CHICAGO — Wales has much to offer potential investors: a productive work force, a strategic British Isles location and spectacular countryside. But it lacks the lavish subsidies that many American locations can roll out.

"I can't believe the grand incentives being offered by some North American locations,'' Anne Reynish, vice president of the Welsh Development Agency, said as she sat at the country's booth at the Corenet convention in Chicago.

The Wales incentives pale beside those offered by others, in part because the country is part of the European Union, the federation of 25 European states that has integrated the continent's economies to the point where most now use the same currency, the euro.

To discourage competition among states for companies, the union established a commission to regulate subsidies. The more depressed the region, the greater the incentives that can be offered.

The idea was to avoid a "subsidy race," Adinda Sinnaeve, a commission member, told an audience at the University of Minnesota earlier this year. She said such a contest might just transfer problems from one country to another, waste public money and weaken companies by addicting them to government handouts.

Wales gets more subsidies than most other parts of the union because it is poorer than the EU average. Reynish displayed a map showing much of the country colored dark green, denoting the areas eligible for the deepest of the union's three levels of subsidies.

The system is helping Wales, she said. The region has only 2.9 million people, or about 5 percent of the United Kingdom population, but gets 8 percent to 12 percent of overseas investment in the country, she said. Foreign companies like Ford, Airbus and Sony all have major manufacturing facilities in Wales.

There are no similar subsidy controls in this country, which some say is a problem.

"The beauty of the EU system is they have a unified, multi-country, very uniform way of defining distressed areas, not 50 definitions of blight like we have," said Greg LeRoy of Good Jobs First, a nonprofit group based in Washington that is critical of government subsidization of businesses. "It's a really good way to assure that (the subsidies) go to places that need them."

Still, the system is unlikely to be adopted in this country.

"Detailed EU-style regulation of all types of subsidy by Washington is politically not feasible for now,'' said William Schweke of the Corporation for Enterprise Development in Durham, N.C., an advocate of more regulations for business subsidies. The reason, in part, is what he sees as "the strong anti-federal sentiment in this country."

That leaves New York in a position where it has to offer incentives to most firms that are thinking of making a move just to be in the game with other states, economic-development officials and private real estate executives said.

Even those who think the role of incentives is exaggerated acknowledge that a state like New York has to play the game.

"(Incentives) are overblown in their importance in many ways in the early phases of a project,'' said Gene Deprez of IBM Business Consulting Services in New Jersey. "The cost of labor and real estate matters far more.''

But he continued, "It becomes important in the later phases, when you're down to a short list of three or four. If any of the three or four can do it and are equally positioned, then the tiebreaker might be incentives."

Some say the tax breaks and other incentives offered to businesses by New York are already too steep and drive up the taxes of individuals.

While corporate income taxes accounted for 10.5 percent of state revenues in 1979, the figure had dropped to 6.6 percent in 2000, according to figures from the Fiscal Policy Institute, a labor-backed think tank.

The institute and other groups called for the state to close "loopholes'' that would collect about $1 billion more from corporations.

"They shake down state and local officials for more and more tax breaks, in many cases operating completely tax free," said Richard Kirsch, executive director of Citizen Action, an advocacy group. It's "a pretty good deal for them, but a pretty bad deal for the people and the other businesses, which have to pick up a bigger and bigger share of the tab."

Such criticisms avoid a more basic issue, said Matthew Maguire, a spokesman for the state Business Council. He said small businesses, utilities and other companies pay taxes, but not corporate income taxes.

"This is just an attempt to change the subject, which should be that, overall, taxes are the nation's highest,'' Maguire said.

© 2004, Gannett News Service