In a talk to the Wichita Pachyderm Club on Friday April 24, 2009, Bryan S. Derreberry, President and CEO of the Wichita Metro Chamber of Commerce, laid out the case for government management of our area’s economic and community development. The title of the talk was “The Basis for Economic Partner Selection and Collaborative Efforts.” The slide presentation is available at the end of this article.
While the Chamber is, strictly speaking, not an arm of government, it receives a large amount of government funding. Additionally, many of the incentives that it offers to companies require governmental action and funding to implement.
One of the things I learned — I had suspected this, but now it is confirmed — is that “economic and community development are now the same.” The Chamber views their mission as more than just economic development.
Moreover, there’s a lot of competition in the economic development field. There are 361 MSA (metropolitan statistical areas) in the United States. There are 18,000 economic development organizations in the United States. All are looking to attract and retain business, just like the Wichita Chamber is.
The prize being sought — the really large expansion or relocation — is relatively rare, as Derreberry said there are just 200 expansions or relocations that feature 500 or more employees each year.
Some of the important tangible things companies are looking at, in order of decreasing importance, are highway access, low labor costs, low occupancy and construction costs, tax exemptions, availability of energy and its cost, availability of skilled labor, state and local incentives, fair corporate tax rates, low union profile, and available land and buildings.
One of the slides Derreberrry presented dealt with the intangible factors that, if aren’t nailed down, “the competition will beat you every time.” These include:
- Risk minimization for expanding or relocating employer
- Cooperative, enthusiastic, positive, and sincere public and private leadership — sophisticated and wanting of the project
- Consultative economic development experts
- Solutions-oriented negotiations (“we’ll find a way”)
- Tireless momentum that overcomes obstacles
Other intangible qualities of a location include attributes such as vitality, earning, learning, social capital, cost of lifestyle, “after hours,” and “around town.” Many of these fall in to what our mayor and others refer to as amenities. It’s now the duty, it seems, of a city to plan for and provide entertainment for its citizens. Among the economic development planners, this is known as the “third place” beyond home and work: Are there other places I can go and feel good about the community I’m in?
Two years ago Stephen Moore of the Wall Street Journal wrote an important article titled “Tax Chambers.” I’ve commented on it before in Tax Chambers of Commerce, Right Here in Kansas and The Decline of Local Chambers of Commerce. I used this article as the foundation for a question, which went something like this:
“In February 2007, Stephen Moore wrote a column that appeared in the Wall Street Journal. In it he said ‘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.’ Mr. Derreberry, the Wichita Chamber has supported tax increases, subsidies, centralized government planning, and what I call crony capitalism. Do you think this is valid criticism of this chamber?”
He replied that the Chamber opposed a tax increase for education in 2002. The Chamber will support “responsible” taxes, he said. He recognized that a high tax and regulatory environment will inhibit the ability to grow communities. He didn’t address subsidy or centralized government planning, and he didn’t agree that this criticism applies to the Wichita Chamber. Something tells me he doesn’t get asked questions like this very often.
Granting the incentives that the Wichita Chamber wants to offer is expensive. It requires government to pay subsidy directly to companies, or, as is often the case, grant companies relief from paying taxes. Sometimes a company is allowed to use its taxes for its own exclusive benefit, instead of funding the general operations of government.
All these courses are costly.
There’s also some question as to how important these subsidies are to companies. Last year, it was reported that North Carolina offered Cessna $200 million to build a new plant there. Between Kansas, Sedgwick County, and the City of Wichita, Cessna received an offer of $35 million, and decided to build the new plant here. To me, it looks like Cessna left $165 million on the table. Is building a new plant in Wichita worth that much? If they left $165 million on the table, would they have left, say, $185 million there too? The cynic in me says that Cessna never seriously considered building the plant outside Wichita, but they nonetheless wanted a reward for being a good corporate citizen.
The planning that Mr. Derreberry talks about requires government expansion and interventionism on a grand scale. In a newspaper op-ed a few years ago, he mentioned the entrepreneurial spirit of Wichita. Government planning like the downtown revitalization effort underway in Wichita strangles entrepreneurship. So does the public-private partnership.
Since there’s so much competition in economic development, and since Wichita doesn’t have picturesque mountains or seashore, why don’t we try something really different? We could make Wichita and Kansas a laboratory for economic freedom. That would be something quite unusual these days. There’s no telling to what level of prosperity we might advance.
The problem is that this would require unilateral disarmament by Wichita in the escalating arms race between states and cities to see who can dish out the greatest incentives. It doesn’t seem likely to happen, especially given the short time frame of most politicians — the next election campaign.
I spoke to one activist after the talk, and he was distressed at the call for government intervention that Mr. Derreberry called for. This reaction was in the minority, as many seemed appreciate of the Chamber’s efforts.
Another person I talked to said the Chamber’s action reminded him of a quote from Adam Smith: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”
Myself, I thought of a passage by Milton Friedman, which reads: “[The political system] tends to give undue political power to small groups that have highly concentrated interests; to give greater weight to obvious, direct and immediate effects of government action than to possibly more important but concealed, indirect and delayed effects; to set in motion a process that sacrifices the general interest to serve special interests rather than the other way around. There is, as it were, an invisible hand in politics that operates in precisely the opposite direction to Adam Smith’s invisible hand.”