Corporate Welfare

News came out here recently that the citizens of our nearby town are going to have to come up with millions of dollars the city handed over to a couple of corporations as subsidies, on some pie-in-the-sky promise that they were going to locate here and generate jobs.  The jobs never happened, the businesses are belly-up (or never even materialized) and now the citizens are out a couple of million bucks.

Sadly that seems to be a fairly regular occurrence around here.  Our powers that be are enchanted by the dream that high tech businesses are going to locate here, bringing with them high-paying jobs and economic prosperity. Nevermind that we don’t have a workforce here with the education needed for such jobs. About the only thing that would make this area attractive to industry is our large unskilled workforce willing to work for low wages.  That is what attracted the company that once employed about half of the people around here–one of the largest cotton mills on earth.  All that’s left now of that once booming company are abandoned buildings–the corporation having declared bankruptcy several years back after years of decline.  It’s remaining assets were bought by a company in India and moved there.  Those jobs are gone and they ain’t coming back, as Mr. Springsteen said.  But our industrial legacy, such as it is, is what our political leaders seem to be fixated on.

Our area’s greatest resource is our farmland.  But while politicians here routinely promise that they will “create jobs,” I’ve never heard one say a word about agricultural jobs.  The vast majority of that work is now done by imported seasonal labor, despite our very high unemployment rate.  Our policymakers ignore agriculture, while flushing tax dollars down the toilet in pursuit of some industrial messiah.

The problem certainly isn’t limited to our part of the world.  Yesterday I read a blog post noting that nine states (Virginia is not among them) dole out 58% of the state subsidies to private businesses. The states doling out the most corporate welfare are both red and blue.  It seems to be something the two sides agree on.

The post quotes a study by Veronique de Rugy, an economist at George Mason University.  Her conclusions make a lot of sense to me:

Targeted state subsidies to private businesses are often promoted as a “market-friendly” means to boost growth, jobs, and development. However, the empirical studies on state subsidies find that these programs have little to no effect in producing their intended goals.

What’s more, as Christopher Coyne and Lotta Moberg write in their recent Mercatus working paper, “The Political Economy of State-Provided Targeted Benefits,” these subsidies are often ultimately damaging. Targeted state subsidies misallocate scarce public resources while encouraging rent-seeking, regulatory capture, and cronyism. To encourage sustainable state economic growth, policymakers should shift their focus away from tailoring policies to benefit specific firms toward policies that create a general environment in which all can flourish. The first step is to end the practice of targeted state subsidies.

With all the money our community has wasted on corporate handouts and now-abandoned “industrial parks” we could have put in high speed internet, for example, expanding the opportunity for home businesses and telecommuting, and creating “a general environment in which all can flourish.”  And for a small fraction of what’s been wasted on phantom “high tech” businesses, our community could be promoting and developing our local food resources.  Better yet, they could have just left all that money in the pockets of those who earned it.

I’ll keep dreaming.

Here’s an amusing sketch Cherie brought to my attention that is relevant.

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27 comments on “Corporate Welfare

  1. Dave Werner says:

    Where I came from (Ocala, FL) the local government would provide incentives for high-paying job creation only on a earn-as-you-go basis. IE, the company would submit reports showing employment, average wages, etc. to receive compensation. Paying in advance is deadly!

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    • Bill says:

      Paying in advance is a good way to get ripped off, as we have seen. Company-specific subsidies seem problematic to me, but limiting them to companies that are actually producing (versus only promising to do so at some point in the future) probably makes more sense than doling them out to start ups.

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  2. bobraxton says:

    sad, very sad – seriously

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  3. Jeff says:

    Here is the full report from the Mercatus Center. Scroll down to the third chart and note that Warren Buffet’s Berkshire Hathaway got $1.2 billion in subsidies. I’m sure he needs it – poor starving Warren.

    I’m a little bit surprised that a blog hosted by the American Enterprise Institute, an ardent defender of capitalism, would publish ideas such as these. The bedrock principle of capitalism is to exploit workers by paying them less than the value of what they produce. Now that the capitalists have hollowed out America, their puppets, the politicians, seek to further enrich their masters by digging in the smoking wreckage of the working class for a few more flakes of gold – the nuggets are long gone. These subsidy schemes, along with the proliferation of bond issues to fund “improvements” of various kinds, are just another way of stealing from the working class to enrich the 1%.

    Roseann Barr had it right. Maybe one day people will put 2 and 2 together and stop voting for bond issues and then pack meetings of these “Industrial Development Authority” boards to demand that their tax dollars stay in their communities to benefit them instead of being deposited in the off-shore bank accounts of the 1%.

    The ultimate source of wealth, as you note, is agriculture. No food, no life. Keep on pounding on that theme. The American Dream is dead but not many people realize it. These scams are based on exploiting wishful thinking.

    It’s time that we all seriously ponder the truth of what Dorothy said: “Toto, I have a feeling that we aren’t in Kansas anymore.” Heck, it would be a real good idea for people to read The Wizard of Oz again – it isn’t what most people think it is.

    End rant.

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    • Bill says:

      I recall learning about the Wizard of Oz symbolism in college and being surprised that I’d never heard it before. I find it fascinating that at that point in our history monetary policy was the major political issue. People were very aware of it and it drove the political dialogue. These days it’s a complete non-issue (despite being as important as ever). There is no political discourse about it. It’s just handed over to unelected bankers, whose priorities are what one would expect them to be.

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  4. ain"t for city gals says:

    If only we really had a choice of how our taxes are spent…..In Arizona ours go for football stadium and casinos….

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    • Bill says:

      Wouldn’t it be great if we had the ability to designate how our taxes are spent? If that were the case I wouldn’t mind paying them so much. Becoming a farmer eliminated my irritation with income taxes but now I have the heartburn of ever-increasing property taxes–way too much of which are handed over to for-profit corporations in exchange for their rosy promises.

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      • ain"t for city gals says:

        yes…building a house every two years and living in it (it takes us three or more because we do all the work ourselves ) and then selling it has made it so we legally do not have to pay income tax on capital gain and I don’t feel guilty about it one bit any more. Our property taxes more than make up for it and if more went to libraries and schools I could even forgive those….

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  5. Joanna says:

    I hope the local population voice their opinion at the next election. The local government where I live in Latvia only seems to be bothered when there is something in it for them personally. The national government is quite keen to promote agriculture, after all there is only 2 million people in around 25,000sq miles, about the size and population of West Virginia. The problem is that I am not sure they are making it easy to get into agriculture by raising barriers in an attempt to have people qualified in agriculture before being able to buy land. That would possibly exclude us from buying land – apart from the fact we managed to sneak in before the rules were applied and would stop anyone else from buying land and experimenting until they found something that suited them. I suppose I should just be grateful they are even thinking about it, or is it better for them to just ignore it and let us get on 🙂

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    • Bill says:

      I’m glad you made it in under the wire. While it seems sensible to want to make sure agricultural land is tended by folks who understand agriculture, my guess is that innovative and unconventional farmers would be barred by a law like that, despite the fact that they are desperately needed to shake up the industrial model. At our sustainability group gathering tonight we watched a documentary about Cuba’s transition to organic agriculture following the collapse of the Soviet Union. They had no choice. It was either go organic or starve. Under those conditions people started up urban and rooftop gardens and most of them had no idea what they were doing. It was all trial and error, unrestricted by the conventions of chemical agriculture. Within a couple of years Havana was producing 50% of its food within the city limits. Their experience demonstrated the value of novice farmers thinking outside the box.

      Liked by 1 person

  6. I couldn’t agree more. If states want businesses, cut the tax rates. If we want businesses here as a country, then we need to cut our corporate tax rates and quit providing incentives for companies to leave. Our neighboring city recently bent over backward to get an Apple backed business to come here. Things boomed for the last year. They missed their target dates. Apple went with the Gorilla glass for the iPhone 6, and the company declared bankruptcy. They announced this week they were laying off over 700 people. Little came of all of that effort by the city.

    We have abundant skilled labor in our area, but the fact is that a lot of the skilled labor jobs (engineering) are done by people here on work visas. I work with engineers from India (lots), China (whole lots), Japan, Poland, Russia, Cuba, Pakistan, Korea, Turkey, Mexico, Columbia, and even France.

    We’ve outsourced our economy.

    In some part we’ve lost our work ethic as a country. That is most unfortunate, since that was one of the things that always set America apart.

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    • Bill says:

      I see our work ethic fading going away too. Interestingly, we tend to work harder and longer than people in other industrialized countries–but it’s almost all service industry work.

      Our work isn’t the hard work of farming and manufacturing. We’ve outsourced almost all of the manufacturing and almost all of the farm work is done by imported labor. The Mexican workers who tend the tobacco here are up and in the fields before daylight every day (working under lights) and they’re still at it until at least 9 o’clock at night. That’s often 7 days a week and they work in the rain, cold, heat, etc. They’re not getting paid much, they’re away from their homes and families and they’re here for at least six months. I don’t think you’d find many Americans who would do that work. I’m sure the situation is similar in other commodity agriculture, as well as construction labor, restaurant labor, hotel labor, etc. These days Americans prefer unemployment to those hard-labor low-paying jobs.

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  7. You certainly know how to get me up on my soapbox, Bill. The games that corporations play, and local/state governments buy into are close to criminal and certainly unethical. Its about as close to blackmail as you can get. “I won’t come to your town unless you promise no taxes, minimal environmental laws, and low wages. And, BTW, 50 other towns are competing against you for our largesse.” I get angry every time I read about it. Then what does the company do, it moves its corporate head quarters over seas so it won’t have to pay any US taxes at all. What is good for business is healthy communities with good infrastructures and excellent school systems. –Curt

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    • Jeff says:

      Curt, you might like to read this article, by Bruce Alexander.

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      • Thanks. It was a thoughtful article. I know a bit about addiction, having spent a significant part of my life fighting the tobacco industry, which pushes a product which is equivalent to heroine in its addictive qualities. –Curt

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      • Jeff says:

        Curt, it’s interesting that in Native American societies, where tobacco originated, it was used for ceremonial and religious purposes. I’ve not read any literature that states that tobacco was addictive in Native American societies, have you?

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    • Bill says:

      It seems sensible to me to spend tax revenue to improve the community generally, making it more attractive as a place to live and start businesses. Healthy communities with good schools systems would be such places. But when an unhealthy community without the things that would make it an attractive place to live hand over scarce public resources to a for-profit corporation without any guarantee it will ever produce a single job–that seems reckless and irresponsible. I get angry about it too. Especially when I think of all the good that could have been done with the money.

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  8. EllaDee says:

    I shared an article recently in via a comment on a blog post discussing rape, politics, PR and simple geography (Memoirs of Husk WordPress blog if you are interested further, as if I include too many links my comment will be spammed…) , and I think our comments are relevant here as well…
    “the things that are not right in this world come down much to power-politics-priorities-PR.
    Currently there is much discussion in our local media of Vladimir Putin’s welcome at the G20 – http://www.smh.com.au/business/comment-and-analysis/vladimir-putin-is-no-saint-but-g20-is-a-club-full-of-sinners-20141013-1155yz.html – the article is a sad litany of the sins of the represented nations (the non-represented are a whole other tragic litany). There are 2 statements in the second last para, “It’s about collective economic self-interest. And that, if it’s successful, will make life better for billions of people.”
    I commented to this “I have no doubt about the first, and the second sounds good but… details… details.”
    And as MOAH responded “The trouble with the economics benefitting all argument is that we’ve been promised for years that ‘trickle down’ will work – does it heck! Inequality increases..”

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    • Bill says:

      Economic policies would be more sensible, it seems to me, if they took sustainability into account. Of course taking a long-term perspective is not a good way to win votes.

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  9. associatedluke says:

    Rosanne nailed it! Then and (sadly) now. But don’t worry! Corporations are People! They need our love too. Make sure you give them enough money to make a quilt so they don’t go cold at night. Normal people like us need blankets, but non-traditional people like corporations need tax-breaks and cash to keep warm.

    Makes me nuts.

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    • Bill says:

      I’m fed up with government acting as some sort of Robin Hood in reverse. But somehow politicians got the idea that it’s their job to “create jobs” and cause “economic growth.” At that point all the corporations need to do is persuade them that the best way to do that is to tax us and hand over the money to them. Evidently that isn’t a difficult sell.

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      • Jeff says:

        It’s called “regulatory capture”. When corporations own politicians, this is what happens. People say “get the money out of politics” but money and politics have been wedded for time immemorial. What needs to happen is that businesses need to be broken up so that they can’t wield so much power. When did we elect Bill Gates to dictate foreign policy, like he is doing in Africa? Or any of the other plutocrats who fund the organizations (ALEC comes to mind) which draft legislation that favors them and screws the little guy?

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  10. I see that at least one commenter here mentioned bond issues as being a connected culprit, and while I certainly know there are plenty of boondoggles like the notorious Bridge to Nowhere and phantom infrastructure and such that legitimately give a bad name to ‘civic projects,’ I also am a very firm believer in the communal responsibility to see that everyone in the community has access to a solid education, reasonable health care, and the like, and the only way that can happen on a practical basis is by agreeing to pay for them together as well, generally through taxes and (on occasion) bond-funded agreements.

    But I am absolutely in agreement with you and others here that we have been hijacked nationally by the notion that what’s good for business is good for the country. Few instances remain where that would be true, and it’s certainly not even then a constant (any more than it ever was) that what big biz says is useful and healthy for the majority is entirely as claimed.

    In the current election, our own little city of Denton, TX, is hitting the national news for that very reason, as we’re voting whether or not to ban new permissions for fracking within city limits. I can guarantee you that if it passes, the ban’s opponents will go straight to the state with lawsuits to overturn it, and it’ll go all the way to national level in a heartbeat if that doesn’t work. That’s why this is being seen as a test case and getting national attention: because the most powerful business interests in the biggest state in the country are being pushed at a tiny bit more than usual. Trust me when I say that it’s a big deal if it gets even *me*—a soul-deep avoider of all things political—even talking about it. 🙂 Thanks for the good and thought-provoking post.

    K

    Like

    • Bill says:

      Way to go Denton. It’s important that communities to stand up to industry in situations like that. We’ve been embroiled in a running battle over uranium mining here for a long time. Fortunately there’s no fracking going on here, but we are dealing with issues related to two pipelines carrying fracked gas through our county to the coast. I hope the good folks of Denton prevail.

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      • Thanks. I think we have a pretty fair chance of passing the ban, but as I say, the real battle still lies ahead in the predictably disinformation-loaded, money-backed will to fight it up the food chain. Hope we can reeducate a few people along the way about what’s really happening and what’s really at stake. One at a time, eh. 🙂

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