Handouts to corporations don’t create jobs

Microchip manufacturers will soon be raking in federal subsidies for building plants in the United States, but there is also a handy ploy they will use to soak up bucks from state governments: They pretend they have jobs to sell.

The setup goes like this: Company officials spread rumors that they would like to locate a plant in a particular state but are also considering the possibility of a better place in another state. The company’s leaders meet with lawmakers behind closed doors. Lawmakers come up with something to sweeten the deal in the hope that their state lands these jobs. The state’s economic future is at stake, both sides say. Legislators offer the company hundreds of millions of taxpayer dollars, plus assorted tax breaks, waivers and other favors. Soon the governor announces that the state has landed the white whale and secured its economic future.

Politicians find this narrative compelling. Local media outlets recount these tales the same way, and breathlessly reiterating the braggadocio from elected officials proclaiming the great things they’ve done about jobs.

The same story has been told in Kansas, New York, West Virginia, Georgia, Ohio, North Carolina, and others just this year alone. The script works in red, blue and purple states. Why? Because no matter where you are, politicians want to show that they are doing something to create jobs. The taxpayer costs are worth it to them; there is no greater return for their political fortunes. 

It’s a winning strategy for the companies who get to collect checks, and to the administrators and politicians who get to hand them out. It’s a losing strategy for taxpayers and the state economy. Not only do the companies never justify the taxpayer expense, but they don’t live up to job promises — let alone lead the state to all the glorious things that politicians say will happen. 

Washington State offered Boeing $8.7 billion to put its 777X production line in the state in 2013. The plane keeps getting delayed, but the company keeps collecting cash from the state. The company has cut 24,697 jobs in Washington, according to state data, a 31% decrease. And aerospace manufacturing jobs in the state have since fallen 30%, declining from 96,100 jobs to 67,400 jobs. The job loss hasn’t stopped the company from claiming $1.6 billion in payments and tax exemptions from the state so far.

Wisconsin offered Foxconn $4.8 billion for 13,000 jobs in 2017. But now the company thinks it’ll only hire around one tenth of the workers it originally promised. Too bad for the state’s taxpayers that only a portion of the deal is based on how many people the company hired. 

Missouri offered electronic medical record provider Cerner a $1.6 billion deal for 16,000 jobs in 2013. They don’t report on jobs at the facility, but journalists found the company had created fewer than a quarter of the jobs announced. The company was recently purchased by Oracle. Conglomerates gonna conglomerate, and that’s unlikely to be good news for job growth in the Show-Me State. 

These are not randomly selected stories of the failure of state subsidies to drive job growth. These are some of the largest deals that have been made in the past couple decades. 

Note the trend: Don’t bank on job announcements turning into actual jobs. Subsidies can make a dent in the state budget, but they’re not going to make a dent in the state economy. It’s all broken eggs and no omelets.

Economists use careful methods to tease out the effects of special favors on the state economy. Some find positive results, but most find negative results. None of them find the large results that politicians claim when they announce their deals. 

It’s not as if lawmakers are even trying to pick the sectors that will grow in the future. They instead respond to the pitches that company officials make. Company lobbyists aren’t going to ask if it’s likely that lawmakers will say no. As long as the lobbyists think governors and legislators are happy to ignore the costs of subsidies and talk instead about jobs, they know that lawmakers are easy marks. 

Americans should ignore the bluster and treat it as self-serving fluff that costs taxpayers and doesn’t deliver on the hyperbole. And turning company giveaways into an unpopular political liability is the only thing that’s going to get politicians to stop handing out large checks when company officials ask for them. 

James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy, a free-market research and educational institute in Midland, Mich.