It should come as no surprise to anyone that corporations pit local governments against one another in an effort to secure lucrative financial incentives to bring their business to (or remain in) the competing localities. Executives lobby hard at the city, county, and state levels for tax credits, cash payments, and other inducements. In the past, they might have promised to bring jobs to the cities or states in return for generous incentive packages. But these days, corporations expect (and get) benefits for simply staying. Put another way, corporations threaten to move their operations to another city or state, or offshore, if officials don’t pay up. And those payments are often on top of generous packages companies have already won in the first place. If you think that sounds like extortion, you’re right.
At the same time, you can bet that if elected officials sought new regulations to improve water quality or worker safety, those same companies would strenuously resist them, arguing that the free market should not be weighed down by new rules. There’s a caveat to the oft-repeated phrase, “government’s not the solution; it’s the problem.” Corporate America has virtually one voice here: governmental intervention is good when it benefits corporations and Wall Street, but not when it protects workers, consumers, or the environment.
In a recent 3-part series, The New York Times writer Louise Story describes the extent of the practice:
States, counties, and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks, and big-box retail chains. [Emphasis added]
The Times looked at more than 150,000 awards nation-wide and compiled a searchable database of incentives by location.
A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.
The database allows researchers to search by state or by company name to uncover a massive corporate welfare system that costs some states as much as 30% of their annual budget. In many localities, the already diminished tax base is being redistributed to corporate coffers. It’s one more example of the race to the bottom that drives communities’ living standards down and drives corporate profits up.
The series draws our attention to a problem that seems almost insurmountable. City and state officials feel they must offer substantial awards to companies to persuade them to either relocate, or simply not to move, even if it means cutting school budgets and other key social services. Because there is no way to stop every state and municipality from competing for businesses, the cycle continues and accelerates. Many local officials believe they have no leverage in negotiations with multi-national corporations like Apple, Hewlett-Packard, or GM, who hold all the cards and are willing to cut and run. One Texas commissioner told the Times, “They dictate their terms, and we’re not really in a position to question [them].”
Despite all the rhetoric about “picking winners and losers,” the truth is that the right wing is perfectly comfortable with government picking winners in a corporate welfare sweepstakes. But our communities are the losers when local governments reward corporations for gutting good, middle class jobs. The heavy machinery company Caterpillar is a prime example.
From 2007-2012, Caterpillar was awarded almost $200 million in local aid from 17 states and remained highly profitable despite the recession. In the summer of 2012, unionized Machinists working for Caterpillar in Joliet, Illinois, went on strike rather than accept the company’s concessionary contract offer, which sought reduced health care and pension benefits along with wage freezes. The company played hardball, standing by its final offer and threatening to replace striking workers with scabs. Three and a half months into the strike, union members accepted the company’s offer and went back to work under the gutted contract. Meanwhile, in the first nine months of 2012, Caterpillar earned $5 billion in profits.
And Caterpillar isn’t the only company earning hefty profits and gaming the system. CNN reported in November that corporate profits for US companies hit the highest percentage ever of Gross Domestic Product in the third quarter of 2012.
Why then must city councilors, mayors, county executives, and governors make such generous offers to these companies? It’s not as though public sector treasuries are overflowing with monies, even with more than 700,000 fewer workers employed on the public rolls since 2009. According to the Center for Budget Policy Priorities (CBPP), 31 states have budget shortfalls and the total gap to be filled is $55 billion for fiscal year 2013.
Local governments continue to respond to existing budget shortfalls with spending cuts. These cuts mainly affect education, health care, and human services. Among the cuts are funds for workforce development and training in many states. According to The New York Times, in 2000, the federal government spent in excess of $2.1 billion per year in today’s dollars for training programs. However, by 2012, annual spending receded to about $1.23 billion and President Obama’s fiscal year 2013 training budget allocation drops slightly below this amount.
Republicans in the House of Representatives want to cut training even more. Congressman Paul Ryan’s budget blueprint for fiscal year 2013, which he calls “The Path to Prosperity,” seeks a “streamlined workforce development system with fewer funding streams.” If the federal government provides fewer funding streams to train workers, then a bigger burden will fall to state governments whose budgets are shrinking dramatically.
For example, in California, the Governor’s fiscal year 2013-2014 proposed budget for Labor and Workforce Development may very well see a net decrease of $1.5 billion as compared to the 2012 budget. In Illinois, the recommended FY 2013 budget for the Department of Labor is 9.3%, or over $1 billion, less than the enacted FY 2012 budget. If unemployed workers cannot get the support and training they need to secure good jobs, consumer consumption and tax receipts will remain depressed, and state budgets will continue to suffer.
The Times series revealed local governments’ massive investments in corporate welfare are not paying off. More and more, companies refuse to promise to bring or keep jobs in return for incentives, and they pick up and move at the sign of any push back from local officials. It is clear to us that investment in education and worker training programs offer a much better return by building strong communities for the long term.
The progressive forces in our country should rally to shine a light on the corporate welfare system that pits local governments against one another, robs our communities of needed services, and lowers education and labor standards. One approach to what seems like an insurmountable problem is to expand and strengthen living wage campaigns across the US. If every incentive package contained a living wage requirement or a Community Benefits Agreement, corporations would find it more difficult to pit communities against one another and drive down standards.
What is the breaking point? When will our society advocate for meaningful changes? What is clear right now is that our current system of expanding incentives for corporate America and contracting resources for communities and workers is not producing the results our country needs in order to rebound. Serious change is needed.