RALEIGH – Is there any limit to the kind of corporate welfare Gov. Mike Easley is willing to pass out? Judging by the $3.9 million his administration just promised to a start-up airline setting up shop in the Triad, the answer is, essentially, no.
When the state incentives bidding wars began in earnest in the 1980s, they were mostly confined to large-scale employers, such as auto manufacturers, with established brand names. Politicians argued that these corporations were not just sources of direct job creation but would also bring cachet and economic spin-offs to the communities willing to offset some of their relocation expenses with relatively modest incentive packages.
Later, in the 1990s, North Carolina and other easy marks began to offer larger amounts of corporate welfare, often to smaller manufacturers or retailers promising to bring tens or hundreds rather than thousands of new jobs to a local economy. Then, existing companies began getting incentives to expand. More recently, Gov. Easley vetoed a $40 million welfare package designed merely to maintain some jobs at the Goodyear tire plant in Cumberland County, only to sign a subsequent $60 million bill maintaining jobs at Goodyear, a competing Bridgestone/Firestone plant in Wilson, and possibly other existing N.C. firms.
In the latest deal, the Easley administration is subsidizing a fledging airline, Skybus, that will offer service out of Piedmont Triad International Airport using a European business model unfamiliar to most American travelers (the tickets are underpriced, then the airline makes money charging for related services a la carte). Skybus executives explicitly seek to compete with current flights by other airlines out of Raleigh-Durham and Charlotte Douglas. In addition to the state grant, the new Skybus operation at PTI will get millions of additional dollars of local incentives of various sorts.
The governor denies that he is investing taxpayer resources into a speculative venture. The state welfare payments will only flow if Skybus meets its service and employment targets. But, of course, Skybus will only meet those targets by pulling revenues directly away from other firms doing business in North Carolina – and the promise of state subsidy will help its attempts to do that. In other words, the state of North Carolina is intervening on behalf of a favored competitor in the airline market, just as the original Goodyear legislation would have had the state favoring one competitor over another in tire manufacturing. Easley seemed to understand that such a direct state intervention in the economy was wrongheaded – or, at least, that powerful and politically active folks in Wilson wouldn’t appreciate it if Bridgestone/Firestone got the shaft – but just a few weeks later, here he is standing gleefully in front of reporters at a press conference endorsing Skybus.
If Easley will pay out-of-state corporations to come to North Carolina, in-state corporations to expand, in-state corporations not to leave, and start-up companies to compete with existing North Carolina firms, what corporations won’t he subsidize?
This is a bit of a trick question. With respect to the usual corporate-welfare suspects, there doesn’t appear to be any practical limit. North Carolina is becoming widely known as an easy mark for economic-development hucksters out to secure giveaways for their corporate clients (and a healthy commission for the consultants, I should add).
But there is, of course, a large class of North Carolina companies that will never receive personal treatment from the state’s corporate-welfare bureaucracy: established firms, small and large, that don’t play politics. The number of jobs attached to state and local incentive deals is only a small fraction of the many thousands of new jobs created in North Carolina each month. For example, in a weekend package on the incentives debate, the Raleigh News & Observer reported that the state had promised $367 million in cash grants over the past four years to companies expecting to employ 25,000. But during the same period, established companies in North Carolina created hundreds of thousands of jobs, the vast majority lacking any connection, even a tenuous one, to a state grant or targeted tax incentive.
The flaws in North Carolina’s economic-development policies don’t just involve fairness and the potential for political corruption. They involve basic economics. Economies don’t prosper by having government officials attempt to pick and choose among business competitors. And, contrary to the popular understanding, North Carolina’s economy has been underperforming its competitors in recent years. Wonder why.
Hood is president of the John Locke Foundation.