Economic Development


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:

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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.

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.

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

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. . .”

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.

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.

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