Incentive Programs Gone Wild

When I consider the concept of “incentive programs,” I’m reminded of the old adage, “It looks good on paper,” but then you are faced with the inevitable question of how will it work in practice?  The basic premise of state-based business incentive programs is as follows:  Company X needs a new headquarters or production plant, States B and C have the needed land and workforce, and would both benefit from having Company X move their way.  So each state tries to entice Company X with a “sweetened” offer, making it financially beneficial to come to that state.  The payoff to the state’s outlay comes ostensibly by Company X’s long-term investment in the state by employing locals, and bolstering the local economy through the purchase of goods and by paying their taxes.

Some would argue that the proper perspective with which to view these programs would be the axiom that you can give a man a fish and he’ll eat for a day; but if you teach a man to fish, he can eat for a lifetime.  Or put another way: By investing in this company now, the state is investing in the long-term health of its citizenry. 

Local and state governments are rolling out the red carpet to big corporations and are willing to fulfill just about every corporate demand in exchange for jobs.  Currently, over two-thirds of the states have incentive programs that collectively offer over $3 billion in incentives. 

Essentially, this once “well-intentioned” program has degenerated into a huge scam that has corporations hop-scotching from state to state once their current “fix” is exhausted

Indeed, such a program may look good on paper and, at first glance, might even appear to be consistent with a conservative ideology.  But when you add 21st century politics and ethics—or lack thereof—to the mix, you quickly realize that these programs amount to nothing more than a welfare program for multi-million dollar corporations at the expense of the already overburdened U.S. taxpayer.

Note to Michael Moore and friends: this is not a rant against capitalism or business.  But these programs expose a fundamental misunderstanding of how our economy works.

As a small business owner, it deeply disturbs me that our elected officials are so willing to chase after these big businesses at the expense of helping the “little guy.”  The fact is that small business owners are the backbone of our economy; therefore it is only logical that their existence, success and growth should be nurtured—not dismissed.  This isn’t high-level business strategy.  It is merely common sense.  But then again, that may be part of the problem.  As a professor once quipped to me, “If sense is so common, then why doesn’t everyone have it?”

For example, take a look at my home county, Forsyth County, North Carolina.  Recently, they voted to give $125,000 to Hayward Industries—a New Jersey-based company.   Just a few months ago, however, they voted AGAINST giving $105,000 to a local company that was seeking to improve our local hospital.  How can it make sense to help an outside corporation that will take the county for whatever it will give at the expense of growing the local industry.

By now, it must be pretty obvious that I am 100% against incentive programs.  But I am 150% against multi-million dollar corporations, like Hayward and Dell, reaping financial windfalls at the expense of the individual citizen’s bottom line.

These programs get you coming and going.  They are not only adversarial to the local small business owner by nature, but like any form of welfare they quickly devolve into a bloated bureaucracy that reinforces an entitlement mentality that is nearly impossible to terminate.  The minute a local government seeks to scale back or cut off continued funding to these companies, they pull up stakes and look for their next sucker town and tax base that will swallow the “jobs” bait—hook, line and sinker.

This isn’t just my random theory. Look at what happened in Tampa Bay, Fla.  The government promised to give J.P. Morgan $100 million to help them “create” jobs.  One hundred million dollars to a company that made over $4.5 billion in 2004 alone.  This is an absurd abuse of taxpayer dollars.  Are you ready for the shock of your life?  It didn’t benefit anyone but J.P. Morgan’s bottom line.  This year, the investment behemoth laid off 1,900 workers.  So, in the end, the state of Florida financed J.P. Morgan’s “right-sizing” effort.  Now that’s a good deal if you can get in on it.  

Credit card company Capitol One also had a sweetheart deal in Tampa, Fla., worth several million dollars.  Everyone was happy until a better offer came along.  Capitol One took the bait and added 1,100 names to the local economy’s unemployment list.

It is only a matter of time before this reality comes to roost in North Carolina.  It seems to me that our elected officials could spend more time lowering the corporate tax rate, then dreaming up new ways to give our hard-earned money away to corporate raiders.

When all is said and done, it is small business owners who are left to pick up the shattered pieces of the local economy and put it back together again.  Just imagine how strong local economies would be if the millions of dollars being wasted on corporate welfare instead flowed back into these markets.
America once prided herself on self-responsibility and for being a manufacturing giant that set the world standard.  If we needed it, we made it.  Now we punish the industrious, reward the greedy and wonder why domestic manufacturers are being kicked around by the communist Chinese production machine.

If we truly want to turn our economy around we must first correct our attitude and philosophy on business itself.  Our elected officials must create a fertile environment for small businesses to thrive by lowering taxes and regulations on these businesses, and stop robbing the “poor” to reward the “rich.”