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Values Fund May Not Be So Valuable for Taxpayers
Des Moines Register
April 13, 2006
[Note: This material is copyright by the Des Moines Register, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Des Moines Register.]
Its promoters say it's a "jobs program." Its detractors say it smells more like corporate welfare. Who's right?
Admittedly, it's a little bizarre ideologically. The recipients are often the same folks who praise free private enterprise, repeat "marketplace regulation" like a mantra and oppose universal health care and safety and environmental regulation as "socialistic."
Governments run programs such as schools and libraries and contract for services such as road building.
But I always thought private enterprise was supposed to rely on private capital, dangling before investors both the risks of bankruptcy and the rewards of riches.
What do you call an economic system in which corporate and governmental profits and power are mixed together like a salad?2
Labels aside, if a business can't garner the support of sophisticated investors and loan officers, shouldn't we think twice before filling its tin cup with public money? As it is, one-third of the 800,000 private start-ups each year fail by year four.3 In 2003, a North Liberty bakery closed a mere six months after getting $7.9 million from Iowa's taxpayers.4
It's understandable that promoters of the Iowa Values Fund want to call it a "jobs program" rather than an "enrich the wealthy" program. But is it?
Isn't giving CEOs this money another example of economist John Kenneth Galbraith's observation that "if you feed the horse enough oats, something will pass through to the road for the sparrows"?5 Shouldn't CEOs be satisfied they're already earning 400 times their employees' wages?6
How much are we paying for these jobs? Might it be more profitable to train Iowans for the skilled labor and professional jobs going elsewhere?
If we really want to create jobs with taxes, let's do it directly. There were 50,000 Iowans among the 3 million in President Franklin Roosevelt's Civilian Conservation Corps.7 They built many of our state parks -- at a miniscule fraction of the Value Fund's $700 million.8
Not interested? Then stop talking about transferring public wealth to private business as a "jobs program." Don't count jobs moved from one Iowa town to another, or that pay less than a living wage.
Wells Fargo had revenue of $33 billion last year.9 So why did Iowans give the firm $54 million in 2003 when it already had 8,000 employees here? (State and cities contributed $28 million in periodic cash grants and $26 million for infrastructure.) CEO Pete Wissinger had acknowledged the role of "intangibles" in site selection, and that other states offered more cash.10
Even if bribery did work, aren't firms that blackmail us into government largesse the ones most likely to leave for even bigger bribes? And how can we distinguish genuine threats to leave from negotiating ploys?
Wouldn't we be better off enhancing and emphasizing Iowa's other advantages: skilled workforce, transportation and communications, our personal values, quality schools and colleges, little crime, livable neighborhoods and cultural attractions?
How can the public or media evaluate these grants? There are numerous programs and hundreds of recipients. There is little follow-up, and what there is sounds more like cheerleading than analysis of hard data.
Nor should we overlook the potential linkage between governmental largesse and campaign contributions that either precede or follow the grants. With the mounting cost of Iowa's political campaigns, the temptations are there. Iowans deserve to know what contributors are getting for their money.
The prestigious, independent Corporation for Enterprise Development concludes that "most economists agree incentives are not good development policy" because they foster unfair competition, don't create net new jobs and divert attention from better strategies.11
We know the value of the
Iowa Values Fund to the politicians who give away our money, and to the
businesses that receive it. What Iowans want to know is the value of the
program to those who are paying for it.
NICHOLAS JOHNSON teaches at the University of Iowa College of Law.
1. There is an Iowa Values Fund Web site at http://www.iowalifechanging.com/ivfboards.html (last visited March 29, 2006). For another evaluation of the effectiveness of the program see Collin Gordon, “Values Fund Must Deliver Better, Iowa City Press-Citizen, February 3, 2005, available from http://www.iowapolicyproject.org/GuestOpinions/050203-guest-icpc-gordon.pdf (last visited March 29, 2006).
2. Give up? The answer would be "corporatism" (and some would say, "fascism"). The reason the answer is not provided in the published version, but only in an endnote in the online version, is that such words are so inflamatory -- because they have taken on a pejorative meaning -- that any use of them totally diverts the reader's focus away from the subject at hand. The Wikipedia entry for "Corporatism," and its subheading, "Corporatism and Fascism," discuss the subject.
"Corporatism [emphasizes] the role of business corporations in government decision-making at the expense of the public. The power of business to affect government legislation through lobbying and other avenues of influence in order to promote their interests is usually seen as detrimental to those of the public. In this respect, corporatism may be characterized as an extreme form of regulatory capture, and is also termed corporatocracy."Corporatism," Wikipedia, http://en.wikipedia.org/wiki/Corporatism (last visited April 13, 2006).
. . .
"There is a very old argument about who controlled who in the fascist states of Italy and Germany at various points in the timeline of power. It is agreed that . . . the big corporations ended up with much more say in decision making than other elements of the corporative state. There was a power struggle between the fascist parties/leaders and the . . . big corporations. It waxed and waned as to who had more power at any given time. Scholars have used the term 'Mussolini's corporate state' in many different ways.
"In the United States, corporations representing many different sectors are involved in attempts to influence legislation through lobbying. . . . They can often wield considerable power over law-makers."
3. For support of the business failures statistics see Brian Headd, “Redefining Business Success: Distinguishing Between Closure and Failure,” Small Business Administration, Small Business Economics, 58-59 (2003), http://www.sba.gov/advo/stats/bh_sbe03.pdf , for conclusion that 1/3 of all new business startups fail within 4 years (actually one-half are no longer operating four years after startup, but only 1/3 can be fairly characterized as having “failed”). There are 25 million U.S. businesses. BizStats.com, “Total Number of U.S. Businesses,” http://www.bizstats.com/businesses.htm. There are 800,000 new businesses annually (1990s), http://h50055.www5.hp.com/smb/au/resources/entre.aspx. Link no longer active; for similar numbers see, The Public Forum Institute, “National Dialogue on Entrepreneurship,” from http://www.publicforuminstitute.org/nde/entre/index.htm (last visited March 29, 2006).
4. The North Liberty bakery failure was reported in Clark Kauffman, “Investors Set to Buy Firm Aided by State,” Des Moines Register, June 10, 2003, available from, http://www.dmregister.com/business/stories/c4789010/21466470.html (last visited March 29, 2006).
5. Galbraith quote from, John Kenneth Galbraith, “The Economic Problem: From Wish to Reality,” Couchiching Summer Conference, 1992, Competitiveness and Social Justice: How Can Canada Have Both?, http://www.couch.ca/history/1992/Galbraith.html (last visited March 26, 2006).
6. Differential in CEO and employee pay from, Jeanne Sahadi, "CEO Pay: Sky High Gets Even Higher," CNN Money, August 30, 2005, available from http://www.nicholasjohnson.org/politics/general/njdi0307.html (click on link to "CEO Pay: Sky High Gets Even Higher) (last visited March 29, 2006).
7. CCC data from, "Roosevelt's Tree Army: A Brief History of the Civilian Conservation Corps," http://www.cccalumni.org/history1.html (3 million employed nationally); "The Heart of Dundee, Iowa: Civilian Conservation Corps," http://dundeeweb.com/ccc.html (50,000 Iowans) (last visited March 27, 2006).
8. Appropriations to Iowa Values Fund of $700 million from, Ed Fallon, “Sustainable Economic Development,” undated, http://www.fallonforgovernor.net/issues/print.asp?issueID=17 (last visited March 27, 2006).
9. Wells Fargo’s 2005 revenue from, Wells Fargo, News Release, "Wells Fargo Reports Record Annual EPS, Revenue," January 17, 2006, http://www.wellsfargo.com/press/earnings20060117?year=2006 (last visited March 28, 2006).
10. Payments to Wells Fargo; reference to, and quote from, Pete Wissinger from, Jack Lyne, “Iowa’s $54.9 M in Incentives Help Seal Wooing of Wells Fargo’s 5,300-Job Project,” Incentives Deal of the Month, The Site Selection Online Insider, November, 2003, http://www.siteselection.com/ssinsider/incentive/ti0311.htm (last visited March 28, 2006).
11. For many resources from an organization devoted to aiding states and communities with rational, best practices for economic development see CFED (Corporation for Enterprise Development), http://www.cfed.org (last visited March 29, 2006). For its analysis of current business development practices see “Business Incentives Reform,” available from, http://www.cfed.org/focus.m?parentid=2&siteid=1629&id=1630 (last visited March 29, 2006).