Economy & Business

From Foxconn to Electrolux, Corporate Welfare Is a Dead End

Wisconsin governor Scott Walker (left), President Donald Trump, and Foxconn chairman Terry Gou take part in a groundbreaking ceremony at Foxconn’s new site in Mount Pleasant, Wis., June 28, 2018. (Kevin Lamarque/Reuters)
Stop the favoritism and treat all businesses the same.

Confusion reigns in Wisconsin, where Foxconn Technology Group has been sending mixed signals as to whether it will ever build a much-promised manufacturing plant.

A couple of weeks ago, the company said higher labor and production costs made the facility untenable. Within days, it reversed course and said it would build the plant. Even though the company will lose some tax incentives if it does not deliver, and in fact already has for not meeting targets, state and local leaders are understandably unnerved by recent developments after offering $4 billion worth of corporate welfare.

Meanwhile, Electrolux announced last week that it will cease production at its plant in Memphis, which opened in 2014 with $150 million in financial incentives from the state, the city, and Shelby County. Memphis mayor Jim Strickland called the news “disappointing” and vowed to “defend our investment.” Good luck with that.

Across the country, cities and states spend billions every year trying to either entice new companies to set up shop or persuade existing ones to stay put. They do the same with professional-sports teams.

Yet even with a mountain of academic evidence showing that such corporate-welfare schemes have little to no overall positive economic impact, the politicians — Republicans, Democrats, and independents alike — continue falling for every outlandish promise of more jobs and an economic boost for their communities.

In most cases, businesses’ location decisions are based on things like the availability of a qualified work force, general business climate, and quality of life. Even in cases where a business receives corporate welfare, the incentives make a difference at most one quarter of the time.

More often, corporate welfare is icing on the cake for a decision that was already baked in. In 2016, Northrop Grumman raked in millions from Maryland taxpayers. Lawmakers expressed concern that the company — which was already located in the state — might be lured away by subsidies from other states.

This happened just months after a company official told lawmakers “we aren’t going anywhere.”

In New Jersey, the state comptroller just issued a scathing report on that state’s experiences trying to generate economic growth via corporate subsidies, saying internal controls for oversight of those projects were “lacking or nonexistent.” The audit sampled 48 projects that were supposedly hitting their jobs targets but found 20 percent of the jobs claims could not be corroborated. And it hit the government for not evaluating whether projects were benefiting the state economically.

Those are just the problems we can all see. There are also hidden problems: less money for critical priorities like education and police; companies leaving the state when the incentives dry up; the jobs and economic activity that don’t take place when other parts of the community are ignored; higher taxes for other businesses; the jobs not created at the subsidized company’s competitors; and the innovations that didn’t take place because the nimble start-up couldn’t get off the ground in the face of the government-subsidized corporate giant.

In the end, we all know who will foot the bill for the handouts and the tax breaks — taxpayers, workers, and consumers.

Instead of throwing tax money at corporations, lawmakers should work to make their states and cities an attractive place to live, work, and run a business. They could do that by keeping taxes and regulation at a minimum, improving their schools by increasing options for families, and not running up debt.

But it is foolish for states and cities to believe they can build a solid, growing economy one taxpayer-funded corporate giveaway at a time. It’s a colossal waste of money. It’s time to stop the favoritism and treat all businesses the same.

Russell Latino — Russell Latino is vice president of the economic opportunity portfolio at Americans for Prosperity.

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