A "Smack In The Face"

By BILL WADDELL

In the pantheon of great philosophers, Dave Barry   PJ O'Rourke (thank you Eric - you are right - I stand corrected) rank high if for no other reason than the fact that he once wrote "Giving money and power to government is like giving whiskey and car keys to teenage boys."  The antics of Barack and the Ivy Leaguers proves this point in spades, but my purpose here is not to take issue with the New York Times business writer and, by coincidence, husband of the former boss of Democratic Party finances who is calling the shots at GM.  No, today I would like to address the gullibility of the state and local fools who have been entrusted with our hard earned money in order to pursue 'economic development'. 

First, consider the case of LM Glasfiber in Arkansas, which manufactures windmill blades.  They have announced another round of layoffs which will take them down to about 300 employees from a high of 630.  In spite of the gazillions of dollars with which the economy is being 'stimulated' for just the very sort of global-warming-battling stuff these guys make, "We continue to see the timing of domestic wind projects being pushed back due to the credit markets and world economic conditions," LM Glasfiber vice president and North America general manager Randy Fox said.  Orders down = people gone in the minds of stone aged thinkers like Mr. Fox and his Danish overseers, and of course, the economic development people in Arkansas have no way of knowing that the Glasfiber folks are manufacturing Neanderthals. 

The real kick in the pants is that the good people of Arkansas gave a lot of money to these guys. "Little Rock city directors agreed to issue $150 million in Arkansas taxable industrial development revenue bonds on behalf of LM Glasfiber. The bonds will help pay for acquiring 130 acres for the company, as well as building office and factory space, and buying equipment for the company for its two plants. The city isn’t liable for paying off the bonds but will hold title to the company’s property, making the land tax-free. Little Rock will lease the land back to LM Glasfiber for 20 years."

The wind turbine business isn't too good up in Pipestone, Minnesota either where Mick Myers, executive director of the Pipestone Chamber and Visitors Bureau got a "smack in the face". "The city overhauled the industrial park within which Suzlon constructed its plant in 2006 and gifted the wind component manufacturer with free land and state and local tax incentives."  In exchange the folks running the Suzlon Rotor Corp notified Mick and his buddies by mail that 160 of the 324 jobs the Pipestone taxpayers bought and paid for were being flushed down the Pipestone sewers.

Similar story in Vermont where the Thomas Monahan Company gladly took a hefty wad of cash from the state - then laid off 105 out of 140 folks whose jobs the cash was supposed to secure.

Stories like these abound.  The cities ought to get guarantees, you say?  They often do - and they are not worth the paper they are written on.  Dell seems to be in a class of their own when it comes to raping and pillaging local governments for incentive cash, then tossing the local townsfolk overboard as soon as they hit rough sailing.  Local officials in Ireland and North Carolina have been skinned by Dell on incentives for jobs deals, then hauled them into court when Dell has reneged on their promises and slashed 11,600 jobs, but have yet to see a dime.  I wish the good folks from Lebanon, Tennessee good luck doing the same.

Government officials need to learn that there are two kinds of manufacturers in this world.  There are the headcount driven ones, typically with short-thinking 'professional managers' at the top, like Glasfiber, Suzlon Rotor, Thomas Monohan Company and Dell.  You might as well gather all the townspeople together in the city square and burn their money in a community marshmallow roast as give it to these guys.  Rather than give them money, you should have companies like this post a bond before allowing them in so you can afford to clean up the mess they will inevitably leave behind.

The other kind of manufacturer is the lean kind - the kind that strives to emulate Toyota - you know, the company that has yet to lay off a single one of their 325,000+ employees despite a global reduction of almost 30% of their market.  These companies are worth their weight in gold and the red carpet should be rolled out as lavishly as the town can afford to get them into the community.

Until government officials know the difference, however, we would do well to be sure they have as little of our tax dollars as possible to play with.  Otherwise, they will spend it on the likes of Dell and Glasfiber and the local folks will be left with no jobs and no money.

Comments

[John Hunter]

Agreed. It is not wise to have local government compete for businesses by providing special tax incentives. Repeatedly they show that fools and their money are soon parted. And those that trick the fools out of money need to go find new fools to trick out of money as soon as the money flow is slowed.

[Nathaniel]

A few things I have to take exception with:

Name calling or bashing of the current administration isn't very productive. Might I remind all that this whole ball was sent rolling by the previous administration.

Most of these towns/cities are not large metropolitan areas (barring Little Rock) with large, diverse industries or work forces. About the only card these cities have to play is tax reduction and bond issuance. I was (not so recently) RIFd from a company that received $126 million in new bonds 2 weeks before they let me go. This after the initial $167 million in bonds to woo them in 5 years earlier. I feel the aggravation of everyone else in watching mine and everyone elses money go to create and protect jobs, only to see them eliminated the next day. But on the other hand, if the local or state governments start placing demands or requirements on the companies, they'll simply look elsewhere. It's a big wide world, and I'm sure there are many cities/states/countries that would be willing to take that gamble. Either you have a widespread, total, collusion between all local governments to resist the free rides companies are getting, or you smile and pray, both risky propositions.

The last thing is the Toyota layoffs. Toyota does and has laid off people. The "no layoffs" statements I see often should be tempered with "permanent workforce". About 10% of Toyota's workforce is temporary, of which 36,000 have been laid off in the current downturn. http://www.detnews.com/apps/pbcs.dll/article?AID=/20090124/AUTO01/901240355 This is not all that surprising, but being without a job is surprising, whether you were temporary or permanent.

Nathaniel - If you think the Obaman plan of throwing trillions of your grandchildren's dollars at the economy is a good idea, then God love ya' - no matter how we got here. And these small towns have no excuse. Small town economic development people make good money. They ought to be smart enough to recruit quality employers - not just any employer.

And as far as Toyota is concerned, reread the article you cited. Toyota has 36,000 employees is the US, 15% or 5,400 of whom are temps. So 31,600 permament employees are solid and 5,400 might - might - be at risk. That is a pretty paltry number compare to the 145,000 GM dealer employees who are up a creek, without a paddle or a job.

But you are certainly entitled to your opinion and if you want to defend the Obama economic plan and the money communities throw at the very same big big companies that just riffed you, you are welcome to that opinion, as naive as I may think it is.

[Nathaniel]

I'm not that thrilled with anybody in the entire bailout process, just as much as I'm not thrilled with corporations worth billions suckering millions of dollars from small communities. I'm also not fond of being labeled naive by someone who didn't take the time to determine if I actually agree with the bailouts (not going to call them Obama bailouts, cause it was going on before he came to town) or not, an opinion I never once stated.

The one thing I am certainly not defending is the simplicity with which the story is told, often from a narrow, one sided point of view. The idea of communities holding or wishing to hold companies accountable for the millions in bond money they are given is not a new and novel idea. But to think that so simple of a solution is readily available and implementable might be truly naive.

[david foster]

One problem with local economic devel initiatives is that they are often very trendy, emphasizing whatever is in style at the moment.

For example, I knew someone who was starting a small business of the metal-bending persuasion, and wanted to take advantage of a county-government initiative for startups. They weren't interested in his business, because they were pushing "technology."

This was circa 1999. Wonder how many of their "technology" businesses are still around.

For 2009, substitute "green" for "technology."

[Tom Palmitesta]

Bill, I have been reading all your blogs and I agree that you certainly have a point. But blaming Barack and the Ivy Leaguers is not the solution. For one, I am not so sure that non Ivy Leaguers would do a better job. Then you know very well that lean thinking is not something that you acquire overnight. If you really want to change America's way of thinking, go out an DO it, start something like www.HealthcareValueLeaders.org and start educating as many as you can. In time you may succeed. I am interested in the outcome because I am not an American and I don't live in the US, but your situation is the same in many countries, including mine. Good luck!

[david foster]

Tom, I don't think the problem (at least as I see it) is specifically with Ivy Leaguers, but rather with the excessive worship of educational credentials--a worship that is manifested in the strongest for in the case of Ivy League degrees in general, and graduate degrees in particular. This leads to two problems:

1)A waste of human capital and a reduction is social mobility
2)Excessive reverence for theory at the expense of actual experience--this has certainly been one factor in the current financial crisis, brought about in part by excessive credence placed in simplistic mathematical models of mortage performance.

[Joseph C. Samuel]

What if these big names disappeared? What if they are not bailed out? What if the government asks them to close and then give the money kept for bailing out for people to start, invent, export new products and services, which would create more wealth creators than workers? What if they are replaced by small ones? What if Federal/state/ local government didn't offer tax incentives?

I think the result of this may be hard, but surely the sun will rise again. Many will lose their jobs if the big ones are not bailed out. Even otherwise they will. What is the point in holding on to a nose that will be blown away on the first sneeze? Let it go.

Don’t bandage the splinters. It is sure to have a big lump.

In their place better will come up. Absence of the conventional will help people to think beyond what they see and come up with best innovative ideas, set new practices and help them to be more realistic and true. History teaches us that. Or is it true that that only lesson we learn from history is that we don’t learn from history?

I don't know much about American economy but as I follow these discussions I understand that it is not the question of who started the ball rolling or who whacked it to speed it up. The ball first of all the ball shouldn't have been there!

Name calling doesn't work but probably these discussions create awareness, as it did for me. First, if we are the owners, not to commit the same mistakes. Second, as influencers to influence the local governments to rethink their strategy. Let them know that people-first, green-second, technology-third, money-fourth. In that order we will achieve all four. Reverse it, we lose everything.

[Eric H]

Actually, I think it was PJ O'Rourke that made the crack about giving whiskey to teenage boys. The difference between the two halves of that simile is, of course, that eventually the teenage boys get over their hangover, grow up, and become responsible. We even paid that farmer for his fence. The government just keeps getting less responsible.

[Abhi]

You would think the states would learn from mistakes!
Our state of North Carolina, recently signed a tax break for Apple data center
http://localtechwire.com/business/local_tech_wire/news/story/5277556/

About $46 million in tax breaks for 50 jobs.

All this at a time when the state is making huge cuts in healthcare and education programs.

It gets even interesting
http://www.newsobserver.com/2980/story/1567258.html
NC funded several other projects expecting "private" funds for collaboration. The private funds never arrived!