by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
There are two reasons a corporation would take government incentives to move into North Carolina:
Neither of those reasons is sufficient to justify the government taking resources from others to bestow on the corporation. Understand this simple truth, and you’ll realize another reason — beyond the already shocking — why Gov. Cooper et al.’s $1.25 billion pledge across the next 32 years to a startup Vietnamese car maker, a scheme that was dreamed up and rushed through in a matter of three weeks, is a terrible idea for North Carolina.
The VinFast boondoggle is the fourth such project in just a year and a half to put taxpayers on the hook for previously unheard-of amounts of corporate welfare that last not one year, not five, not even twelve, but well over three decades:
In the first case for taking corporate welfare, the government is pledging money, favoritism, and tax breaks (i.e., favorable tax treatment not given to established corporations, industrial employers, small businesses, and Mom & Pop shops already producing wealth, employing our people, and paying taxes here) to a corporate project that doesn’t need the money. Put simply, the government is wasting other people’s resources transferring it away from the uses they would put it all to. The corporation will have its own use for it, but economic theory holds (and common sense realizes) that since it won’t be put to its primary use, the economy and the people who’ve lost the use of their own resources are a little worse off.
The second instance is much like the first, except that it comes with an explicit acknowledgment that the cronyism flies in the face of market choices. If the corporate move doesn’t make business sense without other people being compelled to help cover its costs, then the corporate welfare sheds even the illusion of “growing the economy.” It’d be like government incentivizing a ski resort in the desert.
In either case, the corporation is made better off with the cronyism. So are the politicians who face no real risk from redirecting people’s resources to a big project with measurable jobs and visible economic activity. This is the public-choice problem of “economic development” policies, which at its core is central planning of the economy by politicians, not economic choices by people who know what they’re doing facing real risks of choosing unwisely.
Economic growth policies are “politicians get out of the way” policies, not policies that shower politicians with praise for the “investments” of other people’s resources.
Economic growth policies — including limited government, low taxes, light regulations, reliable protection of individual liberties and property rights — are what propel an economy forward the fastest, increase household earnings the fastest, encourage enterprisers to step out on their dreams more boldly, and especially bring entrepreneurship and employment opportunities to poor neighborhoods where there were none. But these policies are “politicians get out of the way” policies so that employers and investors are free to make decisions to grow their own ventures in mostly unseen ways: one new employee, additional shift, and expansion at a time. They’re not policies that shower policymakers with media praise, the glorious spectacles of ribbon-cutting ceremonies, and laurels for the “investments” (of other people’s resources) that “made all this possible.”
Massive government welfare giveaways represent the visible hand of government taking over from the invisible hands of people making private decisions with their own resources in their own best interests that, as a positive unintended consequence, best promotes the interests of their community.
Earlier this year I examined Cooper’s massive tally of corporate welfare giveaways last year — $1.3 billion to just 58 corporations. It has been commonplace to divide the amount of the outside cronyism by the promised amount of jobs to be created. But as I discussed, that assumption buys into the corporate welfare, all-credit-to-politicians fiction that all the jobs owe their existence to government incentives. That flaw is in addition to supporting the nonsense that there are no opportunity costs of the corporate welfare, that the cronyism hasn’t actually resulted in net job loss and net cost, not benefit, to the overall economy.
As I asked:
What if, as implied by economic research, most if not all of those 58 corporate moves would have happened regardless of the state incentives? What would it mean for our job-creation numbers? (Note: again, this question doesn’t account for the offsetting jobs not created.)
The best that could be said in that case would be the state “economic development” incentives could get only a share of the credit.
So I estimated how much Cooper was actually pledging per cost of job for which the state could be credited for creating. How much of the project’s total cost (i.e., the planned corporate investment plus the government welfare) the cronyism accounts for would be how many jobs the government could ostensibly take credit for. Taxpayers’ compelled cost per job would then be the government welfare divided by that number of jobs.
We just set an all-time incentives record … for a Vietnamese startup?
With that insight, let us look at the VinFast announcement. Combined government incentives were $1.25 billion, with $854.2 million from the state and Chatham County promising a jaw-dropping $400 million. VinFast says it will invest $4 billion on the project and that it will create 7,500 jobs, which will carry an average annual salary of $51,096.
Under the standard way of looking at it, it would mean the state and local government incentives amount to $167,213 per job. But how much is government cronyism actually responsible for?
This $1.25 billion of corporate welfare amounts to 23.9% of the total project cost (including the cost of the incentives). The corresponding share of new jobs would be 1,790 jobs. So that would mean this corporate welfare would amount to $700,547 per job.
That figure is even higher than last year’s total cronyism-per-job amount of $586,432, and it speaks to the accelerating recklessness of corporate welfare under a dedicated central planner like Cooper.
This folly is going to break North Carolina if it keeps going at this pace. Imagine how things will look 30 years from now if taxpayers are still having to support the VinFast, Apple, Toyota, and Centene projects plus 28 more years’ worth of ever-increasing giveaways? We just set an all-time incentives record for a Vietnamese startup?
North Carolina desperately needs policymakers to know their place in the economy: opening the way for economic growth, not closing it with daft central planning under the name of economic development. Before it’s too late.