Costly Labor Scam

Savvy employers play one state against another when they plan new facilities.

By William A. Collins

I've got jobs
To plunk on down;
Pay me bucks
To pick your town.

These days, companies often prefer to build factories in states where union protections are weak. This enables them to increase company profits at the expense of the middle class. Otherwise, they do it at the expense of the lower class by leaving the country altogether.

With so much manufacturing offshored, there are few new factories left to fight over. Most remaining sizeable employers are distribution hubs, call centers, research outfits, or in the technology businesses.

Savvy employers play one state against another whenever they plan a new facility. The higher-bidding state, so we think, presumably gets the construction and the jobs. But research tends to show otherwise. Professors tell us that a corporation generally has other reasons for where it locates, and it simply tries to squeeze the best deal it can out of the state where it wanted to settle in the first place.

A similar drill takes place upon departure. When a company can see a move on the horizon, it immediately starts a buzz about leaving. Then it can often squeeze more bucks from the state just to hang around a bit longer. This provides income as it lays its plans for relocation or closure. If downsizing goes faster than planned, the lawyers fight it out over how much the company needs to pay back. Usually not much.

In the end, there's little evidence that either the bribe at the beginning or the blackmail at the end has much lasting effect, other than to pad corporate profits. Companies opt for a location based on many factors: availability of skilled employees, consolidation of operations, proximity to markets, pleasant environment for the bosses, juicy real estate, prestige, industry concentration, and other such considerations.

What they promise to states is something else entirely. They conjure up visions of long-term company expansion, suppliers that will generate yet more jobs, swelling tax rolls, and permanent healthy employment. At least until their tax credits run out.

My own state, Connecticut, has bought this bridge many times over. Today, it's ruing the $60 million it gave to Pfizer because the giant drugmaker is downsizing its Connecticut workforce. Also pulling in its horns is UBS, a multinational bank that's currently pressuring the state to pay it for not leaving completely. And the film industry here is howling because of plans to cut these subsidies that have brought the state very little benefit.

Yet we're paying plenty to lure Jackson Labs, a Maine-based biotech firm, on dreams that it may start something big. Simultaneously we're subsidizing the enormously successful ESPN sports network to expand where it is, like it was really going to go someplace else.

Some states, like Illinois, are getting wise and cutting back. If only the National Governors Association were something more than a backslapping society, it would organize an interstate compact to swear off this costly corporate scam. Then states could use that tax money to support tech schools, day care, libraries, arts, transit, and other programs that improve the local quality of life. Don't corporate moguls appreciate a high quality of life as much as anybody?

Failing some such agreement, corporations will continue to play one state against another to the detriment of the citizens of all.

OtherWords columnist William A. Collins is a former state representative, and a former mayor of Norwalk, Connecticut. otherwords.org