Georgia auto parts plant hiring 100 workers
Need we forget?
In 2006 the Korean car maker Kia decided to build a $1.2 billion plant in West Point, Georgia. To land the project, the state offered a $420 million incentive package that included free land (bought from the previous owners at about 2.5 times the market value), tax-funded employee training, and a new $30 million Interstate interchange. Altogether, the subsidies amounted to roughly $168,000 for each of the 2,500 jobs at the plant.
This is quite common... Foreign auto makers won billions in government subsidies
To hear southern Republicans tell the story, the financial burdens facing Detroit’s automakers are self-made troubles to be settled by the laws of Adam-Smith capitalism.
“We don’t think it is the role of government to intervene,” Sen. Jim DeMint (R-S.C.) told the Fox Business Network last week. “We need to let the market and the laws work the way they are already in place.”
Yet this argument — that the government has no business interfering in free markets — ignores an increasingly frequent tradition among southern states, which have fronted billions in local taxpayer dollars in the past two decades to attract foreign auto plants. Those incentives, arriving in the form of tax breaks, training for new employees and even land, have enticed BMW to South Carolina, Mercedes to Alabama and Nissan to Tennessee. The result of the government subsidies has been the steady emergence of the South as an auto-manufacturing powerhouse. Some are dubbing it the “New Detroit” — a region where real estate is relatively cheap and the labor isn’t unionized.
Not coincidentally, these southern states are represented by the same coalition of GOP senators who led the fight against the recent Detroit bailout proposal. That legislation would have provided $14 billion in emergency bridge loans to General Motors and Chrysler, both of which say they lack the finances to survive the month. Rallying behind the animated opposition of GOP Sens. Bob Corker (Tenn.), Richard Shelby (Ala.), Mitch McConnell (Ky.) and South Carolina’s DeMint, Senate Republicans killed the legislation.....
“You look at the South,” Shelby said. “You take — not just Mercedes in my hometown — but BMW, Honda and all of them. These companies are flourishing with American workers made in America.”
But the flourishing of the transplants didn’t come without significant taxpayer help. Shelby’s Alabama, for example, secured construction of a Mercedes-Benz plant in 1993 by offering $253 million in state and local tax breaks, worker training and land improvement. For Honda, the state’s sweetener surrounding a 1999 deal to build a mini-van plant was $158 million in similar perks, adding $90 million in enticements when the company expanded the plant three years later. A 2001 deal with Toyota left the company with $29 million in taxpayer gifts.
Alabama is hardly alone. Corker’s Tennessee recently lured Volkswagen to build a manufacturing plant in Chattanooga, offering the German automaker tax breaks, training and land preparation that could total $577 million. In 2005, the state inspired Nissan to relocate its headquarters from southern California by offering $197 million in incentives, including $20 million in utility savings.
In 1992, South Carolina snagged a BMW plant for $150 million in giveaways. In Mississippi in 2003, Nissan was lured with $363 million. In Georgia, a still-under-construction Kia plant received breaks estimated to be $415 million. The list goes on.
Supporters of these deals contend that the economic activity spurred by the arrival of the automakers is worth the up-front costs. Yet some experts say that, considering the ever-growing size of the incentive packages, there’s little evidence to support that claim.
“It’s exceedingly difficult to determine whether the returns warrant the original incentives,” said Matthew N. Murray, an economist who heads the University of Tennessee’s Center for Business and Economic Research. “It’s just hard to show that it’s going to produce enough tax revenue.”
Others wonder if the incentive packages don’t go too far to divert taxpayer dollars from vital state services. When Tennessee courted Nissan in 2005, for example, its $197 million gift came about the same time the state was cutting 170,000 low-income adults from its Medicaid rolls. A 1998 Time magazine report found that an Alabama elementary school adjacent to the Mercedes plant was home to 540 kids in a building designed to hold 290.
“The Mercedes-Benz plant illustrates a fundamental principle of corporate welfare,” the article read. “Everyone else pays for economic incentives — either with higher taxes, fewer services or both.”
Then there’s the question of whether there’s even a difference between using taxpayer dollars to bring a company to town (as many southern states have done) and using taxpayer dollars to keep a company around (as the Detroit bailout aimed to do). Rep. Lynn Westmoreland (R), who represents the Georgia district soon to house the Kia plant, told The Atlanta Journal-Constitution last month that there is a distinction.
“I don’t think we were doing that because of bad business decisions Kia was making,” said Westmoreland, who voted against the Detroit bailout. “We did that to get them in here, to create the jobs, to create the taxes, to put economic development into the area.”
With these Kia jobs coming directly from intervention in the economy its good to reflect on some things, first this kind of government intervention has been around so since our founding...
Public bankrolling of private companies has been an American staple for more than 200 years. In 1791, Wayne State University political scientist Peter Eisinger notes in his 1988 book The Rise of the Entrepreneurial State, New Jersey granted tax exemptions, the power to condemn property, and control over water resources to a private business founded by future president, James Madison. The clout of the company’s founder set a powerful precedent for political intervention in the market.
Remember, we aren't and never have been Laissez faire.
Is Barack Obama a socialist? Not really. Is George W. Bush a free marketer? Not hardly. In fact, right now they both seem to be pursuing policies that are neither socialist nor laissez-faire but rather corporatist.
This is because people vote and business will try to buy votes as well.
Also keep in mind Capitalism and Laissez faire are different as Edmund Phelps recently noted in the Financial Times:
In countries operating a largely capitalist system, there does not appear to be a wide understanding among its actors and overseers of either its advantages or its hazards. Ignorance of what it can contribute has in the past led some countries to throw out the system or clip its wings. Ignorance of the hazards has made imprudence in markets and policy neglect all the more likely. Regaining a well-functioning capitalism will require re-education and deep reform.
Capitalism is not the “free market” or laisser faire – a system of zero government “plus the constable”. Capitalist systems function less well without state protection of investors, lenders and companies against monopoly, deception and fraud. These systems may lack the requisite political support and cause social stresses without subsidies to stimulate inclusion of the less advantaged in society’s formal business economy. Last, a huge social insurance system, with resulting high taxes, low take-home pay and low wealth, may not hurt capitalism.
In essence, capitalist systems are a mechanism by which economies may generate growth in knowledge – with much uncertainty in the process, owing to the incompleteness of knowledge. Growth in knowledge leads to income growth and job satisfaction; uncertainty makes the economy prone to sudden swings – all phenomena noted by Marx in 1848.
Right now I think people are just happy about 100 more jobs... rather than worrying about the pain that would come from reach for the Ivory Towers of abstraction. (show me the money... , markets in the real world... markets in the ivory tower.... not the same , Ivory tower vs. real world part deux )
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