Metropolis: Southern hospitality: Picking your pockets

First of two parts</
There’s a lesson to be learned about Southern hospitality in the North Georgia town of Blue Ridge. For a half-century, the crown jewel of the area’s economy was a Levi Strauss & Co. factory that manufactured those emblems of Americana: Levi blue jeans.</
The company was lured to Blue Ridge by the South’s traditional calling card of cheap land and cheap labor. Life had been good for the town and the company, which with 400 staffers was the largest employer in Fannin County, population 19,798. The jobs paid well by textile standards – in the low $30,000 range for veteran workers, or about $10,000 more than the average of all wages in the county. The company offered solid benefits, even including gay couples in health insurance plans.</
Meanwhile, about 20 miles southwest of Blue Ridge, in the town of Ellijay, Wal-Mart opened one of its supersized stores in 2004. Fueling Wal-Mart’s growth in Georgia, in part, has been a collection of tax incentives, including at least $19 million in public subsidies to build distribution centers. Also, state taxpayers have anted as much as $20 million a year providing health care for more than 10,000 children of low-income Wal-Mart workers who qualify for a state medical program.</
In 2002, Levi Strauss announced it was closing its Blue Ridge plant. That cost Fannin County’s economy about $49 million a year, according to a Georgia Tech study. The company shut down its last eight domestic plants, moving its manufacturing to low-wage, Third World nations.</
Ironically, contributing to Levi Strauss’ decision was Wal-Mart, which had driven down the price of clothing to a point where the blue-jeans manufacturer couldn’t compete. By moving its plants offshore, Levi Strauss was able to slash prices, and its foreign-made jeans are on sale at the Ellijay Wal-Mart.</
It’s an eloquent statement about the government-subsidized corporate assault on the middle class. As the Atlanta Journal-Constitution editorialized in 2004: “Now Wal-Mart sells cheap Levi jeans to former Levi Strauss employees who may be using their unemployment checks to buy them.”</
If that picture seems askew, it is. It’s also the reality of strong-arm tactics used by peripatetic companies to lighten the expense of relocating operations.</
Throughout Georgia and the rest of the South, there’s no shortage of examples of government being hospitable to corporate bullies and very inhospitable to citizens. For example:</
• In 2006, the Korean carmaker Kia decided to locate a $1.2 billion car plant in West Point. Gov. Sonny Perdue claimed the deciding factor in landing the deal was a $420 million incentive package that included tax-funded employee training, free land from the state government (bought from the previous owners at about 2.5 times the market value), and a new $30 million interstate interchange. Altogether, the subsidies amounted to roughly $168,000 for each of the 2,500 jobs at the plant. The cruel irony is that many of the Kia positions and the 2,000 additional supplier jobs the project is expected to create won’t even be filled by Georgians. Neighboring Alabama, which already has trained auto workers, will capture much of the economic benefit that Georgia paid for.</
• After Hurricane Katrina destroyed CSX train tracks along the Mississippi coast, the state’s U.S. senators – Republicans Trent Lott and Thad Cochran – arranged the allocation of $200 million in federal money to rebuild the railway. Then CSX asked for another $750 million to move the tracks less than 10 miles north. Lott and Cochran attached that money to an emergency-spending bill for military operations in Iraq and Afghanistan. The justification for the gifts to CSX was “economic development,” plus the weak argument that moving the tracks a few miles would protect them from another hurricane. Critics charge that Cochran and Lott were carrying water for the developers and casino operators who now can build along the coastal land where the tracks originally ran.</
• In 2005 the multibillionaire France family, which owns NASCAR, decided it wanted a Hall of Fame Museum. So it went through the motions of pitting Atlanta against Charlotte for the privilege of hosting the attraction. NASCAR had probably already decided on Charlotte – the city lives and breathes stock-car racing, and most of the drivers are based in North Carolina. But the bidding war drove up the public subsidies. Atlanta offered about $102 million; Charlotte offered to ante $122.5 million from its citizens’ pockets for the stock-car-racing magnates. The museum will provide only about 100 jobs, most of them low-paying. Metro Atlanta Chamber of Commerce officials asserted that the prestige of gaining NASCAR, plus the promise of expanded tourism, were worth forcing taxpayers to pay the freight for the museum.</
• Also in 2005, Dell opened a new computer plant in North Carolina after getting $267 million in subsidies from the state. The company also pitted three counties against each other for the right to host the facility, pocketing another $37 million in the process. The total subsidies are three times what the company will spend to build its plant.</
Jurisdictions across the nation offer such incentives, which range from tax abatement to land acquisition to construction subsidies to training subsidies to outright cash grants. Nationally, relocation incentives total about $50 billion a year, according to relocation consultants. (Such consultants often collect as much as 30 percent of the grants they negotiate for the businesses.)</
But there’s one part of the country that’s especially quick to throw taxpayers’ money at businesses in the hope of creating jobs and raising tax revenue.</
For the last 70 years, the idea that businesses need special inducements to locate themselves in the South has become ingrained in the region’s public policy. The inducements used to be minor and often invisible, as with tax-abatement programs.</
“There’s almost never any evidence that [taxpayer-funded incentives] work,” says Harvey Newman, an economist with Georgia State University’s Andrew Young School of Public Policy.</
J. Mac Holladay, who has headed economic development for governors in Georgia, Mississippi and South Carolina, relates this story: “I was with Zell Miller [when he was Georgia’s governor during the 1990s] at a National Governor’s Conference. The topic of subsidies came up. Zell asked me, ‘Is there any way to end this foolishness?’ I answered, ‘The only way I know is to not elect any more governors.’”</
Next: Losing to congestion and corruption