And how savvy do you think the city council in a town with only 2,000 people is? Most of them are going to listen to the company's pitch and be taken in out of a combination of fear, desperation and lack of background in cost-benefit analysis.
I guess I come from an atypically savvy small town. We got our Wal-Mart without offering an incentive package beyond paying for a traffic light and some other road improvements. Back during the ethanol bubble of a couple years ago, they turned down an offer to host a distillery at the industrial park that would use up most of the town's spare water capacity.
Believe it or not, not all small towns are led by rubes. Still, if that is something you consider a problem, then simply bar local governments from offering those sorts of breaks. Indeed, I'd be all in favor of that.
Your argument seems to be that because some businesses screw society, society needs to screw business rather than figure out ways to stop the screwing.