Alabama should stop caving to “job black-mail” & economic “shakedowns.”

Following the post from yesterday, the Atlantic Magazine today includes another article entitled The Folly of Corporate Relocation Incentives:

Governments offer companies nearly $50 billion a year in location incentives, designed to convince them to either stay put or move, Thomas says. Greg LeRoy, executive director of the research center Good Jobs First, which tracks corporate subsidies, describes the “subsidy industrial complex” of site-location consultants, industry groups and industrial realtors who track, arrange and promote deals between companies and governments.

The result doesn’t create any new jobs, but merely moves existing jobs around while fostering economic war between the states. Earlier this year Ohio was on the losing end of a bidding war over Chiquita, the produce company that’s moving to Charlotte, N.C., based largely on a $22 million relocation offer. In New Jersey earlier this year two companies—Panasonic and Pearson Educational—accepted a total of $184.5 million to move jobs from one part of the state to another.

“It’s job blackmail—threatening to leave and shaking down states and cities to stay,” says Thomas, whose book, Investment Incentives and the Global Competition for Capital, examines the subject. “Collectively governments are giving away all this money but it doesn’t affect the location of investment overall. There isn’t any possibility you’re creating new jobs. Ohio might get 6,000 new jobs (from the Sears deal), but Illinois loses them.”

Both the Tea Party and the Occupy Wall Street movements should oppose these deals as well:

There is also a libertarian argument against incentive packages, since the offers place governments in the position of choosing economic winners and losers instead of allowing the market to determine corporate success. “It’s economically moronic, even though it tracks a nationwide trend of Big Government handing over money to selected big businesses,” writes Thomas Patterson, chairman of the Goldwater Institute. “The subsidies are touted as necessary for job growth, to stimulate depressed regions and promote economic development. Unfortunately, they just don’t work.”

Thomas adds that the Occupy movement and concern over income inequality is shedding light on how tax policy often favors corporations. “You have average citizens and taxpayers subsidizing wealthy corporations,” he says, “and a lot of people object to that upward redistribution.”

For some alternative economic development strategies focusing on supporting and preferring locally-owned businesses, see the following:

• Are Alabama economic development packages windfalls instead of merely incentives
• Large employers create “jobs” but locally-owned businesses create wealth. 
• City of Richmond strives to be an Ownership Society
• ADO Greg Canfield promises AL will continue to pay extortion demands.
• Does Alabama want 27,500 jobs & $4.2 billion in new economic output? Then revive local food production
• Hello, McFly! Effective economic development emphasizes local. 
• At least we did not score an F.
• Employing the power of anchor institutions
• Oregon enacts bill to empower locally-owned businesses
• Let’s stop begging to be exploited.

 

Are Alabama economic development packages windfalls instead of merely incentives

This week we learned that state and local governments had given over $1 billion to ThyssenKrupp. I still wonder how much locally owned businesses and local communities could have used that $1 billion dollars. Nevertheless. a new report, as discussed in the New York Times, calls into question the sole operating philosophy of economic development in Alabama.

“We hope that states will fix their rules to make sure that their programs are creating lots of jobs, and good jobs, with wages tied to the economy and with health care, so companies aren’t getting paid to pull wages down,” said Greg LeRoy, the executive director of Good Jobs First, who added that such deals should be watched even more closely in a downturn. “There’s a real tension between economic development spending and the maintenance of vital services.”

States rarely have accurate measures of how many jobs such programs create, but they are discovering that many such programs fail to live up to their billing. Pennsylvania found in a 2009 legislative report that many business in its Keystone Opportunity Zone program “are not creating jobs or generating capital investment.” A recent study that New Jersey commissioned of its Urban Enterprise Zone program found that the $2.17 billion it spent over six years had produced “limited economic impact.” New York changed its old Empire Zone program, which was supposed to give tax breaks to companies to create jobs in poor areas, after auditors found that some businesses had received tax breaks but lost jobs, while others were being rewarded for hiring in wealthier areas.

“Over time, the programs get deregulated in ways that make them windfalls instead of incentives,” Mr. LeRoy said.

The new report singled out some states for praise. Nevada and North Carolina’s programs were applauded for having strong wage standards, requirements that employers provide health coverage and pay part of the premium, and requirements that subsidized facilities stay open for a set period of time.

The report from Good Jobs can be found here. Here are some more findings of the report.

Money for Something rates the performance standards and job quality requirements of 238 key subsidy programs from the 50 states and the District of Columbia. Each is rated on a scale of 0-100.  Findings:

• Only 135 programs have a performance standard relating to job creation, job retention or training of a certain number of workers.
• Fewer than half (98) of the 238 programs impose a wage requirement, and only 53 of those are tied to labor market rates.
• Only 11 of the wage requirements raise pay levels by mandating rates somewhat above existing market averages. Wage requirements vary from just above the federal minimum to more than $40/hour in limited cases.
• Only 51 programs require that a subsidized employer make available healthcare coverage, and only 31 require an employer contribution to premiums.
• The states with the best average scores among their programs: Nevada (82), North Carolina (79) and Vermont (77). The worst: the District of Columbia (4), Alaska (5) and Wyoming (10).

And if we are not going to invest in locally-owned businesses , continue being bullied around, and pay the extortion of the out-of-state corporations, let’s at least demand transparency and accountability.

 

Free Trade Agreement insanity: doing the same thing and expecting a different result

Three Free Trade Agreements passed the house yesterday with overwhelming support of the Tea Party Caucus and great opposition from the Democratic House members.  The South Korea deal is  the most consequential trade pact since the North American Free Trade Agreement was ratified in 1994. Great, how did that work our for us?

Alabama GOP Congressperson mostly supported each FTA. Our GOP Ag Commish has been cheerleading this for months.

When will we learn? Clyde Prestowitz summarizes our insanity (i.e. doing the same thing and expecting a different result.)

In trying to build public support for congressional ratification of Free Trade Agreements with Colombia, Panama, and South Korea, President Obama is telling audiences that “these agreements will support tens of thousands of jobs across the country for workers making products stamped with three proud words: Made in America”.

Why do presidents keep saying things like that? Do you remember when we were negotiating to bring China into the World Trade Organization (WTO) and the Clinton White House was asking Congress to grant Beijing permanent Most Favored Nation (MFN) treatment (meaning that for trade purposes we would treat China the same as our other trading partners)? At that time the United States had a modest trade deficit with China of about $10 billion. President Clinton and his top officials- U.S. Trade Representative Charlene Barshefsky, Treasury Secretary Larry Summers, National Economic Council Chief Gene Sperling, and others – assured the Congress that the proposed deal with China would dramatically reduce this deficit and create thousands of new jobs for workers who made things in America. The argument at the time was that the United States would be the big winner because it would be China that would be making most of the big tariff cuts and market opening concessions. Of course, with the United States now running a $250 billion trade deficit with China, it’s obvious that things haven’t worked out as predicted.

 

Large employers create “jobs” but locally-owned businesses create wealth.

Governor Bentley proudly announced that Alabama will give  over $70 million dollars to an out-of-state corporation to come to Alabama.

As part of the deal, the state will give the Illinois-based company as much as $40 million in cash payments over a period of time as the company hits employment benchmarks. The document says Navistar can collect $10 million for site work at the one-mile-long facility. . .

Local governments in the northwest Alabama area have also committed almost $20 million in cash incentives for the project, according to the document.

So we will continue to travel the same path to economic instability, brittleness and dependence.  Evidence continue to show the dangers of the Governor’s strategy but also show another path toward resilience and security: empowering locally owned businesses. For instance, listen to the history of Buffalo,

By 1986 three-quarters of Buffalo’s regional economy was controlled by absentee-owned firms. This economic shift from local to non-local ownership of commerce generated record profits in the earlier part of the century, but precipitated long-term social and economic losses in the latter because multinational businesses simply were not as dedicated to the area.  For instance, one study revealed that between 1965 and 1980, companies headquartered outside of the Buffalo-Niagara region were twice as likely to close as locally-based ones. When these local firms closed, and the influential families that ran them left town, they also abandoned their philanthropic responsibilities to the area. Independent business leaders were also engaged in local political and economic issues but when multinational representatives replaced them, the local political and economic discourse no longer revolved around Buffalo’s best interest. Economically, the city lost its import-substituting businesses.  Socially, it lost its community pillars.

Unfortunately Buffalo’s leaders have done little to recognize the importance of, let alone revive, the local sector.  The best example of the city’s allegiance to top-down development is Canal Side, a massive waterfront redevelopment plan, which was to be anchored by mega-retailer, Bass Pro.  The city and county took the greater part of a decade to plan this single project and earmarked $14 million for it.

But while elected leaders set aside millions for this waterfront strip mall, they gave nearly nothing to entire blocks of existing local retailers. Too often the community bears the burden of any substantive Main Street development.  One example is Grant Street, a two-mile long, distressed retail strip populated by dozens of local shops (including grocery, hardware and home supply stores).  For decades these shop owners have tightened their belts to continue serving their neighborhood and yet, between 2006 and 2009 received an appalling $21,000 in business grants from the city. Ironically, after nine years of negotiations, Bass Pro (having no real ties to the city) declined Buffalo’s multi-million dollar offer effectively stunting the area’s greatest silver-bullet development.

Doesn’t this sound like Alabama. Imagine what Alabama locally-owned businesses and communities could do with the $70 million being handed to Navistar, the latest “silver-bullet” development. What paltry sum has been invested in locally-owned businesses and historic town squares across Alabama?

Buffalo businesses and citizens though are trying to pursue an alternative path.

Residents and proprietors have embraced Buffalo First’s localism initiative for a host of reasons, the most compelling of which has been economic.  According to research firm Civic Economics, when a person patronizes local independent businesses, over three times more of their money is re-spent in the local community than had they made their purchase at a national chain.  This is critical to a struggling metro like Buffalo because it helps to root the few dollars generated by the city, in the city.  Localism makes sense because it makes cents.

Sometimes the local economic multiplier effect is far greater when businesses commit to maximize local procurement.  For example, Buffalo’s largest community-owned natural foods store, the Lexington Cooperative Market, has pledged to source locally whenever possible.  Because of this, it boasts that roughly 51 cents of each dollar spent there is re-spent in the local economy.  This happens when the Co-op uses the money that shoppers spend to pay local producers, suppliers, farmers, service providers, and the Co-op’s 70 employees.

Even though supporting local businesses provides greater economic velocity and multipliers, the best reason is:

In addition to boosting economic multipliers, businesses like the Co-op perform another key function that national businesses cannot—they create community wealth.  Larger employers may boast that they create “jobs” (even if they are low-wage) but local businesses create wealth because someone who lives in the area owns it.  Income is measured by one’s hourly wage or salary but wealth is measured by one’s assets, valuable items a person owns (such as a home, business, art or equipment) that can be converted to cash and can be passed on from one generation to the next or from one neighbor to the next.  While income helps to pay the bills, assets give people the power to put down roots, to create and to grow.  Every local proprietor in Buffalo has this advantage.

Thomas Jefferson wrote to James Madison: “the small landholders are the most precious part of a state.” He might say today, the small, locally-owner business owners are the most precious part of the state. It is this wealth-creation which breeds political and economic independence. Paerhaps

 

Theodore Roosevelt: “Thank God I am not a free trader”

Considering that GOP Ag. Commissioner McMillan continues to push three new free trade agreements with Columbia, South Korea, and Panama, I was reminded of the  Republican 1904 platform:

Protection, which guards and develops our industries, is a cardinal policy of the Republican Party. The measure of protection should always at least equal the difference in the cost of production at home and abroad.

Too bad, neither party considers this a valid objective any longer.

When he says that these FTA’s will create new jobs, you would think that Commissioner McMillan would have learned from NAFTA and its progeny.  Instead of creating jobs, NAFTA has sent revenues across the border and caused companies to open up production facilities in Mexico.  There has been a net loss of more than five million U.S. manufacturing jobs – one of every four in that sector – since implementation of the North American Free Trade Agreement (NAFTA).

According to an internal assessment of the Korea-U.S. Free Trade Agreement by the U.S. Trade Representative, the new deal will increase American exports to Korea by perhaps $5 billion annually. At the same time, the deal will increase American imports from Korea by more than $20 billion annually. This, of course will lead to further job loss as our trade deficit increases. According to an independent analysis of the Korea and Columbia trade agreements, the increased trade deficit per se will correspond to the loss of 214,000 jobs in the U.S. by 2015.

As far as agriculture is concerned, does importing agriculture do anything for local food security and safety or small family farms.  Consider that nearly 300,000 U.S. family farms were lost during the NAFTA era, while these farms’ income shrunk 13 percent. Why would we want to do anything which will cause us to be further dependent upon foreign food?

Let’s agree with Theodore Roosevelt when he wrote in his letter to Henry Cabot Lodge in 1895: “Thank God I am not a free trader. . .”

 

Walmart controls more than a 30% share in 44% of major U.S. grocery markets.

Without a doubt, consolidation and concentration in the agricultural economy has caused decreasing incomes for farmers, ranchers, workers and the rural communities that depend on agriculture. Our rural communities, our food supply and the fate of a major portion of the American economy depend on us fixing this problem. However, we can’t solve this dilemma unless we are willing to look at the whole picture of the American food chain—from the farm to the grocery store shelf.

So summarizes a report on the consolidation of the retail segment of our food chain. As the report details, Walmart’s size, reach and power are unparalleled:

• The growth of Walmart’s share of U.S. grocery sales has been stratospheric: almost quadrupling since 1998 and showing no signs of slowing.
• Walmart has more retail grocery sales than its next three largest competitors (Kroger, Safeway, Supervalu) combined.
• Walmart controls more than a 30% share in 44% of major U.S. grocery markets; while in 29 of those markets, the company controls more than a 50% share.

Another series of reports corresponds to these findings:

• An Iowa State University study found that in Iowa the number of grocery stores with employees dropped by almost half from 1995 to 2005, from about 1,400 stores in 1995 to slightly over 700 just 10 years later. Meanwhile, “supercenter” grocery stores (Wal-Mart and Target, for example) increased by 175 percent in the 10-year period.
• In rural Iowa, 43 percent of grocery stores in towns with populations less than 1,000 have closed.
• According to Kansas State University, 82 grocery stores in communities of fewer than 2,500 people in Kansas have closed since 2007, and nearly one in five rural grocery stores have gone out of business since 2006. In total, 38 percent of the grocery stores in Kansas towns of less than 2,500 closed between 2006 and 2009.

Makes one wonder why we are providing Wal-mart with millions of subsidies and development incentives.

 

New Law Review Article: Approach food not as commodity but as critical infrastructure

A young MBA student and reader of Keating’s Desk asked me why I focus on agriculture so much.  A new law review article entitled Regional Foodsheds: Are Our Local Zoning and Land Use Regulations Healthy? details some of the reasons. The article also inventories local communities efforts from the across the nation to secure a resilient local foodshed and accompanying  policies to support such.

The article advances one important point concerning the worldview change in leaders and policymakers necessary to accomplish the goal of a broad, safe, and secure food system.

Regional foodshed planning must be comprehensive, and it should ―approach food not just [as] a commodity but as an infrastructural system. . . that needs to be managed and considered in all urban and regional planning efforts.

Food, today, is viewed exclusively as a commodity, but for the twenty-first century, we need to be as concerned about our present dysfunctional food supply system and consider its improvement, as a structure, as important as we are our crumbling roads and foreign-oil dependence. Consider, if we think it bad to be dependent upon foreign oil, imagine being dependent upon foreign food.

The article begins with the benefits of local and regional foodsheds. In addition to environmental and public health benefits, the article evidences the economic benefits:

In 2009, U.S. households spent more than $526 billion on food produced outside of the home, indicating a significant economic market for locally grown and processed food. Local sourcing can supply a significant amount of food. A recent Michigan State University study posits that by converting vacant urban land to a host of urban agriculture related uses (e.g., farms, community gardens and storage facilities), Detroit residents could be supplied with seventy-six percent of their vegetables and more than forty percent of their fruits. Although there may be a lack of focus and understanding concerning the relationship between the local economy and food systems, strong regional food markets economically support labor-intensive small and medium sized farms, which have been overtaken in the past several decades by mechanized, large-scale industrial agricultural operations. Local economies are also reinforced as the foodshed movement spurs the need for local food processing facilities and agri-businesses providing supplies, equipment and services (such as repairs). In addition to job creation and economic development, regional food markets reduce transportation costs and provide some insulation from volatility in the global food market. Furthermore, regional markets for production and processing can decrease costs for healthy foods, which can in turn produce economic benefits by preventing health care costs from diseases associated with poor diet and obesity.

The article details many strategies and models which local governments and municipalities might follow including: creating food policy councils/task forces and incorporating food policies into their comprehensive planning.

Some local comprehensive plans contain sections (also called ―elements) that touch on regional food policies, such as agriculture, sustainability, or economic development elements. For example, the Marin County, California plan supports ―the production and marketing of healthy, fresh, locally grown food.

A broad array of other policies which are being tried across the country are detailed. For instance, a policy which I have advocated in the past is examined: employing the purchasing power of local governments:

Procurement policies that favor locally grown foods can help establish a market to support regional food production. In Cleveland, for example, an ordinance was passed in 2010 that requires the commissioner of purchases and supplies and each contracting department to develop a list of local food producers and businesses and to ―endeavor to maximize purchases from these sources. It also favors contract bidders that are locally based and purchase twenty percent of their food locally. Albany County, New York, has also enacted a policy to increase the percentage of local food consumed at the county‘s residential healthcare and correctional facilities. The policy recognizes that locally produced food supports the regional economy, requires less oil and gas, and provides nutritional benefits. Furthermore, in early 2011, a proposal was introduced in New York City to increase purchases of New York state food by city agencies.

For anyone wanting to view a broad array of possibilities for their local communities, this article provides a great starting place.

 

City of Richmond strives to be an Ownership Society,

At a time when the nation’s leaders are providing more political rhetoric and party criticisms than actual solutions to the nation’s employment issues, it’s encouraging to see a city making an effort to fend for itself.

So concludes an article in the San Francisco Chronicle about the City of Richmond efforts to develop good jobs for its citizens which also build wealth.

Jobs, Jobs, Jobs is not enough. We need Good Jobs, Good Jobs, Good Jobs! As evidence by Rick Perry’s “Texas Miracle,” the quality of the jobs is as important as the quantity. Commenting upon the Texas job growth under Perry: “We have created jobs, but they are not jobs with good wages and benefits,” said F. Scott McCown, executive director, Center for Public Policy Priorities.

Similar to Cleveland, the City of Richmond is looking to add jobs and also build a “true ownership society.”

In nearby Richmond, a city of 120,000 residents with a 17 percent unemployment rate that is nearly twice the national average, city officials are trying different things.

The city has embarked on a program to help promote the growth of co-op businesses to create job opportunities and provide avenues to create stable incomes for unskilled and hard-core unemployed residents. . .

“Even in good times, Richmond has high unemployment,” McLaughlin says. “In hard times, cities like Richmond suffer even more.”

The city’s efforts have resulted in standing-room-only meetings at the city’s main library. City officials are discussing a plan to award extra points to local co-ops in city contract bids.

McLaughlin said the city could act as a conduit by hiring co-op businesses to provide services to the city.

City officials are now re-working a vendor ordinance that would allow a health-food truck co-op onto city-owned property.

The city Chamber of Commerce and its traditionally conservative Council of Industry have also expressed interest in the co-op project.

“Everybody is looking for alternatives and new ideas to stimulate business, and this is one of them,” McLaughlin said. “We can’t continue with the same strategies, and these co-ops offer the chance to create new jobs and build personal wealth.”

The program is still in its infancy, but there are already more than a half-dozen co-op efforts under way.

 

ADO Greg Canfield promises AL will continue to pay extortion demands.

In what should be a repudiation of each Gubernatorial administration for twenty years, economists are publically calling into question the effectiveness of the primary industrial development strategy by Alabama Republicans and Democrats.  Their knee-jerk “jobs solution” is not getting much support from professional economists.

But many experts doubt whether tax cuts create jobs, particularly in a state that, by most measures, has the lowest tax burden in the nation.

“Taxes tend to be a relatively small component of the cost of doing business,” said David Brunori, a vice president at Tax Analysts, a Virginia-based nonprofit that provides tax news and analysis. “The real cost of doing business tends to be raw materials and labor. And that is really what drives business investment, assuming you have a market.” . . .

It’s not clear whether slashing taxes leads to paychecks. A 2010 paper prepared by the Federal Reserve Bank of San Francisco, which studied state tax credits for investments in equipment and research and development, found a one-percent cut to corporate taxes would only increase Alabama’s economic output by a half-percentage point. A one-percent increase in investment tax credits for equipment would boost it three percent.

While GOP Bentley/Hubbard/Marsh/Canfield continue to preach the gospel of more-and-more tax-incentive packages, Democrats are equally to blame. As I wrote months ago, “These type of policies only create a race to the bottom. Another state will always be able to play the system and out-bid us through greater tax breaks, more immunity, less restrictions, more grants, and more corporate welfare. At what point do our policy-makers look out for the common good? Can they not see that we are being played.  At some point, we must stop begging to be abused, bullied, and exploited.”

All partisans are guilty of playing this game:

Bentley isn’t the first governor to tout tax packages for development; Gov. Bob Riley touted similar legislation during his eight years in office and supported Bentley’s 2010 bill. Govs. Jim Folsom Jr., Fob James and Don Siegelman all sold tax-break laden packages for big companies as job creators.

And Alabama is not alone in offering credits: Business Week reported in July 2009 that states gave out $50 billion in tax incentives to companies during the prior year in an attempt to fight the recession.

“I think what is driving that is the politics and the need to do something, and the need to look like you’re doing something,” Brunori said.

For all that, both Brunori and Burtless weren’t certain how much lower Alabama taxes could go. Neither bill establishes a limit on the state revenue that can be reduced under the credits, and no one is certain how much state revenue would be lost from credit claims.

“I’m just kind of surprised Alabama has the tax resources to give up so many tax resources this way,” Burtless said. “That’s kind of an expensive program to do.”

“Doing something” sometimes is more damaging than not.  But our politicians cannot stop being extorted engaging in multi-state bidding wars .

Alabama Development Office director Greg Canfield argues that tax credits are a necessity in Alabama’s cutthroat competition with other states over business and jobs.

Tax credits are not the only tool employed by the state. Bentley last spring recommended a nearly $5 million, 20 percent increase in money for workforce development through the Industrial Training Institute. The Legislature ultimately approved a raise of $2.5 million.

“When Alabama is in competition for new investment in the state, we are in competition with other states,” he said. “Other states have a toolbox of taxes they use every day against us.”

Who’s throat is being cut? The working people and small businesses of Alabama. These multi-state corporations lodged state governments against each other so that small-businesses and working families get stuck with the entire tax obligation to fund all the services of the State.  When the publicly financed “honeymoon” is over, there’s nothing to keep the business from flirting with other potential suitors and starting the cycle all over again. Listen to some of these accounts from these bidding wars:

• PENNSYLVANIA: “The earliest example of this type of economic incentive was the Commonwealth of Pennsylvania’s offer of $86 million in incentives to build a Volkswagon factory in 1976. The factory was supposed to produce about 20,000 new jobs, but actually employed only 6,000 people before it shut down 10 years later.”
• KENTUCKY: “The race to grab federal funding for an advanced battery manufacturing plant may get more expensive for Kentucky taxpayers. State officials are trying to find additional incentives to bolster their chances against Michigan in a cut-throat competition for $2 billion in federal stimulus dollars to help fund proposed lithium-ion battery plants. Kentucky pledged on Monday to invest about $200 million in a $600 million advanced car battery plant proposed for Hardin County by a non-profit consortium of more than 50 companies.”
• GEORGIA: “State government incentives offered to lure technology company NCR to Georgia are worth at least $96 million, according to an Atlanta Journal-Constitution analysis. That is $36 million more than the state estimated when the deal was announced last week. The $96 million tally does not include another part of the incentive package, a state grant.”

Why must we play this game. Can we not call a cease-fire? After all, do these incentive packages even work?

The Corporation for Economic Development found:

most economists and policy analysts agree that incentives are not good development policy. In using them to attract businesses, cities and states: (1) waste scarce public dollars without creating net new jobs in the vast majority of cases; (2) subsidize the shareholders of these companies for the economic actions they would have taken anyway; (3) foster unfair competition by helping some firms and industries and not others; and (4) divert the attention of policymakers from other issues that could lead to additional job creation and a better business climate.

As Federal Reserve economist Arthur Rolnick noted:

Unfettered competition among private businesses has generally proven to be a very successful economic system … And experience has shown that Smith was right. Those countries that have relied on a market-oriented economy have outperformed (based on virtually all measures of success) those countries that have relied on a central planning strategy.

But what is true of individuals acting in their own interest is not necessarily true of state governments acting on behalf of their local citizens. Competition among governments based on their general tax-and-spend policies leads to a better outcome for the overall economy. However, when that competition takes the form of preferential financial treatment for specific companies, the overall economy is made worse off. Such competition results in a misallocation of resources and, in particular, too few public goods.

I am not suggesting the State sit idly by. I agree with the argument by Elaine Krewer:

while I don’t mean to oversimplify the issue, I can’t help but wonder why some people who would consider it wasteful pork to spend, say, $100 million on a public works program would not bat an eye at the same amount being given to a private company in the name of job creation.

For starters, instead of giving into the extortion, a better strategy to promote economic growth may be encouraging local businesses rather than recruiting large outside firms. Alabama should employing its purchasing power to build a market for Alabama businesses (see here, here), meeting our local needs, locally (see here, here),  rebuilding wealth-producing assets in the working people (see here, here ), empowering community anchor institutions, developing local energy production, and developing resilience in our communities and food supply.

 

Does Alabama want 27,500 jobs & $4.2 billion in new economic output? Then revive local food production.

Local economic resilience and local job security should form the basis of Alabama’s economic future. Further evidence proves it works and shows a starting place;  a new, comprehensive 16-county assessment of the Northeast Ohio regional food system has been released. (“Comprehensive” is an understatement.) According to the author of the report:

The study concludes that if residents and businesses of Northeast Ohio spent 25 percent of their food dollars on local farms and businesses, 27,500 new jobs could be created while increasing economic output by $4.2 billion and generating $126 million in local and state taxes.

According to the assessment, 73 percent of every food dollar goes mostly to trucking, distributing, refrigerating, packaging and preserving food for long-distance shipment. Potential jobs that can result in localization include farming and livestock, food processing, distribution, educational services, health care, as well as additional jobs induced by increased local spending.

Alabama should find some great encouragement on the jobs-front considering the state of our lingering high unemployment. Detailing these potential 27,500 new jobs:

We group them broadly into three categories: retail, restaurants, and consumer service; farming and animal growing; and food processing. By far, the largest number of new jobs, roughly 10,000, come from farming and animal growing. About 5,000 come from retail, restaurants, and consumer service. And about 4,000 come from food processing. The remaining 8,500 jobs come from the indirect and induced impacts in other sectors, summarized in Chart 16.

To put these numbers in perspective, recall (see Chart 3) that unemployment in the region right now is over 214,000. Unemployment throughout Ohio is now above 10% and in some of the counties in the region it’s over 12.5%. The 25% shift therefore has the potential to put one out of eight currently unemployed workers in the region back to work.

The report also assesses the positive effects of the 25% shift on energy independence, public health, quality of life and decreased pollution.

You would think that policy-makers would respond when report after report confirms this positive dramatic impact of re-localizing our food supply. This study for Ohio further confirms the documentation shown already from other nationwide studies and state-specific examples from Georgia, Michigan, and Minnesota.

The report even includes some very creative policies for implementing the 25% switch. For instance,

1. Modify the competitive bidding law to allow agencies and local officials to include the “multiplier effects” of local-dollars spent locally.

No one wishes to undermine the basic principle of good government that contracts should go to the lowest-cost bidder. A better approach might be for the state to obtain
representations from every bidder about how much of the bid will be spent in-state. A quick multiplier analysis can be done to determine how much additional tax revenue the state will collect. Bidders that spend more in-state will generate more tax revenue than bidders that spend out of state. By adjusting the bid by the anticipated tax revenue, the state can better calculate which bidder is truly delivering the best price. Moreover, because non-local vendors can perform equally well under this approach, the measure is not discriminatory and therefore legally sound.

2. Redirect economic development dollars and incentives to locally-owned business instead  recruiting out-of-state industries.

A soon-to-be-published study by one of the authors of this report will show that the three largest economic development programs in the state are spending most of their funds on attracting or retaining non-local businesses, which turns out to be the least effective strategy for stimulating the economy and creating jobs. Such funds should focus instead on local food business. Better still,
focus on providing seed capital for food meta-businesses throughout the state.

The report literally contains over 50 other specific recommendations which could easily be modified to meet Alabama’s needs and implemented without a single tax increase. We actually could expect more that 27,500 jobs because the region in Ohio of the study has about 700,000 less people.

For the sake of job-creation, economic recovery, community resilience, energy independence, let’s move our economic development policies into the 21st century.

Each time you purchase a loaf of bread at your grocery-store or that your child consumes at school (or tomato or strawberry or steak or peach for that matter), let it be a reminder:

Every loaf of bread unnecessarily imported means the leakage of bread dollars outside the local economy and the loss of local bread business that could contribute to regional prosperity.