Sunday’s Wichita Eagle carried an op-ed piece written by Doug Stanley, vice chairman of the Greater Wichita Economic Development Coalition. As we might expect, he calls for more government involvement and management of economic development.
Stanley makes the point that economic development organizations like GWEDC have customers, going so far as to cite the saying “the customer is king.”
The idea of a customer, however, implies willing and voluntary participants on both sides of the transaction. While the companies that receive benefits from the taxpayer are willing participants, the taxpayers are not.
Reading Stanley’s op-ed, you might conclude that Wichita has no industrial sites available. Conversations will several local developers indicate that the opposite is true: there are many industrial sites — some complete with existing buildings — available for immediate occupancy. It may be true that we don’t have the 800 acre site that Sedgwick County wants in an industrial park, but we have many sites that even very large companies could use.
And it’s a rare company that could use even a small fraction of 800 acres.
Critics might say that these sites, owned by private interests, won’t be as responsive to the needs of companies making site selections. But who do you trust to be more proactive and responsive: entrepreneurs looking for survival and profit, or government bureaucrats like those working for GWEDC?
The problem, of course, is that private entrepreneurs don’t have government largess funded by taxpayers to offer.
That leads to something that Stanlely doesn’t mention: Chasing jobs through economic development is expensive. A 1996 PBS report stated “The strategy of offering cheap land, cheap labor, and sizeable tax breaks has worked well for the southern and southeastern states, but it is getting expensive. In 1980, landing a new Nissan plant cost Tennessee $11,000 per job created. In 1985, recruiting the Saturn Corporation cost the state $26,000 per job. In 1992, it cost South Carolina more than $68,000 per job to bring in a BMW plant, and the estimates range from $150,000 to $200,000 per job for the Mercedes Benz plant in Alabama.”
This arms race among states needs to stop. Last year Cessna used the fact of an offer from other states to extract subsidy from Kansas, Sedgwick County, and the City of Wichita. But how else could political leaders in Kansas react? It would have been political suicide to let one of Kansas’ most famous companies escape.
Not that Cessna was planning to leave Wichita altogether. Instead, the decision was where to build a plant to produce a new airplane model. Since last year, Cessna has scrapped plans for the new plane. To its credit, Cessna is returning or not using the subsidies. But this is an indication of the risk that government assumes when engaging in economic development.
Government has a dismal record of picking winners and losers. Instead of making decisions based on economic factors, decisions are made for political reasons. Those reasons often have little to do with sound economic prospects and more to do with the next campaign for re-election.
Action at the federal level is needed to stop this wasteful competition between states. Then, all states can disband their economic development organizations and let business be business.