The Endangered Inflationary Species: Gazelles

Nevada is, by all accounts and accountants, in rough shape. Very rough shape. An economy overly dependent upon a single industry, tourism, in this case, is a disaster waiting to happen should anything happen to that industry. Pandemic restrictions, for instance.

Nevadans cannot afford the government spending they “have” without a gaming industry attracting visitors at full throttle. Desperate, the state’s governor Steve Sisolak announced last week that officials would explore setting up highly innovative, and what will be very controversial, “innovation zones” within their borders to specifically attract other types of businesses; the pandemic panic seems likely to stick around for a while.

The controversy stems not from the general idea of incentivizing successful firms to relocate and increase one’s tax base; rather, it is how Nevada proposes to structure these incentives. Typically, what’s offered are tax abatements, public-funded infrastructure, and the like. Can’t do that, Sisolak admitted, the state has no money, so the innovation zones will be created as potential counties unto themselves.


Corporations will be, essentially, free to set up their own local government structures (within established guidelines, the governor claims). Invitation for a CEO to take on the role of also Sheriff, tax collector, and school board? Frightening, undoubtedly, but that’s not really my issue (here).

In order to qualify for the corporate state-within-a-state setup, any corporation must be doing business in some specified “high tech” capacity and then pledge an immediate $250 million to invest in its newly documented legal domain, plus a solid pledge for a further $1 billion over the next ten years.

Who has $250 million? Which firms can be reasonably assured of the next billion?

Blank-check SPAC’s fronted by Instagram influencers and celebrities or financially-secure junk bond floaters, sure, but Mom and Pop tech businesses aren’t afforded any chance near this “opportunity.” Had this been literally 1984 (OK, more like 1974), Steve Jobs wouldn’t get through the initial screening.

We’re left with the idea – and this isn’t specific to Sisolak’s Hail Mary plan – that big business is the place to go. The best perhaps exclusive way to generate or regenerate a tax base is to steal huge companies from other places. While some municipalities pay minor attention to “incubation” zones seeking to nuzzle the small, the wider world, including the politicians blindly operating within it, is made to think big and only big.

This can be, and likely has been, short-sighted. While the invisible hand of capitalism has been hotly debated ever since Adam Smith, there is a wealth of data showing that background, supply-side wealth for any economic system begins small – and then becomes big. Economic potential, therefore, derived from the transition.

These kinds of firms were once called “gazelles” in a paper written back in the mid-nineties by economists David Birch and James Medoff – just as all sorts of formerly garage-based technology innovators were hitting it huge. I wrote about these many years ago:

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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