by Dr. Roy Cordato
Senior Economist, Emeritas
1. Mercedes’s decision saves North Carolina taxpayers over $18 million and North Carolina businesses much more
It was announced on Tuesday that Mercedes-Benz has decided to move its corporate headquarters from New Jersey to Atlanta, GA, and not to the Raleigh area, as many were hoping. According to this article in the Triangle Business Journal, Georgia offered the company $23 million in corporate welfare payments, while Governor McCrory was only willing to transfer a little over $18 million of taxpayer money to Mercedes.
But the tax dollars saved are only the more visible cost savings associated with "losing" this bidding war using other people’s money. The fact is that incentives like this give out-of-state companies an unfair advantage in competing for North Carolina’s scarce resources — labor, building supplies, electricity, land, etc. Every business and entrepreneur is in competition with all other businesses and entrepreneurs, both actual and potential, for the resources available to build and run his business. When one company gets a parcel of land or a ton of cement, another business cannot. Added demand for these resources, which results from state funded special privileges to some, drives the costs up for all businesses who are seeking access to those resources.
So there is a wealth transfer to the favored business not only from taxpayers generally but also from existing businesses. This is what economists call the "crowding out effect." Due to this crowding out effect, all corporate welfare implicitly picks both winners and losers. The advantage that the politicians and corporate welfare queens, like Mercedes, have is that the winners are obvious and there for all to see, which works well for the politicians at ribbon cutting and election time. Meanwhile, the losers are all of those companies and entrepreneurs that never are able to gain access to the resources that flow to the favored and privileged businesses.
So, as a resident and taxpayer of North Carolina, I say thank you to Mercedes for leaving us alone and deciding to fleece the taxpayers and businesses of Georgia instead. Ultimately your decision will make North Carolina more competitive for real free market businesses that are doing it on their own.
2. Why do progressives hate Walmart and love Apple?
In this short but interesting article by Mark Perry of the American Enterprise Institute, he somewhat rhetorically asks the question posed in this headline. His point is intriguing given progressives’ apparent disdain for "excessive" profits. The progressive’s view of profits, at least in theory, comes from Marx, where the extent to which a company is exploiting workers can be measured by its profit margin. In the Marxist view, all value comes from the labor that goes into making and selling a product. All profit must come out of this value and therefore represents the exploitation of labor by the capitalist. Given this, progressives should think much more highly of Wal-Mart than they do. As Perry points out:
Evil Walmart makes a lot of money, right? We hear that all the time even though the retail giant’s profit margin was only 3.12% in the most recent quarter. Interestingly, we never seem to hear as much about the much higher profit margin of Apple, the "darling of the progressives." In the most recent quarter, the computer behemoth with a market capitalization ($725 billion) that exceeds the value of the entire stock markets of Mexico, Thailand and Russia, had a whopping profit margin of 24.2%. No wonder its market cap is so astronomical.
By the traditional leftist measure of labor exploitation, who is the true exploiter? Clearly it would have to Apple. At 3.12% profit, Walmart is taking about 1/8th of the worker’s added value as compared to Apple. From progressives’ own perspective, Walmart should be considered downright heroic in its willingness to refrain from the kind of worker exploitation demonstrated by Apple.
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