The ribbon-cutting you’ll never see

When government picks economic winners and losers, it’s a loss for the rule of law

By Steven Miller
  • Thursday, March 20, 2014

“Greetings, everyone!” shouts The Archetypal Politician into the microphone.

“I and my fellow politicians want to welcome all of you to our first Official Government-Designated Losers’ Day!”

Other pols on the dais, along with their cronies, applaud enthusiastically. Some whistle loudly. Others stamp their feet. “It’s been a long time coming,” shouts one.

“As you know,” continues Mr. A, “because of some dubious laws, we believe we get to anoint business winners and losers in our economy.

“That means: We can dole out public dollars to certain businesses, making them government-designated winners —

“Lots of ribbon-cuttings! Lots of news media coverage,” interrupts one of the dais politicians. “Lots of chances to pretend that we are the people who create jobs,” shouts another.

“— and we do this doling-out,” continues Mr. A, “with dollars taken from taxpayers and from tax-paying firms that already employ citizens. They — you — are our government-designated losers!”

Cries of “Hooray!” and “Yay for you losers!” erupt from the other politicians.

“Of course,” adds Archetypal, “with our hypertrophied social consciences — that require us to intervene in every facet of your lives and bank accounts — we always remain concerned about equity.

“And equity requires us to not only celebrate our chums, new and old — the ones we give your money and then receive it back from as campaign dollars, allowing us to continue our never-ending quest for political power — but also those whose mute acceptance allows this farce to continue.

“So, in tribute, we’ve arranged this special ceremony to acknowledge you — our economy’s Designated Losers, the people who make all our self-congratulatory press conferences possible!

The other politicians on the dais applaud energetically. Two of them, however, inappropriately raise their clasped hands overhead and shake them in the classic victory gesture.

At that, a gasp runs through the audience, and even on the visage of The Archetypal Politician, the ever-present smile, for a moment, disappears.

Then he continues speaking.

* * *

A 19th Century French essayist once observed that there are two kinds of plunder: legal and illegal.

Illegal plunder is a hoodlum on the street mugging you, taking what’s yours. That, of course, is against the law.

Sometimes, however, the muggers are craftier, and are able to first write a law. Then, noted our essayist, “the law defends plunder and participates in it,” allowing the beneficiaries of the plunder to be “spared the shame, danger and scruple which their acts would otherwise involve.”

But how is one to identify legal plunder?

“Quite simply,” he wrote. “See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

“Then abolish this law without delay, for it is not only an evil itself, but it also is a fertile source for further evils,” because it invites replication.

“If such a law — which may be an isolated case — is not abolished immediately, it will spread, multiply, and develop into a system.”

For governments to anoint certain businesses as “winners,” entitled to public dollars, and others, implicitly, as mere “losers,” required to pay the freight — is a public-private racket that Nevada largely avoided up until 2011.

For decades, many states around the country had been frantically lining up before subsidy-seeking businesses like hookers in a Western brothel, touting what they’d do “for the big guy” if chosen.

Nevada, however, would instead point out something that nearly all genuine development experts know: that the whole bidding-war process in which states engage is a phony zero-sum game that actually ends up producing a less positive business environment.

One reason is that all the incentives going to the new companies ultimately require the state’s existing taxpayers and tax-paying businesses to carry that financial burden.

A second reason is the built-in bias such programs have against small firms.

“For small business,” noted John Hood, writing in the Hoover Institution’s bi-monthly Policy Review, “the situation is hopelessly unfair. Most small firms will not be deemed important enough to gain special treatment and subsidies, even though they may well be competing for labor or consumers” against the newly imported company being lavished with subsidies.

“There may be no significant difference in economic terms between 100 companies adding 10 new employees each and a single new company adding 1,000 at one site. Both result in the same number of jobs. But politicians can only negotiate with a limited number of businesses — and, naturally, attend only the most important ribbon-cuttings. So, governmental efforts are more likely to be spent recruiting the big employer rather than cultivating the 100 small ones.”

In 1989, Margery M. Ambrosius of Kansas State University published a ground-breaking time-series analysis of the effectiveness of state economic development policies. The study examined eight different state economic development policies — including state revenue bond financing, special tax breaks, job training subsidies, and subsidized land or infrastructure improvements — over a period of 30 years.

"None of these economic development policies can clearly demonstrate a positive effect on measure of state economic health," Ambrosius wrote. "If the public policy goal is to increase state economic growth, rather than to aid business without any benefit to the larger state economy, citizens and policymakers must ask whether the funds presently spent on state economic development policies could be more productively invested in other endeavors."

* * *

“Hey, wasn’t there going to be a ribbon-cutting here today?” hollers someone in the audience to Mr. Archetypal. “Where’s the ribbon?”

“True — our constitution does place a yellow-tape caution warning in front of any government official contemplating public handouts to private businesses,” is the reply. 

“But we cut that before you got here.”

Steven Miller is vice president for policy at the Nevada Policy Research Institute. For more, visit http://npri.org.


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