Forget tax incentives and input subsidies, supporting business development services is perhaps the most effective jobs-creation and productivity enhancing intervention that governments can do. I have blogged earlier making the case here.
Dani Rodrik points to a recent analysis of private-sector jobs growth by Timothy J Bartik of the 105 manufacturing-intensive labour markets in the US with a population of over 200,000 for the 2000-15 period makes for interesting reading.
It finds “no evidence that job growth in these areas is significantly spurred by cutting business taxes or increasing business tax incentives”. Instead, it finds significant boost to job growth from “customised job training programs” and “customised manufacturing extension services”. The latter delivered “small and medium-sized manufacturers with consulting advice on improving technology, product design, and marketing”. These manufacturing extension services were offered by public agencies through a mix of subsidies and client fees, in co-operation with university and private sector.
My analysis measures an area’s intensity of manufacturing extension services by the job creation or retention due to manufacturing extension, as reported in client surveys. Reported extension-induced job creation or retention is a significant predictor of an area’s overall job growth, holding constant other growth determinants.
In terms of cost-effectiveness too, such customised business development services trump conventional industrial policy interventions like fiscal concessions and input subsidies.
Clearly the time has come for governments to embrace business development support as a priority industrial policy lever.