Author photo

John Hood's Syndicated Weekly Column

Another Round of Promises & Pork

Aug. 8th, 2003
More |

RALEIGH – I’m an optimist at heart, particularly about the future of my native state of North Carolina. We live in a place that is frequently underestimated, that has generated more than its share of industrious and innovative people, and that has recovered time and again from misfortunes and mistakes.

So when I see a burst of enthusiasm around a new initiative that promises great things, it brings me no pleasure whatsoever to try to tamp it down. But it has to be done. North Carolinians have also had more than their share of false promises and costly political boondoggles. I’m afraid it’s happening again.

On August 7, the board of the nonprofit Golden LEAF Foundation approved a proposal to spend $64.5 million to create a biotechnology training plant at North Carolina State University, undergraduate and graduate programs in biotech at North Carolina Central University, and training programs at the state’s community colleges (though only $9.4 million of the total goes to that last, slightly less objectionable, purpose).

Advocates of the program insist that it offers the bright hope of expanding the state’s existing biotechnology industry to replace jobs currently disappearing in traditional industries such as textiles and furniture – and tobacco, they hasten to add, since the Golden LEAF money is supposed to help tobacco-dependent communities.

Gov. Mike Easley said in a statement that the grant would “place North Carolina in a prime position to corner the market on high-paying jobs.” One of Easley’s former aides, who currently sits on the Golden LEAF board, said that “an industry such as this can generate 100,000 jobs in 10 years.”

Sounds great. But we’ve heard it all before.

Remember the Global TransPark in Kinston? In the early 1990s, proponents promised that it would create 50,000 new jobs in North Carolina by 1998. It actually did nothing but reduce overall employment through the waste of tax dollars (the jobs currently at the site are either tax-subsidized or moved from elsewhere in North Carolina).

Remember the Information Highway project? In the mid-1990s, then-Gov. Jim Hunt pitched a plan to construct a high-speed system to link public and private institutions across the state. Taxpayers were forced to “invest” millions of dollars in the initiative, which was supposed to create an economic bonanza. In reality, there was very little interest in signing on to the system. For one thing, most businesses and institutions found that the non-subsidized Internet could do pretty much what they wanted. The project petered out.

Remember the William S. Lee Act? Enacted in the late 1990s, this and related legislation introduced an aggressive and complicated system of tax incentives linked to how much a business invested in plants, machinery, and research as well as how many and what kind of jobs were created. The Lee Act was supposed to make North Carolina competitive with other giveaway-happy states and induce net new employment.

Shortly afterwards, North Carolina sank into a recession more serious than that in the rest of the country. Its unemployment rate soared. The Lee Act didn’t cause these woes, of course, but it didn’t prevent or alleviate them, either.

And on the very same day, August 7, than Golden LEAF agreed to the expensive biotech plan fashioned by its political patrons – so much for the foundation’s vaunted independence – the N.C. Department of Commerce released a long-awaited outside evaluation of the Lee Act incentives. The findings were sobering. From 1996 to 2001, eligible companies earned nearly $1.2 billion in tax credits, though they have so far claimed only $208 million. But of the thousands of jobs supposed created, the study found that only 4 percent were actually induced by the offer of incentives. Almost all the jobs, in other words, would have occurred anyway.

It is simply foolish for government to make grandiose projections and risky bets with the taxpayers’ money – which is a far characterization of Golden LEAF’s assets, by the way, in that they could and should be returned to the state treasury and used for general governmental purposes. I don’t know whether biotech is the wave of the future, and frankly neither do the politicians spooning out this latest serving of higher-education pork. Certainly some intimately acquainted with the industry think so, and they have every right and opportunity to invest their own money or attract venture capital into building plants and training workers.

Markets allocate resources well precisely because those in a position to gain from a successful investment are also in a position to lose from a bad one. Taxpayers shouldn’t be forced to weave someone else’s financial safety net – again.

-30-

Hood is president of the John Locke Foundation and publisher of Carolina Journal, in print and on the web at www.CarolinaJournal.com.