RALEIGH – Back in the fall, when conservatives and a few lonely liberals tried to stop the first in a series of massive federal bailouts of the nation’s financial-services and auto industries, one of their best arguments was that it would prove extremely difficult to disentangle Washington politicians from what used to be private companies. The principle of limited, constitutional government would take a severe blow, they said.
Since then, the prediction has proven all too prescient. We’ve seen the spectacle of an American president swaggering around Washington like a callow new czar, firing the CEO of General Motors and even telling the head of one of the nation’s biggest banks that he would not be allowed to repay federal “bailout” dollars to protect the bank’s independence. Members of Congress have gotten into the act, too, quite literally, by staging feigned bouts of outrage for the TV cameras while preparing for their new role as autocratic commissars of what they plan to be state-run industries.
Those who follow state and local government shouldn’t have been surprised by all this. We’ve had a preview of how this new corporatist state would operate, thanks to the proliferation of corporate welfare deals.
Look at what’s been happening in Winston-Salem. Years ago, Dell Computers built a manufacturing plant in Forsyth County after receiving a massive package of state and local incentives. The condition was that Dell would be required to meet an employment minimum scheduled to reach 1,700 jobs by October of next year. Now, after a couple of rounds of layoffs at the plant, local officials aren’t sure that Dell is complying with the rule. Winston-Salem Mayor Allen Joines is demanding that the company surrender additional information about its employment at the plant.
Ordinarily, I’d be the first to defend a company’s right to keep its operational information confidential. Dell is competing with other firms for customers, employees, investors, and suppliers. Having to release the information would put them at a competitive disadvantage.
But Dell officials should have thought of that before agreeing to the incentives deal in the first place – just as banks ought to have spurned last fall’s federal “rescue” and auto companies should never have come to Washington begging for another fix to keep themselves out of (probably inevitable) bankruptcy. Once a firm makes a special financing deal with government, it is no longer a private company. Its owners and executives shouldn’t expect to be treated as such.
Among many other flaws, North Carolina’s incentives policy warps private business decisions by offering higher amounts of money based on the numbers of jobs created. Businesses don’t exist to create the maximum number of jobs. They exist to create a return on investment to their owners by selling good and services that customers value. Creating jobs is a means to achieving that end, of course, but it’s only one of them. Sometimes, in order to take advantage of a better opportunity for growth or to preserve the firm itself, managers must eliminate jobs – either by substituting capital for labor or exiting a line of business altogether.
It might very well be a wise decision for Dell to reduce its expenditures and output at the Forsyth plant. It may serve the interests of Dell’s shareholders, customers, and even workers in other locations. But North Carolina state and local governments have no reason to defer to what’s good for Dell. They have forced taxpayers to invest in Dell not as a computer company but as a job creator in Forsyth County.
Similarly, the federal government has forced taxpayers to invest in banks, insurers, and automakers not for the purpose of improving their service to customers or their returns to investors. Rather, Washington is now leveraging taxpayer dollars to compel these formerly private (or in the banks’ case, quasi-private) institutions to become arms of the state – to protect unionized jobs and to carry out the administration’s public-policy objectives.
As America begins its transition from what had been a mostly free society to something new, a crossbreed between European-style social democracy and an inflation-ridden banana republic, it’s worth noting that its precursor was observable close to home, in the form of North Carolina’s foolish dalliance with corporate socialism.
Hood is president of the John Locke Foundation