Voice For Liberty

Tag: Cronyism

Wichita economic development: Worth higher taxes?
In this excerpt from WichitaLiberty.TV: Wichita city and business leaders are likely to ask Wichitans to support a higher sales tax in order to support additional economic development efforts. Should Wichitans vote in favor of this? View below, or click here to view at YouTube.
Another thing that a tax increase in Wichita might be used for is for economic development. That is, paying subsidies to companies so that they will provide jobs in Wichita.

It’s felt that Wichita needs to step up its economic development efforts because things haven’t been going well lately. Not that everyone agrees. You’ve seen the charts I showed you, showing the growth of jobs in Wichita and also other economic indicators. When we compare Wichita with the nation as a whole and with our Visioneering peer cities, Wichita is almost always in last place. When I presented this data to the Wichita city Council, the Council members did not believe these numbers. So here’s a chart that was presented recently at a Wichita Metro Chamber of Commerce meeting. It uses the same data source that I use, the Bureau of Economic Analysis, and it shows the same data using the same methodology. It comes to the same conclusion: Wichita performs poorly.
Our chamber of commerce and its leadership will use this poor performance to argue that Wichita needs to spend more money on economic development. And that’s a problem.

Very often, local chambers of commerce support principles of crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.
Now you may be confused. Most people probably think that local chambers of commerce, since their membership is mostly business firms, support pro-growth policies that embrace limited government and free markets. But that’s not always the case. Here, in an excerpt from his Wall Street Journal article “Tax Chambers” Stephen Moore explains:
“The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.
“In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes, state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”
This is the argument that the Wichita Chamber of Commerce and the city council will be making: We don’t spend enough on business welfare. Capitalism and the free market: These things don’t work, they will tell us. Only government can save Wichita from decline. Business leaders will tell us we need more taxes for more spending on economic development. But be careful here:
There’s a difference between “business leaders” and “capitalists.”
Last year Charles Koch explained the difference in an article in the Wall Street Journal. He wrote:
“Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”
He continued:
“The effects on government are equally distorting — and corrupting. Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”
In his article, Koch makes an important observation when he defines cronyism: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.”
You regular viewers know that we have a problem with cronyism in Wichita. This is exemplified by incidents like where a mayor votes to send millions of taxpayer dollars to a man who owns movie theaters, and then the mayor sells his barbeque sauce in those theaters. It’s when a real estate developer lists the mayor and city manager as business references when bidding for a city project and thinks that no one will care or notice. It’s when a city council member receives thousands in campaign contributions from an out-of-state construction company right at the time he votes to award a contract to that company. It’s when the city council votes to give over-priced no-bid construction contracts to their significant campaign contributors.
In other words, instead of allowing people to direct resources to where they believe they will be most useful, our local government direct resources to their cronies. Where it’s useful for their political careers.
I’m of the opinion that it has harmed Wichita’s economic growth. It’s one of the reasons why Wichita is the bottom line in the charts we’ve seen. But many of our business leaders, and almost all of our political leaders, propose more of the same.
That’s right. Instead of focusing on things like water and sewer pipes, government wants to raise taxes so that it can direct more of our economy. Having neglected our water and sewer infrastructure to the point where the mayor says we need to spend at the rate of $70 million dollars per year for the next 30 years, our city leaders are going to ask us for more tax money so that they can try to fix the Wichita economy.
Returning to Stephen Moore’s article. Here he quotes Jon Caldera of the Independence Institute. “I used to think that public employee unions like the National Education Association were the main enemy in the struggle for limited government, competition and private sector solutions. I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”
Let’s ask our business and political leaders some questions. First, will we acknowledge Wichita’s poor economic performance, or will we continue to ignore the facts and statistics? Second: Will we realize that the cozy relationship between city hall and a small group of insiders — Wichita’s cronies, if you will — is harmful and corrosive? Third: Will we realize that free enterprise and capitalism work better than cronyism?
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December 27, 2013
In Wichita, ‘free markets’ used to justify business welfare
Incredibly, a prominent Wichita business uses the free market to justify its request for economic development incentives. A gullible city council buys the argument.
At the December 10, 2013 meeting of the Wichita City Council, Bombardier LearJet received an economic development incentive that will let it avoid paying some property taxes on newly-purchased property. The amount involved in this particular incident is relatively small. According to city documents, “the value of the abated taxes on that investment could be as much as $1,980.”
(Bombardier receives millions each year in other government subsidies; see Kansas PEAK program: corporate welfare wrapped in obfuscation and Bombardier Learjet should pay just a little for examples.)
While the amount of the incentive granted in the December 10 action is small, the meeting was useful in letting us understand how some prominent members of Wichita’s business community have distorted the principles of free markets and capitalism. As illustrated by the fawning of Wichita City Council Member and Vice Mayor Pete Meitzner (district 2, east Wichita) and others, elected officials have long forsaken these ideas.
Bombardier’s argument
Don Pufahl, who is Director of Finance at Bombardier Learjet, addressed the council regarding this matter. He started his remarks on a positive note, telling the council “There are various aspects to a free-market economy. There’s the rule of law, there’s property rights, and another major aspect is incentives.”
We must be careful when using the term incentive. In a free-market economy or capitalism, incentive refers to the motivation of the possibility of earning profits. Another incentive — the flip side of the same coin — is avoiding losses. That’s why capitalism is called a profit-and-loss system. The losses are just as important as profits, as losses are a signal that the economic activity is not valued, and the resources should be shifted to somewhere else where they are valued more highly.
But in the field of economic development as practiced by government, incentive means something given to or granted to a company. That’s what the representative from Bombardier meant by incentive. He explained: “One party, in this case, the local government, uses incentives for another party, in this case our company, to invest in the community.”
A few thoughts: First, Bombardier is not investing in the community. The company is investing in itself.
Second, the free market system that the speaker seemed to praise is a system based on voluntary exchange. That flows from property rights, which is the fundamental idea that people own themselves and the product of their labor, and are free to exchange with others, or to not exchange. But when government uses incentives, many people do not consent to the exchange. That’s not a free market system.
Third, an important part of a free market system is market competition. That is, business firms compete with others for customers. They also compete with other business firms for resources needed for production, such as capital. When government makes these decisions instead of markets, we don’t have a free market system. Instead, we have cronyism. Charles G. Koch has described the harm of cronyism, recently writing: “The effects on government are equally distorting — and corrupting. Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”
In the same article Koch wrote: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.” (Charles G. Koch: Corporate cronyism harms America)
The representative from Bombardier also said that the city’s incentives would reduce Bombardier’s investment risk. There is little doubt this is true. What has happened, however, is that the risk has not been eliminated or reduced. It has merely been shifted to the people of Wichita, Sedgwick County, the Wichita public school district, and the State of Kansas. When government does this on a piecemeal basis, this is called cronyism. When done universally, we call this socialism.
We can easily argue that actions like this — and especially the large subsidies granted to Bombardier the by state — increase the risk of these investments. Since the subsidies reduce the cost of its investment, Bombardier may be motivated to make risky investments that it might otherwise not make, were it investing its own funds (and that of its shareholders).
The cost of Bombardier’s investments, and the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify these. We don’t know who they are. But we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)
Now the city and Bombardier will say that these investments have a payoff for the taxpayer. That is, if Bombardier grows, it will pay more in taxes, and that constitutes “profit” for taxpayers. Even if we accept that premise — that the city “profits” from collecting taxes — why do we need to invest in Bombardier in order to harvest its “profits” when there are so many companies that pay taxes without requiring subsidy?
Finally, the representative from Bombardier said that these incentives are not a handout. I don’t see how anyone can say that and maintain a straight face.

It would be one thing if the Wichita area was thriving economically. But it isn’t. We’re in last place among our self-identified peers, as illustrated in Wichita and Visioneering peers job growth. Minutes from a recent meeting of Greater Wichita Economic Development Coalition, the primary organization in charge of economic development, holds this paragraph: “As shown in the Chart below Wichita economy suffered the largest loss of employment among peer cities and has not seen any signs of rebounding as the other communities have. Wichita lost 31,000 jobs during the recession principally due to the down turn in general aviation.”
Following is a fuller representation of the Bombardier representative’s remarks to the council.
There are various aspects to a free-market economy. There’s the rule of law, there’s property rights, and another major aspect is incentives.
One party, in this case, the local government, uses incentives for another party, in this case our company, to invest in the community.
As the company moves forward to invest in the community, those investments are not without risk. … Your incentives allow us to offset some of that risk so that we can move forward with those investments, which hopefully create new jobs and also then also improves the quality of life in our community. … These incentives are not a handout. They are a way that the local government uses such things to offset some of the risk that is involved in local companies as they invest in the community, bring jobs to the community, and improve the community overall.
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December 19, 2013
Wichita economic development on tap
The role of government in economic development should be limited to that of providing the framework necessary for equally protecting the rights and property of all citizens, through the rule of law, and not by acting as a participant in any activity that places it in a position of granting a competitive advantage to one group of citizens to the exclusion of all others. When government becomes an active participant in economic activity, it abdicates its proper role of providing the legal framework and physical security that is essential for natural coercive-free trade to flourish.
— John Todd
This week the Wichita City Council will consider another economic development incentive in the form of property tax abatements, this time to a company described as a “frequent flyer” in this regard. The council ought to take a few moments to explain to citizens why this action is necessary, if in fact it is.
The company requesting the tax breaks is Hijos, LLC/JR Custom Metal Products, Inc. This company has received several incentives like the one it is requesting this week. The incentive being considered is under the Economic Development Tax Exemption (“EDX”) program, which allows the city to forgive the payment of property taxes. In many instances, the issuance of Industrial Revenue Bonds is required by law in order to achieve tax forbearance. The EDX program does away with the often meaningless issuance of bonds, and lets the city do, in a streamlined fashion, what the applicant company wants: Permission to skip the payment of property taxes.
Based on a formula the city has established to guide the awarding of economic development strategies, this company qualifies to have 46 percent of the property taxes forgiven. Not 45 percent, and not 47 percent. Precisely 46 percent. This reminds me of the old saw that economists use a decimal point to remind us they have a sense of humor.
There are a number of questions that the city council ought to answer and explain to citizens before it grants this special treatment.
1. Since the incentive being considered is in the form of reduced property taxes, does this mean that property taxes in Wichita are a barrier to investment? A related question is whether the tax breaks are required to make the project economically feasible, or does the company simply want to avoid its share of the tax burden?
2. What distinguishes this company and these jobs from others that will be created this month in Wichita? Why do these jobs require a subsidy, and so many others do not?
3. When granting tax breaks like this, how does the city council explain that the tax burden is not being applied fairly and evenly to everyone? Related: If the theory of taxation is ________ (fill in the blank with your favorite theory), how does this tax exemption coexist with that theory?
4. Has the city checked with the overlapping jurisdictions that will be affected by the tax abatements? These would be Sedgwick County, the Wichita school district, and the State of Kansas. When Wichita grants a tax break, it also abates these taxes, without advice or consent. Notice is required, however.
5. If we really believe in this benefit to the city (and similar benefits to the county, school district, and state) as proclaimed by the cost-benefit studies, why doesn’t the city make more investments like this? Surely there are other worthy companies could expand if not for the burden of property taxes. And that’s what this contemplated action means, if we are to believe it is anything but cronyism and business welfare: Property taxes in Wichita are what prevented this company from expanding. Erase 46 percent of the company’s property tax burden, and it is able to make new capital investment and jobs.
If it really is so easy to promote economic growth and job creation, we should be doing things like this at every city council meeting. Several times each meeting, don’t you think?
I also wonder about companies that made expansions as did this applicant company, but did not ask the city for incentives. What is their secret?
The reality is that these economic development incentives don’t work, if we are willing to consider the effect on everyone in the region instead of just this applicant company, and also if we are willing to consider the long-term effects instead of only the immediate.
Peer-reviewed research on economic development incentives — this is the conclusion of all the studies — find business location decisions to be favorably influenced by targeted tax incentives. That’s not a surprise. But the research also finds that the benefits to the communities that offered them were less than their costs.
If peer-reviewed research is not convincing, let’s take a look at the record of Wichita.
Here is a chart of job growth for Wichita, the nation, and our Visioneering peers. (Click it for a larger version, or click here for the interactive visualization, or here to watch a video.) The data shows that Wichita hasn’t been doing well.
So if we believe that an active role for government in economic development is best, we have to also recognize that our efforts aren’t working.
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December 9, 2013
Wichita city council advances economic development
Can you fill in the blank?
Wichita City Council says: “By allowing Cessna to avoid paying property taxes, we are showing our support for the company.”
“By requiring other companies to pay their full share of property taxes, we are showing our ________ for these companies.”
Yesterday’s action taken by the Wichita City Council regarding economic development incentives granted to Cessna Aircraft Company through the Industrial Revenue Bond program may be confusing to some people. The Wichita Eagle is not helping citizens understand what is happening when the city issues IRBs. The headline and lede of the article illustrate: “Wichita approves $40.2 million in industrial revenue bonds for Cessna improvements.”
The bonds are a sideshow and not economically relevant. In fact, Wichita has a related program called EDX that implements the benefits of IRBs without the charade of a company buying its own bonds. The Eagle gets around to this, explaining: “Industrial revenue bonds are issued by governments without any taxpayer liability, a type of municipal bond repaid from the proceeds of bond sales. They do not affect the tax revenue or the credit of the issuing governmental entity. The company will buy its own bonds.”
This explanation isn’t accurate, however. IRBs do affect the tax revenue of the issuing governmental entity, because property purchased under the program is exempt from property taxation, and often sales tax. The article does finally explain why Cessna is applying for the IRBs: “The value of the abated taxes could be as much as $37,197 for the first year.”
That — or something like it — should have been the headline to this article. The fact that Kansas law grants tax abatements for bond-purchased property is the only reason that Cessna applied for the IRB program. As Wichita City Council Member and Vice Mayor Pete Meitzner (district 2, east Wichita) explained from the bench and as quoted by the Wichita Eagle: “I’d like to confirm to the public that what we’re doing is voting to allow Cessna to purchase $40 million of their own bonds for all these improvements.”
I’m glad he understands. We still have to endure the spectacle of a governing body voting to allow a company to issue bonds that the company will purchase from itself. Perhaps someday we will have laws that allow a company to issue debt and purchase that same debt without governmental approval.
In remarks from the bench, several council members thanked Cessna for its commitment to Wichita. Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) thanked Cessna for showing their commitment to Wichita, “as they have for decades.” I wonder: What do other business owners in Wichita who have to pay their full share of taxes think about Cessna’s commitment to Wichita?
Clendenin also expressed appreciation for their charitable nature and their “humongous” heart. I wonder: Why doesn’t Cessna pay the same taxes that everyone else has to pay so that we may keep more of our own money to be charitable as we see fit?
In their remarks, no member of the Wichita City Council made the argument that is often used to justify economic development incentives: economic necessity. No one proffered that absent these tax breaks, Cessna would be unwilling or unable to make this investment. No one wondered that given that Cessna is such a good corporate citizen, why does it ask to be excused from shouldering the same tax burden that almost everyone else has to bear?
No one spoke on behalf of the other business firms in Wichita that, when wanting to make an investment to expand and hire people, are not able to qualify for the type of favored treatment that companies like Cessna receive.
No one offered any evidence that these jobs are somehow different from other jobs in Wichita that area created every day without companies receiving special tax treatment.
No one argued that the tax burden should be applied fairly and evenly to everyone.
No one made the moral case for free enterprise — rather than cronyism and business welfare — as the way to grow and diversify the Wichita economy.
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December 4, 2013
Wichita City Council makes an uneconomic decision
Last year the Wichita City Council was faced with a decision regarding a program designed to stimulate the sales of new homes. Analysis revealed that even though the city had an opportunity to make an investment with a purportedly high return on investment, it would be better off, dollar-wise, if it did not make the investment. What did the city council do? The following video explains the decision the council faced. View below, or click here to view in High Definition on YouTube. More information is at Wichita new home tax rebate program: The analysis and Wichita HOME program has negative consequences.
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December 4, 2013
Your local chamber of commerce: Working for you?
Very often, local chambers of commerce support principles of crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.
We may soon have an example of this in Wichita, where business leaders are tossing about ideas for tax increases. I distinguish between “business leaders” and “capitalists.”
Most people probably think that local chambers of commerce, since their membership is mostly business firms, support pro-growth policies that embrace limited government and free markets. But that’s not always the case. Here, in an excerpt from his article “Tax Chambers” Stephen Moore explains:
The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.
…
In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, “Rip-Off,” “state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”
…
“I used to think that public employee unions like the NEA were the main enemy in the struggle for limited government, competition and private sector solutions,” says Mr. Caldera of the Independence Institute. “I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”
From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007. The full article can be found here.
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December 2, 2013
Cessna, another Wichita company asking for tax relief
This week the Wichita City Council will consider granting economic development incentives to Cessna Aircraft Company. The incentives are in the form of property (ad valorem) tax relief, implemented through the city’s Industrial Revenue Bond program, as described by city documents:
Since 1991, the City Council has approved issuance of Industrial Revenue Bonds (“IRBs”) totaling $1.2 billion to finance expansion and modernization of Cessna Aircraft Company (“Cessna”) facilities in Wichita. The City Council also authorized 100% ad valorem tax exemptions for all bond-financed property for periods of up to ten years.
The city does this for economic development, which in the eyes of politicians and bureaucrats, means jobs. Highly visible jobs, hopefully, that voters will be grateful for. So we might want to examine the record of job creation by Wichita’s economic development machinery. (We should note that Cessna is not the only aircraft company that Wichita has been generous to with subsidy.)
The Bureau of Economic Analysis, which is part of the U.S. Chamber of Commerce, provides economic data for metropolitan areas. One of the measures that Visioneering Wichita uses as a benchmark of performance is personal income growth. Specifically, per capita personal income growth. There are some issues related to per capita measures that require caution; see Wichita and peer GDP growth for an explanation.
Considering personal income growth, here is what Wichita looks like compared to our Visioneering peer cities, based on data from BEA (click on charts for larger versions).
This chart shows the compound annual growth rate in job creation. Note that Wichita, the violet line, is in last place. But it wasn’t always that way. It was during the decade of the 1990s that Wichita started to slip to last place. Coincidentally, that is the decade in which Wichita started offering economic development incentives to Cessna.
Since Visioneering uses per capita personal income, I also present it. This time, I start the chart with 1990 data. It’s much the same story as the previous chart: Wichita is in last place.
Another benchmark Visioneering uses (but won’t present to the council) is job growth. Wichita does poorly here too, ranking in last place among our Visioneering peer cities except in one area: Government jobs. See Wichita job growth and Visioneering peers for details and a video. We should note that to the extent the government sector grows faster than the private sector, we become poorer.
We might ask the mayor and council members how this proposed action will help Wichita catch up to its self-identified peers. After all, city documents state that we’ve granted IRBs to Cessna in the past: $1,200,000,000 worth, according to city documents. The action contemplated this week is for up to $40,200,000 in bonds, or about three percent of the total granted to Cessna. These amounts are not loans to Cessna from the city, but instead represent the value of property that Cessna may have exempted from taxation: property and possibly sales taxes both.
Other companies have received similar treatment, and not always with good results. After the announcement of Boeing leaving in 2012, a news report contained this: “‘They weren’t totally honest with us,’ said [Wichita Mayor Carl] Brewer of Boeing, which has benefited from about $4 billion of municipal bonds and hundreds of millions of dollars in tax relief. ‘We thought the relationship was a lot stronger.’”
The problem with this action
A major reason why this action is harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As Cessna and other similarly-situated companies escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture. This is being brought into sharp relief as the council considers asking Wichita voters to approve a sales tax increase.
Last month the Wichita Metro Chamber of Commerce featured a speaker who stressed the importance of entrepreneurship, as evidenced by the headline in the Wichita Eagle: Gallup CEO tells Wichita Chamber: Treat entrepreneurs like star athletes.
There’s plenty of other evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action the council is considering, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Wichita economy.
These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.
Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”
In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”
In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”
(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”
There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council is considering for Cessna is an example of precisely the wrong policy.
In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”
We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.
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December 2, 2013
WichitaLiberty.TV November 24, 2013
In this episode of WichitaLiberty.TV: Host Bob Weeks takes a look at proceedings of a Wichita City Council meeting and uses it to illustrate some of the reasons why the Wichita-area economy is not growing very rapidly. Episode 21, broadcast November 24, 2013. View below, or click here to view at YouTube.
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November 22, 2013
Charles G. Koch: Corporate cronyism harms America
From September 2012, and even more relevant today.
“The effects on government are equally distorting — and corrupting. Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”
The editorial in today’s Wall Street Journal by Charles G. Koch, chairman of the board and CEO of Wichita-based Koch Industries contains many powerful arguments against the rise of cronyism. The argument above is just one of many.
In his article, Koch makes an important observation when he defines cronyism: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.”
“Rent-seeking” was always a difficult term to use and understand. It had meaning mostly to economists. But “cronyism” — everyone knows what that means. It is a harsh word, offensive to many elected officials. But we need a harsh term to accurately describe the harm caused, as Koch writes: “This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”
The entire article is available at the Wall Street Journal. Koch has also contributed other articles on this topic, see Charles G. Koch: Why Koch Industries is speaking out and Charles Koch: The importance of economic freedom.
Charles G. Koch: Corporate Cronyism Harms America
When businesses feed at the federal trough, they threaten public support for business and free markets.
By Charles G. Koch
“We didn’t build this business — somebody else did.”
So reads a sign outside a small roadside craft store in Utah. The message is clearly tongue-in-cheek. But if it hung next to the corporate offices of some of our nation’s big financial institutions or auto makers, there would be no irony in the message at all.
It shouldn’t surprise us that the role of American business is increasingly vilified or viewed with skepticism. In a Rasmussen poll conducted this year, 68% of voters said they “believe government and big business work together against the rest of us.”
Businesses have failed to make the case that government policy — not business greed — has caused many of our current problems. To understand the dreadful condition of our economy, look no further than mandates such as the Fannie Mae and Freddie Mac “affordable housing” quotas, directives such as the Community Reinvestment Act, and the Federal Reserve’s artificial, below-market interest-rate policy.
Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.
With partisan rhetoric on the rise this election season, it’s important to remind ourselves of what the role of business in a free society really is — and even more important, what it is not.
Continue reading at The Wall Street Journal
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November 22, 2013