The Ethics of Subsidies

This past week we read in the news about the Kentucky Legislature voting to give a $43 million tax subsidy to a business venture which is building a Noah’s Ark-themed Creationist theme park (the so-called “Ark Park”). This would have been a political hot potato anyway, given the immediate outcry from liberal advocates under a First Amendment violation of state-sponsored religion, but was made much worse in this case by the Legislature also voting to cut $50 million from the state’s Education budget. This is being seen as supporting religion over education, and Creationism over every other possible kind of education (religious or otherwise), and is drawing fire (and ridicule) from everyone inside the state or otherwise who isn’t a Creationist…

I don’t intend to comment on the specific case because I don’t believe there is any basis for discussion; you either believe in Creationist theory (in which case any other use of funds would be madness) or you don’t (in which case this use of funds is asinine). But the larger question here, at least in a business context, is whether the state has any business providing tax incentives or other financial assistance to entrepreneurs who are attempting to build large tourist attractions. Since this could happen in any community in America, including yours, I thought it might be interesting to take a closer look at the positions involved…

On the one hand, any popular tourist attraction will draw visitors into the place where it is located, which has the potential to boost the local economy through hotel rooms, restaurant meals, souvenir stands, and other services used by tourists, and is generally considered a good thing. Unlike an athletic venue, where most of the revenue passes directly to the owners without benefit to the surrounding area (except during championship weeks), a theme park or similar facility will usually produce enough tax revenue to repay the state’s investment and enough collateral revenue to make it worthwhile to the rest of the community. In the case of the “Ark Park,” whether one believes in its religious message (or the political position of its supporters), it seems likely that the influx of tourists from other parts of the region will repay the costs involved – and Creationist dollars spend just like anyone else’s…

On the other hand, whatever the benefits to the business community, the people who live near the Park will have to deal with disadvantages such as traffic, pollution, crowds, crime, and possible shortages of food, water and other resources. At the same time, the cutting of $50 million from the state Education budget will almost certainly lower the level of education available in the state, leading to citizens who are less well educated, professionals who are less capable, businesspeople with inferior training, and so on. The long-term effects on the state’s residents could easily be catastrophic; they will at the very least put the state of Kentucky at a disadvantage versus any location where the education budget hasn’t been cut. And there is a very real possibility that the degradation of business education in the state will eliminate other entrepreneurial businesses that could ultimately have done more good than an amusement park…

All of which leaves us with a question. Does the state have an ethical responsibility to promote the creation of new businesses in order to create jobs and boost the local economy? Does that responsibility remain if doing so would have a detrimental effect on public and community services? Or does the state have a responsibility to maintain (or improve) educational levels at the cost of not supporting new businesses? What if the cost of maintaining the educational establishment prevents the development of new business, which ultimately destroys the state economy and results in even less public funds for education? For that matter, what if the diversion of funds for business development results in an education system so depleted that it can’t produce workers capable of operating the new companies/facilities, and all of the jobs end up going to people from out of state? With finite funds available, and no certainty of which expenses will lead to which outcomes, can we really say that one use of funds is unethical versus another, and how do we find the balance point between the conflicting interests?
It’s worth thinking about…