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Why the Commissioners should have said no to BorgWarner


By Leslee Kulba- The Buncombe County Commissioners were expected to approve gifting $1,926,600 in taxpayer dollars to BorgWarner Tuesday. The sum would be spread over five years’ budgets. In return, BorgWarner would create 154 new jobs, paying an average salary of $74,571 plus benefits, at its Buncombe County facility; and invest $54,956,000 in the local economy during the same time period.

The announcement of the done deal hit the press Wednesday, May 7; but the commissioners were not scheduled to hold their public hearing for another six days. The gifting of economic development incentives in North Carolina requires applicants to pass what is known as the “but-for” test. That is, “but for” the incentives, the company insists it would not be able to expand, or at least it would pack its toys up and move to a state with a better sandbox.

According to the staff report, BorgWarner “informed the County that if the County did not promise such economic development incentives, then BW may not complete the Project.” In other words, somebody representing the county spoke for the taxpayers before the taxpayers were allowed to speak for themselves.

Reasons for granting economic development incentives include references to presentations by economists who add the pros of a project while ignoring the cons. Were the projects to be as good as the pushers claim, thirteen-fold economic multipliers not being uncommon, we should be enjoying a lot of prosperity by now. But we’re not.

The main flaw with treating economics as a hard science is that people are free to choose. They are not chess pieces to move along with the master planners’ designs. They have a will to survive, and when the regulations get too tight, underground economies develop. Regulations, like gun control laws, only hurt those who are trying to comply.

That said, and given that government is already exercising too much power over what it ought not; it might be fair to ask, rhetorically, if government should be making wise use of its excess or playing psy-ops with its subjects. That is, if government is going to mess with the economy, it should at least call shots with a track record better than 100-percent failure.

But therein lies the problem. F.A. Hayek is frequently referred to for arguing that a million minds fighting for their own self-preservation are inclined to choose more wisely overall than one central planner. His phrase, “fatal conceit,” says it all. As Toledo news host Brian Wilson once observed, those who engage in corporate welfare should “expect the same level of success the Russians got when they planned their economy.”

Any intervention of the government into the market introduces distortions. Back when the economy was booming, businessmen looked after their bottom lines. They had to keep selling goods and services with a competitive edge. Money went into research and development, risk had to be calculated, and choices had to be made with imperfect and incomplete information. Left to their own devices, people don’t want to buy junk, and persons wanting to stay in business worked hard to avoid selling it.

Profits hard-won tend to be appreciated, but easy come, easy go. Those who get free money from the taxpayers have been known to be spendthrift. A representative from one of Solyndra’s competitors complained that while, “the most powerful driver in our industry is the relentless reduction in cost,” Solyndra, now a joke for being subsidized into bankruptcy, built a spiffy facility on prime real estate.

So, nowadays, when traditional entrepreneurs try to make the world a better place with better goods and services, they end up getting punished. They get taxed first to cover the tax incentives that the new kids on the block promise to pay back multifold, and then they suffer what is known as an implicit tax. They must sell their products at competitive pricing when the corporation with government connections is getting infusions of public dollars by the millions.

Asking for government help is almost an admission of failure, not of the market, but of one’s ability to compete on a level playing field. Following a rash of government bailouts a few years ago, economists began charging that failure was the new success, and vice versa. Rather than letting bad or outdated ideas die, government propped them up.

On a global scale, that often led to surpluses of junk in the US that got “dumped” in overseas markets. To protect local industries, foreign governments would retaliate with anti-dumping tariffs, which jacked the price of junk above marketable levels in the global market. One reaction to this absurdity could be that corporations used to looking to government to keep them afloat when the market won’t would turn back for another bailout. On the bright side, the most harmful dumpings have been of commodities like shoes and clothing and not the “powertrain solutions” BW sells in the international market.

Some have pointed to Japan and Korea and said corporate welfare worked there. In their book “Liberalism and Cronyism,” authors Randall G. Holcombe and Andrea M. Castillo argue the Japanese and Korean governments first selected successful companies as targets. These companies continued to prosper for a time, but eventually the spark of inspiration faded as they became dependent on their handouts, and once thriving industries became demoralized and weak.

In New Zealand, by contrast, the government did the unthinkable. In 1984, they ignored the “everybody’s doing it,” refrain of peer pressure, and ended their farm subsidies program altogether. The transition was not smooth, but only about 1 percent of agriculturalists walked off their farms. Since then, even the “Huffington Post” brags about the “vibrancy” and “diversity” of New Zealand’s thriving agricultural market.

Cato scholar Chris Edwards, in testimony before the House Budget Committee in 2012, shared, “An economist recently quipped to me, ‘I don’t know whether the government is better at picking winners rather than losers, but I do know that losers are good at picking government.’ When the government starts handing out money, businesses with weak ideas get in line because the businesses with the good ideas can get private funding.’”

A lot has changed since then. As we continue our march down the red carpet toward blurring the lines between the means of production and the force of government, otherwise known as socialism, it has now become commonplace for entrepreneurs seeking private funding to find it necessary to leverage loans with government funding. Government, with seemingly illimitable taxing powers, is now viewed as a safe bet. More perniciously, government is now viewed as being willing and able to, at any time, with the whimsy of Caligula no less, use regulation to pick winners and losers among financial institutions.

Some have joked about the two-faces of government and big business. On the one hand, government acts as if corporations have what Rush Limbaugh refers to as a huge stash of cash in the back room, and that they are able to bend with any whim of healthcare reform and create living-wage jobs at the same time. On the other hand, large corporations are viewed as not being able to make it without a little help from their taxpayer friends.

Among the greatest of economic distortions is the need large corporations feel to “misallocate” resources from productive activities to bureaucratic gyrations. It is, after all, now in the best interest protecting the bottom line for large corporations to have, what Ayn Rand prophetically referred to as, “a Washington boy.”

Timothy P. Carney, author of “Obamanomics,” can rattle with ease off the top of his head names of people who wrote legislation and later got jobs with the corporation it favored. A classic example is how Mattel was found to have lead in its toys. To respond to public concern, the Consumer Product Safety Improvement Act was passed. It required third-party safety tests, with one exemption which could only be accessed by a toy manufacturer as large as Mattel. Punished was the grandpa carving wooden toys in his garage; and the only exemption went to the only offender.

Lots of dots can be connected in this story. If it isn’t evidence of cronyism, it is at least a form of what Soviets referred to as a blat. Blats were informal connections with persons in power, which were needed in order to get things done. In influence economies, as opposed to market economies, it helped those who weren’t in the elite classes get things done.

While on the subject of gentrification, the median household income in Buncombe County is hard to pin down. Some sources claim it is well over $50,000, while others note most people are earning between $20,000 and $50,000. A typical service-industry employee may earn around $10,000 a year, and many in Buncombe County remain unemployed. The 154, $70,000 jobs BW is supposed to create are supposed to go to locals? with master’s degrees in engineering? from AB Tech? UNCA? Warren Wilson?

Is it the role of government to ask the folks earning $10,000 to pay property taxes for the $70,000-plus crowd? Then, after the poor people subsidize the rich, they will find themselves in the quandary now experienced by Jackson County residents. Out there, wealthy people with second homes on the hill want services just as much as the poor people in the ghettoes. They most recently asked county leadership why they couldn’t have a designer, Olympic-sized, public pool. These people who pay the bulk of local taxes don’t use public safety and social services as much as the poor people, who, in turn, complain the rich and poor are taxed at the same rate.

One might ask why government views industry as a jobs program in the first place. A few decades ago, jobs were blue-collar and demeaning makework. People wanted meaningful employment so they could wake up in the morning with ambitions to make the world a better place. Now, a person with a technical degree might get stuck counting ticks in arbitrary parameterizations to humor regulatory inspectors.

Epilogue –

In less than two weeks, we’ll be celebrating Memorial Day. Some will use it as an opportunity to look patriotic and show up to be seen somewhere. Some will use it as an opportunity to play on the monkey bars with their friends from church. Others will put flowers on graves and get really depressed.

War is cruel. War is force. In this enlightened age, we ask why we haven’t evolved into something beyond the barbarism. Oh, some may go to war to see the world, some might go to get money for college, to get a new lease on life, or to avoid other burdens. A few actually believe there is a bigger battle than life itself.

Among those would be America’s founders, people like Patrick Henry who said, “Give me liberty or give me death.” Writers of Hollywood screenplays for horror flicks understand better than legislators what’s at the core of human fears. It’s loss of control over oneself. Scary movies rack in lots of money because they know people can get scared out of their wits thinking about mutilation, demon possession, or some other form of dominance and submission. The founders feared for us because they knew what it was like to live under a tyrant.

Although it was not the greatest gift to humankind, the founders left those blessed enough to live in this great land the gift of an ingenious form of government where power could not concentrate in one place, where all citizens, at least in theory, would one day have the birthright of receiving no special privileges from government, and all would have the freedom to work out their own salvation in their own way on their own time, without kissing anybody’s ring.

So, this Memorial Day, suggestions for celebration might include a prayer asking Our Heavenly Father to say hey to the guys who made the ultimate sacrifice, telling a grieving widow you “get it,” and thinking about how you will help true patriots get elected in November.

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