D. Dowd Muska


Corporate Welfare Can't Be Reformed

January 27, 2011

With many state governments facing what National Journal calls “gut-wrenching budget shortfalls,” it’s an opportune time to do away with the grants, low-interest loans, tax exemptions, and other freebies frequently showered on “private” enterprise.

On the surface, reform efforts underway in several states suggest that industrial policy might be losing favor with politicians.

Governor Scott Walker wants to eliminate the Wisconsin Department of Commerce, and replace it with the Wisconsin Economic Development Corporation, a “public-private partnership.” Governor John Kasich seeks to kill the Ohio Department of Development, putting in its place JobsOhio, which he calls “an organization that is going to move at the speed of business, move at the speed of what is needed to be a job creator.” And in Iowa, Governor Terry Branstad intends to scrap the Iowa Department of Economic Development and create the Iowa Partnership for Economic Progress. Its staffers will “act like customer service representatives who aggressively and proactively solve problems so Iowa can make the ‘sale’ to keep or create jobs.”

The three chief executives are copying a strategy employed by Arizona Governor Jan Brewer. Lawmakers have yet to embrace her overhaul, but in June, she created the Arizona Commerce Authority by executive order and transferred $10 million of federal “stimulus” money to it.

It’s difficult to find sympathy for corporacrats whose jobs are threatened by shakeup proposals. Within the last year, a plethora of horror stories has emerged from their world. In March, Indianapolis NBC affiliate WTHR revealed that “many of the state’s ‘economic successes’ are actually empty fields and deserted factories where thousands of promised jobs never showed up.” A business professor told the station, “[The Indiana Economic Development Corporation is] a political agency that … wants to make the governor look good … . This is spectacle, not reality.”

Last fall, a Texans for Public Justice examination of a corporate-welfare entity concluded that “two-thirds of companies that have received $368 million in [taxpayer] funds failed to deliver on their job-creation promises by the end of 2009.” A month later, The Dallas Morning News released the results of its probe of the Texas Emerging Technology Fund. Reporters “found that more than $16 million from the [fund] has been awarded to companies with investors or officers who are large campaign donors” to Governor Rick Perry.

In November, The Denver Post began a series of articles examining how a tax perk allows “landowners … to claim agricultural status, even if they are not in the farm and ranch business.” The agri-friendly policy requires “no minimum acreage, no duration for grazing, no minimum agricultural income and no primary-purpose criterion to establish which lands should be classified agricultural for tax purposes.” Energy companies and tony subdivisions are using dodgy tactics to save big on property taxes.

The green-power grift is emerging as a significant recipient of questionable subsidies. In Massachusetts, Evergreen Solar, the beneficiary of tens of millions of dollars in grants, tax breaks, and infrastructure improvements, is closing its plant in Devens and laying off 800 workers. It will repay just $3 million to Bay State taxpayers. And the Mackinac Center for Public Policy has uncovered evidence that solar manufacturer GlobalWatt “misrepresented information critical to clinching [its] incentive deal” with the Michigan Economic Growth Authority.

Are doses of private-sector common sense likely to make the governors’ planned restructurings successful? No, according to an analysis by Good Jobs First, a liberal nonprofit that tracks corporate giveaways: “Rather than being a revolutionary new concept that is sweeping the country, the economic development [public-private partnership] is a stale notion that has been tried and abandoned in some states, while in others it has remained in place while suffering a mixed track record.” Financial controls aren’t always improved, and job-creation goals fizzle just as they do under purely government-controlled programs. Transparency and accountability problems, as well as conflicts of interest, don’t vanish.

Putting “impartial” decisionmakers in charge, mixing private funds with government revenue, and slathering a veneer of hard-nosed business buzzwords on corporatists’ schemes sounds prudent, even flinty. But corporate welfare can’t be reformed. It’s ineffective -- if not destructive. It’s costly. (All those consultants, conferences, and slick press packets aren’t cheap, and central planners’ salaries and benefits are sweet.) And it fosters corruption.

Governors looking to cut costs and boost tax revenue should view economic-development agencies not as ripe for reform, but overdue for cancellation. States that keep taxes low for all, deregulate, and eschew trendy “public investments” will be best-positioned to climb out of the misery of the Great Recession.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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