By Leslee Kulba-Elected representatives feel good about giving taxpayer dollars to large corporations. Chambers of commerce send out press releases that tell of the number of jobs that will be created, and the millions of dollars to be invested in the community.
In recent history, the awarding of corporate welfare to GE Aviation is perhaps the most egregious. In various financial analyses, GE usually ranks somewhere in the top ten among multinationals, and its own finance division, GE Capital, is one of the world’s largest lenders. That may be why GE had to masquerade as the mysterious Project X until it secured promises from Buncombe County for $15.7 million in land acquisition plus $2.68 million in cash, from Asheville for $1.568 million, and from the state for $9.9 million.
In more paltry donations, Reich, LLC was promised $350,000 from the City of Asheville matched by $350,000 from the state of North Carolina plus $10 million in stimulus money. Buncombe County purchased the old Volvo plant to sell it to Volvo supplier Linamar. The county put up $6.8 million; the city, $2.2 million, and the state, $9 million.
Just this week, it was announced that the tiny town of Mills River would give $21,000 to Empire, a distributor of alcoholic beverages, which is owned by McLane Company, a subsidiary of Berkshire Hathaway with a net worth estimated at $44 billion. Henderson County promised the company $479,000 just before that. Empire is expected to help develop the vision of the region as a beer mecca by serving Sierra Nevada.
Sierra Nevada accepted offers for $3.75 million from Henderson County, $86,000 from the Town of Mills River, and more from the Golden Leaf Foundation to locate in Mills River. New Belgium did better, accepting $3.5 million plus $500,000 in infrastructure upgrades from the City of Asheville, $8.45 million from Buncombe County, and a piddling $1 million from the state coffers.
On beerpulse.com, New Belgium’s CEO Kim Jordan replied to a competitor’s complaint about accepting taxpayer dollars, with a lot of arguments that have long sense been debunked. She argues the gifts will only come out of taxes that New Belgium will be paying. If New Belgium can exist on the tax base at a discount, that is a signal that other taxpayers are paying too much. She also invokes the economic multiplier effect, in which recipients of government aid are credited for creating jobs and then creating more jobs as they spend money in the community. The practice is notorious for its absence of subtraction. No consideration is given to who else may have moved in or what existing mom and pop shops may have done if taxes were lower.
The detractor, Tony Magee of Lagunitas Brewing, argued by cozying up with government, craft brewers were “growing into the people we don’t want to be.” To that, Jordan replied New Belgium was remediating a brownfield, revitalizing a neighborhood, constructing greenways, engaging in corporate gifting, investing in the green economy, paying above living wage, and offering “a host of progressive co-worker benefits: maternity and paternity leave, adoption assistance, domestic partner benefits, paid sabbatical, profit sharing, free beer, . . . .”
Since when did breweries become a pass-through agency for welfare programs?
Mills River has an estimated population of 6897, 613 firms, and a budget of $1,446,785. Asheville has a population of 85,712, 12,773 firms, and a budget of $143,956,990. For Henderson County, the stats are 108,266, 10,528, and $112,222,749; and for Buncombe County, they’re 244,490, 29,566, and $337,217,182. If fair’s fair, and “everybody” really is doing it, then how much would it break the respective budgets, per capita, to give all firms as much as the chosen ones listed above?
Like it or not, in a pure free market, prices are used to provide information on what people want and how much they are willing to give up to have those things. A natural consequence of this is that garbage that nobody wants stops getting produced, and people have an incentive to make life more pleasant all around by inventing and developing things that make others happy. The combination of specialization and trade is what is known as an economy.
Economies, however, are not cornucopias of perfection. In fact, those who do the most to advance economies are often those eccentric little guys that come up with a bunch of harebrained ideas. Some may not work and others may just be too ahead of their time, but by taking calculated risks, entrepreneurs provide valuable market information, even if only to inform other inventors that the direction they chose stunk.
Wealth transfers do nothing to support an economy. They do not produce anything, so they do nothing to expand the gross domestic product. In fact, they shrink the overall economy by diverting productive efforts into overhead “processing” activities. But it gets worse. Capitalism is often criticized because it is competitive and some people just don’t have an ounce of compete in them. Economists Dwight R. Lee and Richard B. McKenzie ask why, then, government redistributions aren’t faulted.
To illustrate a typical transfer, Cato scholar Gordon Tullock proposed the Tullock tax. He would collect $1 from every American and give himself a mighty fund that he would promise to spend on good purposes. He was mocking how, with few exceptions, the well-organized, who are often not the poor masses, compete for government power and resources through lobbying. It is not worth anybody’s time to hire a lawyer and hoot and holler about a dollar, so the beat goes on. Also note that all economic development incentive award announcements do not talk about corporate earnings – only about the magnanimous jobs that will be selflessly created and the merciful millions to be invested in the community.
A factoid hush-hushed in discussions of forced taxpayer contributions to large corporations is that about half of small startups don’t survive past five years. Many fail in the first year, and, believe it or not, the Fortune 500 list is in flux, with some making it one year and going bankrupt the next. Former Finance Minister of Austria Joseph Schumpeter called the process creative destruction. It can be equated to a growing biological organism in which dead cells flake off.
Besides sustaining dead weight, government transfer programs serve as a tax on those who are managing their resources responsibly by working, creating, saving, and investing. By padding bottom lines, government lowers the cost of being irresponsible, thus incentivizing it. Worst of all, when government gives money to organized special interests who are better at competing for influence than making stuff, the working poor pay once in direct taxation and a second time by the economic contraction caused by government bureaucracy.