We need a business incentive plan for all employersBy WYATT EMMERICH,
Many mississippians may remember the recent failed venture to convert pine trees into gasoline. Gas was over $4 a gallon and it seemed like a great idea. After all, pine trees are mainly made of hydrogen and carbon, same as gasoline. All we had to do was rearrange the atoms using existing technology.
The company was called KIOR and was backed by some well-established Silicon Valley venture capitalist billionaires. Even Bill Gates was an investor. What could go wrong?
Well for starters, the price of gas dropped dramatically. Fracking wiped out the notion of peak oil. Meanwhile, turning pine trees into gasoline, although possible, was harder than first thought.
None of this should have been a problem for the average Mississippian except for one minor detail – your state government decided to bet taxpayers dollars on this risky venture and lost $75 million. That’s $75 per Mississippi household. So much for Republican belief in the free market.
Meanwhile, another effort to convert pine trees into energy has been a great success with a tiny fraction of the government assistance that Kior received.
Drax Biomass International is producing 450,000 metric tons of wood pellets a year in Gloster, Miss., with a brand new plant employing 45 people. Better yet, the plant creates a market for pulpwood throughout the area, pumping millions of dollars a year into the surrounding area.
The wood pellets are shipped to England, which is converting their coal plants to burn wood pellets. The wood pellets are cost effective and reduce carbon emissions since the trees get their carbon from the atmosphere instead of the ground.
My point is this: No one can predict which technology will succeed over the other. That’s what the free market and competition is designed to do. The problem comes when government subsidizes one business over another and loses taxpayer money along the way.
Mississippi is full of such success stories. Tylertown has a new garment plant run by Millsaps grads. It’s going gangbusters. Clarksdale has a new drone factory. These smaller operations have dozens, not hundreds, of employees, but they provide real, unsubsidized growth. The kind that won’t skip town when the subsidies run out.
Government employees do not have the proper skill set for assessing risk. Banks, investors and venture capital firms do. The Mississippi Development Authority (MDA) needs to get out of the business of picking winners and losers. They are lousy at it.
So what does that look like? Do we give up on government attempts to encourage new business? Not necessarily, although this would probably be better than our existing policy. Instead of favoring one company over another, which can lay the groundwork for corruption, we need to have a comprehensive pro-employment incentive plan that favors all job creation equally.
A statewide job creation program should not favor mega-employers over the mom-and-pop firms. A job is a job is a job. By blowing our tax incentive wad on a few megadeals, we are failing to offer any incentive to the thousands of smaller firms throughout our state.
This is bad because it is actually the smaller firms that generate most of the job growth in Mississippi. The age of the mega-plant is dying. They almost always depend on massive government subsidies. Meanwhile, smaller firms are able to create real wealth in growth through the natural functioning of the free market, like Drax Biomass.
Here’s the way our economic development works now. Government bureaucrats in the MDA, operating more or less in secret, meet with various promoters who play one state over the next to get the biggest government subsidy they can find. The bigger the factory, the better the publicity, so the media value favors megadeals costing megamoney.
The governor then figures the megadeal will make him look proactive in creating jobs, so he gets on board. A superficial cost-benefit study is ordered, using fuzzy math and ridiculous multiplier assumptions. After all the details are worked out, usually with politically-connected law firms, the governor convenes a top secret special session. Everybody gets excited.
The special session lasts a few hours, and everything is fixed. Gazillions of jobs are promised. Nobody reads the fine print. There’s minimal debate. No legislator wants to appear anti-job. A few arms are twisted. One or two legislators with brains and integrity (Joel Bongar take a bow) vote no and the massive subsidy is approved with near unanimity. Everyone pats themselves on the back and goes home.
Then over the next few years, after the public money is transferred to private hands, the project is inevitably scaled down with minor penalties, driving the real cost-per-job to astronomical levels like $200,000.
These subsidized companies are then able to steal the workers from unsubsidized, taxpaying companies, destroying their prospects for natural growth.
Mississippi has been in the top tier of states doling out money for megadeals based on the size of our tax base. What have we to show for it? According to state economist Darrin Webb, economic growth is 17 percent lower than the national average since the end of the Great Recession. That’s a lot of money down the drain – $13 billion to be exact. Our state should be booming, but we’re losing population.
All of this is caused by a fundamental lack of faith in the free market system to create jobs naturally without government intervention. Such lack of faith is completely unwarranted because, in fact, an unfettered free market his proven far more successful than governmental intervention. Yet we persist.
Meanwhile, these subsidies erode our tax base, preventing government from doing what it should do: provide proper infrastructures such as schools, roads, law enforcement and the like.
The solution is simply: State and local tax credits for all new job creation on an equal opportunity basis. This capital distorting megadeal favoritism is killing our state.