[corp-focus] The Business Climate Hoax

[robert weissman]

THE BUSINESS CLIMATE HOAX
By Russell Mokhiber and Robert Weissman

President Bush just can't leave bad enough alone.

With the Gulf Coast physically battered by Hurricane Katrina, the
president's reconstruction plan is on track to do further harm to a
region that was poor and maldeveloped even before the hurricane struck.

The core of his proposal is the creation of a Gulf Opportunity Zone that
would provide massive depreciation and tax benefits to firms investing
in new plant and machinery in the region. Translation: giant subsidies
for oil companies and casinos.

Hurricane Wilma is on the way to Florida. Tropical Storm Alpha is
brewing in the Caribbean. Scientists say a combination of natural
hurricane cycles and global warming very likely mean we are going to see
more, and more intense hurricanes over the next many years. So, Katrina
reconstruction is not likely to be the last major clean-up and recovery
effort during the next decade-plus.

How does a tax giveaway plan for big business end up as the centerpiece
of the president's reconstruction plan?

It's easy enough to say the administration never misses an opportunity
to cut taxes and do favors for its big business backers. And that's
true. It's also easy enough to point to the influence of right-wing
think tanks like the Heritage Foundation in designing the
administration's plan. And there's no disputing that, either.

But something more is going on, too -- a decades-long effort to promote
the idea that cities and states (and nations, for that matter) will best
develop by cutting taxes and providing subsidies to big business.

Greg LeRoy, executive director of Good Jobs First and author of The
Great American Job Scam (Berrett-Koehler Press, 2005), shows that these
policies are not only unjust, they are unwise.

In The Great American Job Scam, LeRoy, whose organization has led the
way in trying to counter the business climate ideology, provides case
study after case study of corporate rip-offs of communities and states.
One example is Marriott's leveraging of a threat to locate its
headquarters in Virginia to extract more than $50 million in gifts from
Maryland -- even though the company had already decided to build its new
headquarters in Maryland, where it was already located. Another is Dell
Computer's finagling of a roughly $250 million subsidy package from
North Carolina -- as an incentive to invest $100 million to $115 million
in the state. The Louisiana Coalition for Tax Justice found that, over
the course of the 1980s, Louisiana granted $2.5 billion in property tax
exemptions, nearly a billion of which would have gone to schools in the
state.

States and cities do not get much in return for these donations to the
corporate coffer, which is part of what makes them so flawed as
development policy. LeRoy shows how blind faith, bad negotiating and
illusory promises leave local and state government officials with little
or no guarantee that new and permanent jobs will be created.

But it's not just that they get manipulated. LeRoy's key point is that
business does not invest because of the tax breaks they are able to
extract. Location decisions are driven by access to suppliers and
customers, labor costs and skills, transportation facilities and costs,
the cost of utilities, land or rent costs and, not so incidentally, the
whim of executives. Tax rates make almost no difference in location
decisions. So generous tax breaks will rarely attract investments that
would not otherwise have been made.

Crudely put, in the case of Katrina reconstruction, oil and
petrochemical companies are not going to locate or rebuild in the Gulf
area because of tax breaks. They build there because there is oil there.

Perhaps most enlightening in LeRoy's book is his explanation of the site
location consulting industry, which has driven the competition among
states and cities for investments.

A single firm, Fantus Factory Locating Service, played a key role in
developing the business climate ideology. By 1977, it had claimed to
assist with more than 4,000 corporate relocations. Fantus is now an
affiliate of the accounting firm Deloitte & Touche.

Fantus, and the other players in the small field of advising
corporations on how to shift locations and blackmail cities into
lavishing them with tax breaks and subsidies, realized their business
had created another market niche: advising cities and states on how to
make themselves attractive to investors. Thus they work both sides of
the street -- instructing the corporate extortionists, and advising
governments on how to make themselves appear desirable to the extortionists.

There's not a lot of subtlety in the business. In March 2004, the
national director of Ernst & Young's Business Incentive Practice and a
former Boeing official led a workshop at a trade association of
corporate officers handling government relations. Their powerpoint
presentation was leaked. Its title: "Turning Your State Government
Relations Department from a Money Pit into a Cash Cow."

The combination of windfall subsidies for big business and low wages for
workers represents the "low-road" of economic development, LeRoy says.
It leaves communities poorer and more vulnerable. Louisiana and
Mississippi have long traveled that road. It's not unrelated to why they
were so poor before Katrina hit.


Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter, <http://www.corporatecrimereporter.com>. Robert Weissman is
editor of the Washington, D.C.-based Multinational Monitor,
<http://www.multinationalmonitor.org>. Mokhiber and Weissman are
co-authors of On the Rampage: Corporate Predators and the Destruction of
Democracy (Monroe, Maine: Common Courage Press).

(c) Russell Mokhiber and Robert Weissman

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