The Subsidy Race Has No Finish Line

Industrial policy returned to respectability quickly, and the return was justified. Some supply chains had concentrated to a degree that no serious government could accept, and the market had no mechanism for undoing that on its own.

What followed was less considered. Once several large economies began offering incentives for the same set of industries, the packages stopped being a response to a strategic gap and became a bidding process, with the firms as auctioneers.

The auction dynamic

A company evaluating locations does not have to lie or threaten. It only has to keep multiple jurisdictions in the process, which is ordinary corporate practice, and let each one learn what the others have offered.

The escalation is visible in the numbers. Incentive packages per job have climbed steadily, and the climb has not been matched by any improvement in the underlying business case, because the business case was never what was being bid on.

When several buyers compete for a good that only one seller can supply, the price is set by the second most eager buyer, not by the value of the good.

Clawbacks are the weak point

Nearly every package includes performance conditions. Jobs created, wages paid, investment sustained for a period of years. Enforcement of those conditions is where the system consistently fails.

The failure is political rather than legal. Enforcing a clawback means a public admission that the original deal was a mistake, usually by the successor of the official who signed it, against a company that still employs people locally. That is a fight nobody chooses.

What a disciplined version looks like

It exists, in a few places. Independent scoring of every package before signature, published. Automatic clawbacks that trigger without an official having to initiate them. Ceilings expressed per job rather than per project. Sunset dates on the programs themselves.

These do not end the competition. They make it a competition on terms that a government can afford to lose, which is the only version worth entering.