A plan to offer Kimberly-Clark $100 million in tax incentives to keep its operations in the state is crony capitalism at its worst.
Every so often, life hands us a lesson in why principle matters. While compromise is often necessary, it comes at a cost: When we abandon a strongly held commitment to something — say, free markets or fiscal responsibility — we weaken our ability to insist upon it in the next case. If you don’t believe us, just look at Wisconsin.
In January, Kimberly-Clark announced plans to cut 13 percent of its global workforce. This was likely the result of two straight years of disappointing growth in a difficult market for the paper products that the company manufactures. Kimberly-Clark’s restructuring plan would result in the loss of up to 5,500 jobs nationally and the closing of ten of its 91 manufacturing facilities — including one plant in Neenah, Wis., and another in Fox Crossing, Wis., which together support 600 jobs.
The timing of Kimberly-Clark’s announcement is critical. Wisconsin recently finalized a massive $3 billion incentive package for technology company FoxConn, which plans to build an enormous $10 billion facility in the state that could employ up to 13,000. The cost of the package is staggering — somewhere between $219,000 and $587,000 per job. But supporters argue that FoxConn offers a once-in-a-lifetime opportunity, and Governor Scott Walker has made it a centerpiece of his campaign for a third term, gambling that it will spur the development of a new Silicon Valley along the western shore of Lake Michigan.
Virtuous though its intent may be, this is central planning by another name. The result is market distortion, an inefficient use of resources, and a narrative of economic development built on myths and hubris.
Let’s hope he’s right, because if he’s not, he will only have succeeded in establishing a dangerous precedent. What is good enough for FoxConn, supporters of the deal argue, is certainly good enough for other Wisconsin employers. So when Kimberly-Clark made its downsizing announcement, area legislators swung into action to save those 600 jobs. A FoxConn-like tax-incentive package, passed in the state assembly but stalled in the state senate, would offer Kimberly-Clark a 17 percent tax credit for existing jobs paying between $30,000 and $100,000 annually (Wisconsin law currently allows for a 7 percent credit) and a 15 percent capital-investment credit. In total, the package is worth $100 million, an amount called “unprecedented” by an economic-development official in Arkansas.
This should serve as a moment for reevaluation. Republicans talk all the time about how government doesn’t create jobs. They like to say that government shouldn’t be in the business of picking winners and losers. But a desire to appear to be “pro-business” (as distinct from “pro-market”) and curry favor with working-class voters has led Republicans in many states to embrace a role for government that they once bemoaned. Instead of simply focusing on creating the proper conditions for economic growth through low taxes and a minimal regulatory burden, they have found it politically profitable to target companies and industries with incentives and handouts. Job totals are now tallied like points on a scoreboard.
Virtuous though its intent may be, this is central planning by another name. The result is market distortion, an inefficient use of resources, and a narrative of economic development built on myths and hubris. It serves neither business nor workers. Politicians have convinced themselves that without tax incentives, new jobs would never be created and lost ones would never be replaced. This is, quite simply, false. It fails to see what occurs in the economy every day when consumer choice and markets determine whether businesses succeed or fail.
Perhaps this could be excused if Wisconsin faced a jobs crisis. But it doesn’t. Primarily because the state has pursued smart economic policies — lower taxes and regulation for all — under Walker’s leadership, its economy, like the national economy, is booming. Unemployment is below 3 percent, wages are rising, and business optimism is up. Wisconsin’s biggest headache is a labor shortage: Too many jobs, particularly manufacturing jobs, are going unfilled (90,000 according to the state’s jobs website). Paying Kimberly-Clark $100 million to “save” 600 jobs when the state’s job market is already so favorable to those who need work, particularly those with a background in skilled manufacturing, is worse than foolish and unnecessary. It will retard growth, as workers who stay at Kimberly-Clark are denied the opportunity to fill open jobs at Wisconsin businesses with better long-term prospects.
If states can’t pull back the throttle on corporate giveaways in a strong economy, they will set the stage for a larger and more permanent government role in the economy once the business cycle inevitably turns. Republicans who persuade themselves that it is their role to use the state to manage the economy have chosen to play by Democrats’ rules in a game that neither they nor the public will win.
— Rick Esenberg is the president and general counsel of the Wisconsin Institute for Law & Liberty (WILL). Collin Roth is the director of public engagement and a policy analyst at WILL.
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