Friday, February 1, 2013

Job poaching

In the 1980s when pirate "capitalism" (leveraged buyouts, hostile takeovers, greenmail, etc.) really got going, there were a few rearguard attempt to slow down the looting (legislation, lawsuits, shareholder activism, etc.)  These efforts were usually failures.  After all, institutional investors like city and union pension funds participated enthusiastically in the crimes against the economy.  I met a guy during that time who was responsible for investing the retirement funds of Lutheran missionaries.  I was actually shocked!  Obviously there are different kinds of Lutherans—I am absolutely positive my father would not have approved of his pension fund being parked at KKR.

The reason this looting was just plain WRONG lies in a basic understanding of how the Producer Classes make their money.  The basic strategy is to make something very difficult (or at least so difficult most people cannot make it themselves) and make it extremely well.  The crown jewels of American industrial capitalism were all examples of this.  Many were survivors of extremely competitive environments (the auto makers) had perfected technologies that bordered on magic (Xerox, Polaroid, Kodak) or built something so complex only a government could afford it (nuclear submarines, fighter aircraft.)  Sometimes it was a matter of doing something simple very well (Red Wing Shoes.)  Most of these companies had taken several generations to learn how to do what they did.  Nearby communities opened colleges to train their workers.  In perhaps the greatest act of vandalism in human history—and that includes World War II—pirates raided these crown jewels for something as simple as the pension funds or the cash set aside to fund R & D.

And the states and local governments watched this and did nothing.  Correct that, they opened thousands of "industrial development parks" and set about poaching each other's job base.  And "invested" their spare cash with the most odious of the corporate raiders (Calpers).  The Leisure Class in action.  They actively participated in wanton destruction because they thought it would make them easy money.  They glorified the pirates giving them cute names like "Chainsaw Al".  They held conferences to teach each other better methods of plunder.  De-industrialization became a central part of the culture.  Respectable people read The Economist—the official journal of the Predators.  It was insane.

America Wastes Billion Of Dollars Paying Companies To Move Between States

Kenneth Thomas, Middle Class Political Economist | Jan. 30, 2013,

Kenneth Thomas is the Professor of Political Science at the University of Missouri-St. Louis and author of the Middle Class Political Economist Blog

According to Center on Budget and Policy Priority data cited by Louise Story, in 2011 the states enacted $156 billion of austerity measures, between budget cuts and tax hikes. Despite their budgetary woes, however, this did not stop them from throwing billions of dollars a year into the worst kind of corporate subsidy, relocation incentives that move existing facilities from one state to another without creating any new jobs. A new report from Good Jobs First documents their widespread use, which is far more common than most people would imagine.

One great aspect of this report is that it goes beyond the two examples of interstate border wars we hear the most about, New York-New Jersey-Connecticut and Kansas-Missouri. We learn about Texas and Georgia vs. the world, North Carolina-South Carolina (especially in the Charlotte metro area), Tennessee-Mississippi (particularly with Memphis as target), and Rhode Island-Massachusetts. In addition, we learn more about the flip side of job piracy, retention subsidies, of which Sears' two in Illinois are the most egregious.

For example, Continental Tire moved its North American headquarters and 320 jobs from Charlotte to Lancaster County, South Carolina, in 2009. Georgia gave Ohio-based NCR Corp. (formerly National Cash Register) $109 million to relocate that same year. In 2010, Hamilton Beach received at least $2 million to move from Memphis to Olive Branch, Mississippi, while in 2009 McKesson received $4 million from Mississippi in addition to local incentives to move from Memphis to neighboring DeSoto County. Rhode Island, in a widely publicized move, gave Boston Red Sox pitcher Curt Schilling's video game company 38 Studios a $75 million loan to move from Massachusetts in 2009, only to see the firm go bankrupt in 2012. There are many more examples in the report, but you get the idea.

The existence of relocation subsidies makes it possible for companies to demand incentives to stay in a particular state, i.e., retention subsidies. Two of the three largest ones went to Sears in Illinois, $168 million in 1989 and another $275 million in 2012 when the 1989 deal expired. The second largest was $250 million to Prudential Insurance from New Jersey in 2011. But many more states have had to shell out retention subsidies on a regular basis.

The report notes that at least 40 states know how to write no-raiding language into their subsidy programs, because they already have such language banning intra-state relocations from receiving subsidies under various programs. However, as far as I know, far fewer states prevent their cities from giving relocation subsidies to in-state firms, though the report shows that Maine's Employment Tax Increment Financing rules do provide that.

What is necessary, the report argues and I wholeheartedly agree, is that states need to tweak their program language to stop rewarding interstate job relocation as well. They need to stop efforts to directly poach existing firms, something Texas is heavily engaged in. The report says there is a "possible" federal role here, to withhold some Department of Commerce monies from states that engaged in job piracy. I, on the other hand, think that federal action is the only way it will happen. As I've written before, voluntary state efforts in the 1980s and 1990s to end job piracy have been utter failures, and the states clearly need an outside enforcement mechanism, which can only be provided by the federal government.

With such extensive documentation of how widespread relocation and retention subsidies are, hopefully more people can be mobilized to get the federal action we need.  more

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