Tuesday, December 14, 2004

Do Corporate Subsidies Violate the Constitution?

Washington Monthly editor Paul Glastris laid down an interesting challenge the other day on the Political Animal site. Noting a Court of Appeals ruling in Ohio that declared state and local tax subsidies to corporations re-locating within the U.S. a violation of the Commerce Clause, Glastris suggested that progressives might be able to unite behind this idea as a way to dramatize our opposition to corporate welfare.

Unlike Glastris, I do have a law degree, but my Commerce Clause training is a couple of decades old, and I'm skeptical that this holding would survive Supreme Court review.

I have always, however, believed that the economic development philosophy that underlies most corporate subsidies is deeply flawed, and should in fact become a point of attack for Democrats nationally and in the states. The Progressive Policy Institute's Rob Atkinson has been a consistent critic of development strategies based on individual corporate subsidies and on the theory that lowering business costs (as opposed to improving the overall business climate, which includes a good environment, first-class public education, strong research institutions, and a highly trained workforce) is the right way to attract private investment and good jobs. The DLC has also promoted this advice to state policymakers near and far, noting that if low business costs were the true measure of economic development potential, then Mississippi would be the economic dynamo of the nation and the world.

Reading through the comments to Glastris' post, I was surprised at their general tenor: sure, most respondents said, it would be nice if we could curb smoke-stack chasing through corporate subsidies, but it would also be political suicide. I don't know about that. In my own home region, the South, there has been a raging debate in economic development and political circles for years on this subject. Way back in the late 1970s, then-Governor Bill Clinton of Arkansas began shifting his state away from this approach, arguing instead for home-grown industries and a higher quality of life. For the most part, Georgia has avoided incentives-based competition for companies, particularly the high-stakes bidding wars over big auto plants. Mark Warner has focused Virginia's economic development strategy on better education, stronger work-force development, and deployment of new technologies, especially in rural areas. And with the possible exception of Alabama, I don't think there's any southern state exclusively committed to the old approach, though recent Republican gains in the region may well turn the clock back significantly.

Where I may differ from Glastris is that I don't think this is the sort of subject where Democrats should simply rely on the courts, much less champion court intervention. States and localities should give up on the corporate-subsidy, low-road, market-our-weaknesses approach because it's simply not the right path to long-term, high-wage, high-quality-of-life development, not because they are told to by the courts. Moreover, if I understand the court of appeals ruling (which I, too, have not yet read), it sounds a little too sweeping. There's nothing wrong with offering industry-wide (as opposed to company-specific) inducements to private capital that don't begger public services or compromise local workers or communities. Customized training, industry-labor-educational institution partnerships, or highly targeted and enforced job tax credits may sometimes make sense, and may reinforce a community's overall strengths without creating a race-to-the-bottom competition with other communities. (Here's a link to a good resource for separating the sheep from the goats in providing business development incentives.)

But I'm really glad Glastris brought this up, because the general habit of recruiting capital through corporate subsidies is not only hard to shake, but is a perfect reflection of the kind of economic growth strategy the Bush administration is trying to impose on the whole damn country.

-- Posted at 5:43 PM | Link to this post | Email this post

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