House Co-Speaker Jim Black of Matthews is among the politicos in Raleigh who need a basic refresher class in math before they spend anymore of the public’s money. Too bad the $242 million incentive package for PC maker Dell can’t be on the final exam. That problem has a big red X across it already.
While showering Dell with the most generous incentive package in state history in exchange for a plant in the Triad, Black and other legislators who did the bidding of Gov. Mike Easley failed to even question the basic premise of the give away, or think what it might mean for North Carolina a few years down the road. In fact, even mistaking Dell for a high-tech company is a serious error on the part of the state’s lost leadership.
The reality is clear. Dell is a massively successful aggregator of technology, an absolute innovator in the “just in time” manufacturing process. Like Wal-Mart in the retail sector, Dell successfully squeezes every cent out of its supply chain and turns those pennies into profits. Mere days separate a customer’s online order and construction of a custom machine.
But as the price of computer components have declined, and as the commoditization of parts become a reality, Dell increasingly found that the costliest part of their business was getting products to customers’ doorsteps. Factor $50 a barrel oil into the mix and transportation costs become very significant. For that reason Dell has sought ways to make its products in places close to customers. A plant in Limerick, Ireland serves Europe, for example.
An additional East Coast plant would help Dell service the population centers up and down the Atlantic Coast. A location close to interstates and with plenty of labor and relatively inexpensive land would be ideal. These facts reveal that North Carolina would be an excellent, centralized location for such a plant, the broad I-85-I-40 corridor outside Greensboro especially so given the workforce in the region idled by textile and furniture woes, even without incentives. Indeed, assembly of computer components would seem to be a perfect fit for many of those workers.
Next the fundamentals of Dell’s business tells us that the jobs in a new East Coast plant will not be particularly high wage. Dell, like Wal-Mart, invests in its processes so that relatively unskilled labor can be very effective. This is not a knock on Dell, or Wal-Mart for that matter, but members of the Easley administration, Speaker Black, and others who supported the incentive deal need to ask themselves if they would have supported a record-breaking deal for a really big Wal-Mart. Policy makers seem to have heard the word “computer” and lost all higher brain functions.
This fundamental lack of understand of Dell’s business model explains why it is that the state of North Carolina will pay anywhere from $98,800 to $120,000 per job for jobs that pay an average of $28,000 a year. The plant is expected to provide anywhere from 2,000 to 2,700 jobs, although projections of up to 8,000 spin off jobs assume that other computer suppliers will also locate close to the new Dell plant.
Such co-location is a hallmark of Dell’s streamlined manufacturing process, but similar job projections made for Dell’s Nashville facility have yet to be met. Indeed, there is some grumbling in Tennessee that the incentives offered Dell in 1999 should have produced more jobs.
So this is what even a cursory analysis of Dell’s operations tells us: That North Carolina was a solid contender for any Dell expansion based on fundamentals, not gimmicks and that the jobs the Dell would bring, while solid, decent positions in a modern sector, would not be particularly high paying. Given that, does a $242 million incentive package look prudent?
Far from “paying for itself,” North Carolina may well have succeeded in paying millions for something the state could have had for free. Jim Black and the Easley team need to pause to consider that cold, hard reality amid all the oblivious, communal backslapping.
And yet here still is the aspect of the issue that supporters of the incentive deal utterly refuse to wrap their heads around. Suppose you offered an existing North Carolina business $100,000 in tax breaks for every new job they create? What happens then? Better still, what if you resolve to offer every business in North Carolina $1,000 in tax savings just for having the good sense to be in North Carolina? What then?
As it stands, that $242 million just given away must be made up by North Carolina’s other businesses — hard-working small businessmen; successful, forward-looking corporations; kooky early retirees with crazy mad dreams. All of them, and their employees, are now charged with paying the bill Jim Black helped write.