This week the State of Kansas, City of Wichita, and Sedgwick County struck a deal with Hawker Beechcraft that allows Hawker to stay in Wichita rather than moving to another state.
While outgoing Governor Mark Parkinson and other leaders praise the deal, it was not a good day for Kansas.
It’s difficult to blame Hawker. That company saw similar Wichita-based companies receive corporate welfare, most recently Bombardier Learjet. Who can blame Hawker for wanting the same? In fact, when the state and local governments are willing to readily hand out corporate welfare, you can make a case that Hawker has a fiduciary duty to its shareholders to seek the same.
Therein lies the problem: Kansas’ approach to economic development is piecemeal. We respond to problems, as in the case of Hawker. But the state’s response gives more companies the incentive to come up with their own “problems” that require state intervention.
When recruiting or retaining companies, the state and its local governments presume they have the ability to select which companies are deserving of public subsidy.
What we have is a situation where a relatively small number of companies receive help from the state and its taxpayers, which only serves to increase the cost of business for everyone else.
Nonetheless, politicians and bureaucrats call this making an investment in, say, Hawker Beechcraft or whatever company is asking for handouts or tax breaks. The problem is that we don’t know if investing in these companies is the right investment, if government should be making these investments at all. (In the case of Hawker Beechcraft, there is some evidence that this company may need to shrink substantially in order to survive, handouts notwithstanding. See Report: Hawker should divest all but King Air.)
We need economic development policies that nurture all companies. Somewhere in Wichita or Kansas there is a small unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, engineering methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and few will, hopefully, succeed in a big way.
But these small startup companies may not fit in to the economic development programs the city and state have. Any of these now-small companies could become the next Cessna, LearJet, Beechcraft, or Pizza Hut. We just don’t know — we can’t know — which small companies will succeed. But these companies, when in small startup stage, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. It’s not necessarily the case that a small startup aviation company is competing directly with Hawker Beechcraft and is handicapped by the larger company’s tax advantages and handouts. But these two companies could be competing for the same employees, for example, and that puts the smaller company at a disadvantage.
How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened at the expense of others? Allocating resources — deciding what to do — in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.
In order to succeed, Kansas needs to embrace dynamism in its approach to economic development. For more on this see Kansas economic growth policy should embrace dynamism and Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.
Unfortunately, the Hawker Beechcraft deal, along with most of the policies of the state and the City of Wichita move in the opposite direction: towards more state-controlled economic development.
If its a growing tech company, they certainly wont want to stay in a town like Wichita, with a dead, lifeless downtown.
Socialism once again.
Just stay in that position, here comes Boeing and Spirit. Fair’s fair and all that. I really gotta move to Newton.
There are several other issues with the deal. The funds are given for “general use” that is a huge “black hole” in finance. Secondly, the measurements of accountability are non-existence since a) Louisiana did not feel that their accountability measures would be followed by Hawker, and b) the City Council just waived (for the 4th time) the accountability measures for the Coleman company. Hawker will take the money as long as they can and when they are ready to move…..they will be gone!
As always, Mr. Weeks’ arguement is short-sighted and leaves out some very key details. Thank god people like Bob don’t actually run anything but a website…similar to capitalism or communism his theories only work on paper.
Cutting Hawker a break doesn’t punish small biz. Large companies like Hawker only help biz by dolling out more biz to shops and pumping income into the community so it “trickles down” to dozens and dozens of others.
If Hawker left, small biz would have suffered. They’d be required to pick up the tab for services after the state misses out on Hawker’s sales and employee income tax.
$40M over 10 years is a bargain. If they go to the minimum number of 4000 employees under the terms of the deal it would still be $1000 per year per employee.
The state collects far more than $1K a year on Hawker workers.
And the cash being handed over is coming from a pool of Hawker employees income tax collected by the state. Not the general fund. That is money the state would never have had the ability to collect if Hawer left town.
So the state winds up collecting more taxes than if Hawker leaves and thousands of good jobs are kept in Kansas.
Its a great deal with bipartisan support. Not just that lousy Dem Parkinson (Weeks fails to mention that uber-conservative Brownback and his mentor Peterjohn BOTH support this deal)
Hi, they weren’t going anywhere. They were just working the money. They can’t see GOOD aircraft now, do you think they would buy aircraft built by Mexican Drug lords?
If they only moved to Louisiana, they’d effectively be out of business during the move. That alone would take months.
Merry Christmas and Happy New Year
With the recent bailouts, corporate welfare is the increasing trend across the state and nation. Government should not be choosing the winners and losers, and it’s in the long-term best interest for the free market to run it’s course, instead of building an elaborate, politicized economy that depends on government subsidies and ill-advised incentives.
We’ve set precedents of bailing out struggling companies, and with our state and nation spending in debt, this can’t continue.
Typical. Union numb skulls scuttle a deal, the state pulls it out and then they complain about saving their jobs. You idiots were about to lose the whole company. Wake up. You have nothing to replace it with and when one goes they all follow.