Why the Texas Enterprise Fund is worth it

Photo by Marjorie Kamys Cotera

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,” Adam Smith wrote.

The cornerstone of capitalism rests on the principle that the pursuit of one’s own self-interest maximizes not only personal wealth but also the prosperity of the community. For the very act of wealth maximization often demands the provision of goods and services to others. 

Smith’s basic tenet holds not only for the individual but also for businesses. Corporations, partnerships and proprietorships, like the individual, act mostly in their own interests. They seek to minimize the costs of doing business in order to maximize profits, which can then be distributed to the owners of the business.

The Texas Enterprise Fund, created by the Legislature in 2003, was established with this precept in mind. By providing economic incentives to out-of-state companies, lawmakers sought to attract new businesses to the state by lowering the costs of doing business in Texas. Now, a select House committee has been formed to make recommendations on these incentives.

As of June of this year, the Enterprise Fund has disbursed nearly $560 million in awards to companies as incentives to bring them to Texas, resulting in more than 100 companies moving to or expanding in Texas and approximately 80,000 new Texas jobs. The bigger impact on our economy, however, has been the capital investments these companies have made in Texas. That number is approaching $24 billion. 

This means that the state made a $560 million investment and received nearly $24 billion in return on its investment. That’s a more than 4,000 percent rate of return. It may be argued that Texas spent nearly $7,000 per job created under the Enterprise Fund, but such simplistic analysis wholly disregards the multiplier effects and ancillary benefits that are created when an out-of-state company moves to Texas.

Yet a growing number of skeptics have questioned the wisdom of the Enterprise Fund and have even challenged the economic principles upon which it’s based. As one would suspect, most of the naysayers have predicated their objections on academic suppositions rather than practical policy outcomes. From their bird’s eye perspective, economic theoreticians often see the world solely in black and white. But from lawmakers’ viewpoint, at the kitchen tables, factories, office parks and retail centers of the districts that we represent, I can assure you that our constituents see the many shades of gray in everyday life.

These academicians’ primary argument is that because of Texas’ economic strength and business-friendly climate, no additional economic incentives are necessary to attract out-of-state companies to Texas. This ignores the fact that other less economically attractive states will provide competitive economic incentives to bridge the gap and, in some instances, surpass Texas’ value proposition altogether. Likewise, for those states that can provide a business-friendly economy, the mere addition of economic incentives would likely tip the scales against Texas.

Supporters of the Enterprise Fund respect and revere the “Texas miracle” as much as anyone in the state, but economic principles apply in Texas, just as they do in California, Louisiana, Nevada and Oklahoma.     

Those who oppose programs like the Enterprise Fund, calling them “corporate welfare,” deny the essential truth of Smith’s axiom. They believe that it is because of the benevolence of these companies, rather than their own interests, that they choose Texas over other competitive states. Opponents ignore the simple fact that these companies are moving here not only because Texas has a welcoming business climate but also because Texas provides the necessary economic incentives to enable our state to compete with like-minded states that seek these jobs as determinedly as we do.         

I acknowledge that a few thousand high-wage jobs may not mean much to ideological purists or special-interest lobbyists. But those jobs impact the lives of the good men and women where I’m from. Those jobs allow my constituents to send their kids to college, to own a home and to maybe even enjoy some free time with their families. I will support the Texas Enterprise Fund because it supports ordinary Texans. A 4,000 percent rate of return on a government program just seems like common sense to me. I’d make that investment any day.

Jason Villalba

State representative, R-Dallas