This has been the "Year of Dell" here in Forsyth County, North Carolina.  The state of North Carolina gave Dell hundreds of millions of dollars worth of incentives to build their newest plant in the state and then Forsyth County/Winston-Salem chipped in tens of millions of their own to attract the company to our fair confines.  Obviously this caused much debate within the community, and although my gut tells me that these corporate incentives stink in principle my head also tells me that if that is the playing field we’re on then we must compete aggressively.

Personally I think the jury is out on whether the deal is good for the county/city/state.  I honestly think that Dell will come through with the jobs they promised, but if the deal was made simply on the merits of Dell’s direct employment numbers then the folks who made the deal on behalf of the governments are fools.  They aren’t fools; they’re counting on the Dell deal to attract other companies as suppliers (that is happening) and even more importantly they are sending a signal to other tech companies that this is a great region to open for business.  I hope they’re right; I hope that Dell leads to more tech companies moving here to replace the emaciated textile, furniture and tobacco industries.  We’ll have to wait and see.

My biggest worry, though, is that if something doesn’t change this will be just the beginning of a corporate welfare trend that can be quite harmful in the long-term.  Our neighbors to the west in Tennessee are already seeing an increase in companies looking for incentive deals similar to one it gave Nissan to move it’s headquarters there from California, and I’m sure NC is getting similar inquiries now as well.  Let’s not beat around the bush here; what the states are doing is bribing companies to open shop there.  They aren’t saying "Look at our great business environment with an educated workforce, a safe place for your employees to live and a progressive tax structure."  They’re saying "Look at our great business environment and the $200 million we’ll hand you to move here."  That’s bribery and you or I would be put in jail if we did the same thing.

Unfortunately all the state economic development folks think they have to do this in order to compete.  But do they really?  Dr. Jeffrey Cornwall of The Entrepreneurial Mind has this to say:

Since most of our economic growth and new job creation are a result of
entrepreneurial development, spending so much trying to attract
corporations to move their operations may be misguided. If there are
enough slack resources in state funding to offer rich incentive
packages, let’s cut tax rates instead and let the market generate jobs
and growth, as lower taxes and less government spur entrepreneurial
activity.

I agree with him.  What if NC and Winston-Salem/Forsyth County had used that same $200+ million dollars in incentives to create incentives for local entrepreneurs to build businesses based on the skills and infrastructure being left behind by the collapsing textile and furniture industries?  Yes those industries are getting their asses handed to them by the Chinese, but there are some smart people out there who can figure out a way to create new market niches that our own people can fill.

That leads me to an article I read in Business 2.0 the other day about the US cotton industry, which is the recipient of lots of subsidies from the Federal government.  Let’s just say that the system makes it hard for the US to claim a free-market environment with a straight face.  And even worse, since some of the subsidies are paid to foreign-owned multi-national companies some of these subsidies benefit other countries. 

The cotton people make the claims you always hear in stories like this: without the subsidies the average farmer will go under, whole farming communities will be devastated, etc.  Of course most of the subsidies go to large corporate operations as there aren’t many family farmers left, and it ignores the fact that the subsidies artificially suppress cotton prices.  That means that most cotton sells below cost, which on the surface means that without subsidies the industry would crash.  But without the subsidies prices would go up and growers could actually make an honest profit on their operations.

In fact some farmers are already planning for the end of subsidies by growing specialized cotton that sells at high prices and is in great demand due to it’s limited quantity.  That’s true free-market innovation.

So what’s my point?  My point is that by using incentives and subsidies we are engaging in corporate welfare.  We are incentivizing our businesses negatively and we’re instilling in them the habit of looking for a handout.  And we have to remember that prices always go up, so it’s only going to get more expensive to bribe these companies in the future.

And what about the hard-working entrepreneurs who get no handouts?  What message are we sending them?  Do you think that they feel the same level of resentment that the average hard-working individual feels when they hear about folks who abuse the welfare system?  Do you think they feel that the Dells and Nissans of the world are a 21st century version of carpetbaggers?  Wouldn’t you?

To my way of thinking these incentives and subsidies are literally un-American.  We need to get back to competing on true merit. Yes, I understand that other countries tilt the playing field in certain ways (dumping, unfair tariffs, etc.) but until we clean our own house we don’t really have a leg to stand on when we ask them to do the same.  I say we clean up our own act and then act quickly and aggressively to make sure others do the same.