State Subsidies to Attract Corporate Investment Should be Banned
Gerald Epstein: The money thrown at corporations by states to invite investment is a boondoggle that should be ended by federal law
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network, and welcome to the first edition of The Epstein Report with Gerry Epstein.
Gerry is the codirector of the Political Economy Research Institute, known as PERI. He’s also a professor of economics in Amherst, Massachusetts. He’s published widely on a variety of economic policy issues and central banking issues, international finance and such. Thanks for joining us, Gerry.
GERALD EPSTEIN, CODIRECTOR, PERI: Thanks for having me, Paul.
JAY: So what caught your attention this week?
EPSTEIN: What’s caught my attention is a terrific series in The New York Times by Louise Story (started yesterday, on Sunday, and is going Monday and Tuesday) about tax competition, the way states and localities are giving massive subsidies to corporations to move to them, ostensibly to create jobs, and then the companies mostly just take the money and run. We’ve known about this problem for a long time, but The New York Times actually has been investigating this thoroughly for the last ten months and gotten a lot of terrific data on this.
JAY: So hang on. What does it mean, “take the money and run”? ‘Cause don’t they have to sign contracts that require them, you know, to create so many jobs and stay there for so many years and such and such?
EPSTEIN: Well, sometimes they do and often they don’t. Even when they do, they’re often not enforced, and even when they do, they’re meaningless. Like, the company will create one or two jobs. And, for example, Amazon signed a contract or set up a warehouse in Texas, and then within a couple of years closed it down and left 200,000 people without jobs.
So this is a very serious issue, and it’sâ€”The New York Times series makes it clearâ€”and there’ve been other studiesâ€”that the states simply are trading away millions of dollars if not billions of dollars of subsidies and getting very little in return. In fact, the number they come up with is that there are about $80Â billion of subsidies given out by states and locales to corporations every year.
JAY: So how do you stop this? I mean, that’sâ€”it’s sort of the whole name of the game when a big corporation is setting up a subsidiary somewhereâ€”they create this competition where states practically bid to get them in. But how would you stop that the way America is organized?
EPSTEIN: Well, they do set up this bidding process, and it’s a race to the bottom, and it’s becomeâ€”as the New York Times series makes clear, it’s become part of the normal culture of doing business now.
How do you stop it? Well, one way you stop it is you take a proposal from a couple of the economists and the president of the Federal Reserve Bank of Minneapolis about 15 years ago, who said that there ought to be a federal law outlawing this kind of tax competition. Everybody would be better off, and even the states realize that. It’s like an arms race. When you get into an arms race, you know that everybody’s worse off. So you ought to have a law against it.
There have been attempts by groups of states to cooperate and to have a treaty among themselves that they wouldn’t engage in this kind of arms race. There was one in New England about ten or 15 years ago, but that broke down within months because the competition for jobs is just so intense.
JAY: [crosstalk] Sorry. Go ahead.
EPSTEIN: The other way to stop this is to do what we here at PERI have been arguing for a whileâ€”Bob Pollin and othersâ€”is if you have a full-employment economy, then people aren’t so vulnerable to this kind of blackmail by corporations, because they can get decent jobs anywhere.
JAY: And it takes another form, too, not just the subsidies, but also what happens in terms of labor legislation and wages. You have this competition between states that are either what they call right-to-work states, where it’s much more difficult to organize unions, and you also have this competition now between which states are helping facilitate these two-tier contracts where you have lower wages for starting workers. And I know in Wisconsin what won those two-tier contracts at places like Harley Davidson was exactly the threat they would go to a state where they could get away with this.
EPSTEIN: That’s right. The threat effect is very powerful. And it’s not just happening here in the U.S. It’s happening all over the world, international competition. I remember when I was doing some research in China about ten years ago on foreign investment and I interviewed somebody who was in charge of a free-trade zone in a northern city called Dalian, and I asked him, well, who’s your biggest competition for investment? Is it South Korea? Is it Vietnam? He said no, it’s the free-trade zone just down the street, ’cause they can out-bid us. The more you have this decentralization of this bidding process, the more you hand over enormous power to the corporations.
JAY: Alright. Thanks very much for joining us, Gerry.
EPSTEIN: Thank you.
JAY: And thank you for joining us on The Real News Network.
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