We Beg to Disagree. Incentives to Industry do Work!

In January, a story written by Arthur E. Foulkes of the American Institute for Economic Research (www.aier.org) was picked up by Scripps Howard News Service and was published in several U.S. daily newspapers, including the Birmingham Post Herald. I read the story with interest since the headline read "No Evidence that Economic Development Grants (incentives) Work." The story was not unlike others written over the years, most notably one in Time Magazine in the late 1990s that centered on the evils of "Corporate Welfare."

After reading this latest attack by Foulkes and the American Institute for Economic Research on the practice of economic development in this country, more specifically in the American South, I had finally had enough. It was great timing that a reporter from South Carolina called right after I finished the second reading of the story. It was time to vent after she asked what I thought about the piece.

Yet, instead of my usual ranting and raving against this idealistic view that incentives to corporations would best be used for education and public safety, as the article stated, I told the reporter on the other end of the phone line to break out her calculator. The number crunching commenced.

"So, you agree with the article that there's no evidence that economic incentives work," I asked. "Let me disprove that assertion." I cited the state I thought provided the easiest example that she would understand. I cited Alabama.

Alabama has spent or credited approximately $800 million in incentives to job makers in the automotive industry since 1993. The incentives have gone to about 125 companies, but almost all of the grants have gone to just four automakers: Mercedes-Benz, Honda, Toyota and Hyundai.

I told the reporter on the phone to jot that $800 million incentive figure down. "Now compare it to this," I said. Since 1993, those four automakers have invested around $5 billion in buildings and equipment in the state of Alabama. In addition, the employment of 10,000 workers by Mercedes, Honda, Toyota and Hyundai, creates a total of about $500 million in salaries for Alabamians annually, just from those four auto making anchors. That's an $800 million investment over 12 years by the state of Alabama and a gross return of $5.4 billion in salaries alone over the same time frame. Would you invest $800 million to receive $5.4 billion 12 years later?

Of course, the $5.4 billion figure is incredibly conservative. It doesn't include the investments made by the four automakers, nor does it include employment, salaries paid, taxes paid, charities paid and other monetary benefits Alabama is currently enjoying from the approximately 120 automotive parts suppliers that have built facilities in the state over the last dozen years as a result of the four automaker's investments. And let's not even consider additional housing or retail investments made during that time. No, that would make the incentive naysayers' neck hair stand up way too straight.

Even over the phone I sensed the reporter's attitude had changed after the numbers were crunched. She no longer maintained such a strong anti-incentive agenda. So she hit me below the belt. "You're a fiscal liberal, aren't you?" she asked. "No," I simply said.

Liberal or conservative viewpoints have nothing to do with state incentives doled out to major corporations that create jobs and invest hundreds of millions of dollars. It's simply a matter of a good or bad investment. A good investment results in a solid return. A bad investment results in a loss. In the case of Alabama, the investments made in Mercedes, Honda, Toyota and Hyundai have resulted in great returns, both monetarily and in worldwide exposure. That being the case, how could anyone write a story with the headline, "No Evidence that Economic Development Grants Work?"

The reporter still wasn't totally convinced. She said she agreed with the article that incentives to industry would be better spent on education and public safety. I responded by saying, "Alright, go ahead. I want your state to be the first in the South to redirect what's budgeted for industrial and business recruitment to public safety and education. Go ahead. I dare you! Because if you do, your state will be the smartest, safest, 20 percent unemployment state in the South.

Mike Randle
mike@sb-d.com