administration, but if you want to carry passengers between Albuquerque and Santa Fe you must first show that your venture will not harm the existing bus lines. (In effect, you must demonstrate that your service will be worse the incumbents’ service.) Many occupations are permitted to regulate themselves through state-sanctioned boards, which enthusiastically impose onerous and irrational licensing requirements. Among these is the Board of Barbers and Cosmetologists, which requires haircutters to have 1200 hours of training before they can apply for a license.

Some businesses, of course, do not require active governmental assistance to stifle competition. While non-compete clauses used to be limited to certain highly paid employees, they are increasingly applied to hourly workers having very ordinary skills, thereby discouraging some of the poorest New Mexicans from moving up the job ladder.

Many economic development professionals would like to ignore these restraints on competition. They argue that the effects are minor, and that, anyway, we need to “think big”. They are wrong.

The cumulative effect of these economic inefficiencies is substantial. They are like a steady stream of grit dribbled into our economic machinery, wearing and corroding. And even worse, they encourage a public attitude of cynicism and futility: “It’s not right, but nothing can be done.” This all needs to change, and the sooner, the better.

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