Culture of Goodie Chasing is Bad for Business

This article originally appeared in the Raleigh News & Observer.

RALEIGH – Governor Easley believes his recent wooing of a Kansas-based aerospace company to the cobweb-covered Global TransPark will "silence" critics who have called the $80 million project a boondoggle for over a decade. Now that we’ve slept on the news, allow me to break the silence.

The governor and General Assembly are fond of ribbon-cutting ceremonies signifying pledges to help North Carolina develop economically. Even though an overwhelming number of corporate welfare packages go to companies planning to locate in already prosperous areas like Charlotte and the Triangle, the government may really be trying to help Eastern North Carolina get a leg up.

Folks shout "Jobs! Jobs!" as soon as the scissors close. What most people fail to realize? A job "created" here, whether with public super-projects or bribes, is a job destroyed somewhere else in the state.

Don’t expect lawyers-turned-bureaucrats to be familiar with opportunity costs. It’s actually pretty simple, though: When resources are diverted to government’s chosen projects, they are taken away from entrepreneurs acting to serve unmet consumer demand.

Indeed, the next Sam Walton may never materialize because entrepreneurs may be focused on chasing government goodies rather than the next big idea. And when you take resources from the state’s economy and give them to a few companies to locate here — or worse, pay them not to leave — that’s capital no longer available for natural, sustainable economic growth.

Next thing you know the Department of Commerce will start paying teenagers to break windows so they can start a glass-making factory in Dare County. Why not? It’ll "create jobs," won’t it?

GET USED TO THE PHRASE "WE MUST BE DOING SOMETHING RIGHT." I’ve heard it uttered by such figures as Governor Easley’s budget guru Dan Gerlach, state Sen. David Hoyle, D-Gaston, and ad nauseam around the N.C. Chamber circles. It is meant as a response to criticisms that incentives don’t work, taxes are too high and North Carolina is simply not as hospitable as all these ribbon-cuttings suggest. People and businesses are still coming here, they argue.

I say "despite," not "because." Ribbon-cuttings do not a vibrant economy make. Just as a $120 million-$180 million handout to Spirit AeroSystems does not an aerospace industry make. Right now, there is but a gaping vortex in Kinston into which government is throwing our money.

The Department of Commerce trumpets North Carolina’s rankings in Site Selection magazine, purportedly as evidence that handouts work. But Site Selection is a publication whose raison d’etre is cheerleading for corporate welfare.

In other words, we rank No. 1 as a giver of handouts. But the question is not whether we’re effective at giving away tax dollars (clearly we are). Rather, do we have an attractive business climate? Are we effective at drawing solvent businesses and creating real prosperity?

According to "Rich States, Poor States," a competitiveness index from economists Arthur Laffer and Stephen Moore, North Carolina ranks 19th. Not bad, you might think. But when you consider that we’re outranked by our Southeastern neighbors Tennessee, Florida, Georgia and Virginia (three of which are in the top 10), it’s pretty clear we’re slipping in our competitiveness regionally. No wonder we have to pay companies to come here.

IT GETS WORSE: The Tax Foundation ranks North Carolina 40th for hospitability when it comes to tax burden on entrepreneurs. The Small Business & Entrepreneurship Council likewise rates North Carolina 39th in terms of "friendliest policy environment for entrepreneurs" in its 2007 Small Business Survival Index. (Of course, small businesses don’t get incentives, but bankroll big companies that take corporate welfare.)

The numbers really speak for themselves: North Carolina’s small business employment growth from 1999-2004 was only 9 percent — compared with 18 percent in Florida, 16 percent for Georgia and 13 percent for the Southeast region.

Why are the politicians playing corporate welfare whack-a-mole with our tax dollars? Simple. Our business environment is not great and our taxes (corporate and personal) are too high.

Last year, I overheard South Carolina Gov. Mark Sanford say, "We thank North Carolina every day for your corporate tax rate." North Carolina’s is 6.9 percent. South Carolina’s corporate tax rate is 5 percent.