Corporate-welfare queens (and kings): Google, American Express, Dollar Tree ...

MONEY doesn't grow on trees, but that hasn't stopped Dollar Tree Stores from generating forests of revenue. In 2006, sales at the retail chain, where every item costs a buck, were $4 billion. That's up 17 percent from the year before. The company now operates more than 3,200 stores around the country, as compared with just over 2,900 a year ago--an increase of more than one per weekday last year.

So this capitalist success story is an obvious candidate for a taxpayer subsidy, right?

That's what Virginia thinks. On February 12, Democratic governor Tim Kaine announced his plan to award $200,000 in state money to Dollar Tree for an expansion of its corporate headquarters in Chesapeake. The cash comes out of something called the Governor's Opportunity Fund, which spends more than $15 million per year on companies that seek financial help. "We view it as a deal-closing fund," says Christie Miller of the Virginia Economic Development Partnership, a state agency. "It's for attracting business to Virginia and keeping it here, too."

Giveaways to flourishing companies may not sound like a discount-store bargain for taxpayers, but they're standard operating procedure just about everywhere. Even local governments are getting in the act: The city of Chesapeake agreed to inject $200,000 of its own money into Dollar Tree's project. Around the country, this marriage of Big Government and Big Business carries a price tag of $50 billion each year, according to an estimate by Alan Peters and Peter Fisher of the University of Iowa. For the most part, however, these so-called business incentives "don't accomplish much of anything," says Peters.

That's not entirely true. They can accomplish quite a bit for politicians such as Kaine, who wasted no time in issuing a boastful press release about his Dollar Tree deal: "Governor Kaine Announces 100 New Jobs for Chesapeake." Yet these little exercises in industrial policy rarely drive economic growth. And sometimes they aren't so little: Last summer, then-governor George Pataki of New York, a Republican, approved a $1.2 billion package of grants and tax reductions for AMD to build a microchip factory in Saratoga County. The project is supposed to create 1,200 jobs, which works out to a price of $1 million apiece for New York taxpayers--a deal that might make even George Steinbrenner blush.

Perhaps these corporate-welfare schemes would be worth it if they created more jobs, helped depressed areas, or expanded a region's tax base. Evidence suggests that they don't accomplish any of these goals. "After decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated," wrote Peters and Fisher in their exhaustive analysis. "Indeed ... there is a good chance that all of these claims are false."

This should come as no surprise. Politicians and bureaucrats in the grip of what Hayek called the "fatal conceit"--the notion that they can pick economic winners and losers better than the invisible hand of the market--have an exceedingly poor track record. The Mackinac Center, a think tank in Michigan, analyzed the performance of the Michigan Economic Growth Authority (MEGA), the state's most visible corporate-subsidy program. It found that among 127 deals whose employment promises were fully measurable through 2004, only 10 had met their projections. "MEGA is another in a long line of political programs disguised as economic ones," says Michael D. LaFaive, a co-author of the study. "They're great for giving politicians cover but do little to produce real job growth."

Despite these failures, economic-development agencies have enjoyed indisputable success in one area: rewarding businesses for making choices they would likely have made anyway. The decision to build a factory or open an office is a complex one, as businesses weigh the availability of workers, access to transportation, proximity to consumers, the quality of local schools, and so on. Unless they're truly massive, these subsidies play almost no role in what companies decide to do.

Was Dollar Tree thinking seriously about moving its headquarters out of Virginia? Almost certainly not. Its roots have been firmly planted in the Old Dominion's soil for more than two decades. Moreover, the headquarters expansion was a done deal even before Kaine decided to throw money at it. "Dollar Tree was already clearing trees from the site," says Scott Howell, a development manager for the city of Chesapeake.

Similarly, in the wake of 9/11, the federal government devoted $500 million to the cause of persuading companies to remain in lower Manhattan. American Express alone pocketed $25 million, but this was money wasted. "Our decision to return downtown, which has been our home for more than 150 years, was not predicated on financial incentives," said spokesman Tony Mitchell, according to Newsday. "Once those financial incentives became available, we chose to participate, as did other companies."

Although these giveaway programs don't appear to be engines of employment, they have created a new kind of job: the site-location specialist. In truth, these consultants have been around for a while, and they have a legitimate role to play. Growing companies often need expert advice on where and how they might relocate or expand. Increasingly, however, these consultants are expected to grab public money.

Sometimes site specialists operate like lawyers on contingency, taking a percentage of the subsidies they win for their clients. They can certainly be flamboyant. A few years ago, the John Locke Foundation, a Raleigh, N.C.-based think tank, reported on an Ernst & Young presentation at the annual conference of the State Government Affairs Council, an association of corporate government-relations officers. The seminar was called "Turn Your State Government Relations Department from a Money Pit into a Cash Cow." It urged listeners to deliver a "'but for' threat"--i.e., to insist that "but for" government incentives, they wouldn't be able to expand or move their businesses. That particular piece of advice is difficult to interpret as something other than an inducement to lie.

Last summer, Michigan governor Jennifer Granholm, a Democrat, announced that Google would open an office in Ann Arbor. At the time, the company's stock-market capitalization was valued at more than $100 billion. Yet Granholm granted $38 million in tax credits to the robust company, relief not bestowed on other companies. Would Google have chosen Michigan "but for" the financial assistance? Press reports suggest that Google co-founder Larry Page, a Michigan native who earned a degree at the University of Michigan, was determined to build in Ann Arbor regardless.

Granholm, for her part, was thrilled to pose as a creator of high-tech jobs. The state Democratic party ran advertisements on her supposed achievement: Granholm was in the midst of a tough reelection campaign and had to battle the stubborn fact that her state was one of only two in the country that lost jobs during her first term (the other was Louisiana, which could blame Hurricane Katrina). It would appear that Granholm's decision to aid Google had more to do with protecting her incumbency than helping Michigan.

But that's nothing new. Public officials have long believed that with the right kind of industrial policy they can take credit for igniting technology booms. Yet as Scott Wallsten of the Progress and Freedom Foundation has demonstrated in his county-by-county research, the efforts to create biotech hubs and research parks haven't paid off. "They make great press releases," he says. "On average, however, they don't contribute to a region's economic growth."

Free-market purists aren't the only ones who oppose the subsidies. A 2004 report by Good Jobs First, a labor-backed policy group, objected to the more than $1 billion in state and local subsidies for Wal-Mart's stores and distribution centers. The subsidies can take many forms, including assistance with land purchases, property-tax abatements, and outright cash grants. "Wal-Mart is a huge company that's doing very well," says Greg LeRoy, the executive director of Good Jobs First and author of The Great American Jobs Scam. "It makes no sense for any government to bankroll its growth."

Even if certain elements of the Left and Right can find common cause in opposing corporate welfare, they may have trouble agreeing on how the money should be spent. Many liberals would like to divert the funds for different expenditures, while conservatives would prefer to return the money to the public in the form of lower taxes.

Still, there are signs of rapprochement: Last year, LeRoy spoke at the Heritage Foundation on a Supreme Court case involving tax credits that Ohio gave to automaker giant Chrysler. Conservatives and liberals can possibly agree on a few basics, such as better disclosure and reporting on exactly how much money states and localities spend to assist corporations. "It's very hard to keep track of all the different programs in a single state, let alone everywhere," says Peters of the University of Iowa. "Sometimes I think that they make it impossible to track because the information would be so embarrassing."

Research in this area is probably one activity the politicians aren't willing to fund.