IT'S A LONG WAY FROM QUEENS TO COLUMBIA, MISSISSIPPI--OR IS IT?

While it might seem impossible to imagine two more dissimilar locales than Columbia, Miss., in 1930 (pop. 4,800) and Queens, N.Y., in 2019 (pop. 2.4 million), the two represent key points on the same economic and historical continuum: the progression of state and local governments using incentives to attract new businesses and industries.

Despite obvious differences in geography and historical context, examining both the local consequences and the far-flung implications of Columbia's pathbreaking experiment with this practice should provide an instructive background for assessing what may be inferred at this point from Amazon's recent decision to walk away from a huge incentive package designed to entice it to build a second headquarters in Queens.

Subsidies and other inducements for new industrial and commercial ventures were by no means unknown in 19th century America, but the first institutionalized and continuous state system for providing such incentives grew out of Columbia Mayor Hugh Lawson White's scheme to bring shirt-maker Reliance Manufacturing to the logged-out lumber town in the depths of the Great Depression. White launched a public pledge campaign to raise $85,000 to construct a new plant building for Reliance, which, if it met stipulated employment levels, would take ownership of the facility in 10 years. The wages earned by Reliance's largely female workforce were hardly munificent, but the plant supplied 300 steady jobs at a time when they were exceedingly hard to come by, in the Mississippi Piney Woods especially.

By the time White was elected governor of Mississippi in 1935, Columbia showed a 26% increase in business transactions over the last six years, compared to a 4% decline in similarly sized towns, in a state that had lost nearly half of its industrial jobs between 1929 and 1933 alone. As governor, he quickly persuaded the state legislature to enact an expanded and standardized version of his Columbia initiative, in which new plant construction would be financed by tax-free municipal bonds. Combined payrolls of the first twelve plants established under Mississippi's Balance Agriculture with Industry, or "B.A.W.I.," Program rose from $1.4 million in 1939 to $18 million in 1942, spawning a host of similarly tailored initiatives across the South. In the first half of 1952 alone, Kentucky, Tennessee, Mississippi and Alabama approved industrial bond issues totaling $63 million.

The attraction of these programs to labor-intensive northern manufacturers like Textron, which had 15 textile plants operating above the Mason-Dixon Line in 1954 and none three years later, soon set off an outcry in the halls of Congress. One of the most prominent opposition voices was that of Massachusetts Sen. John F. Kennedy, who complained of "unfair competition" with southern towns that were abusing their municipal bond privileges for the purpose of "raiding" his state's industrial base.

Kennedy cited the case of a town of 10,000 whose $1 million bond issue created an additional public indebtedness of more than $4,000 per resident and noted to a Tennessee audience that even the  Southeastern States Tax Officials Association had "condemned the practice of tax-free municipal plants as 'inequitable and unfair to industry in the state and detrimental to the taxpayers of the state because what is given away must be paid for by other businesses and individuals.'"

These "raids" were not only taking a toll on payrolls, but undermining the bargaining position of organized labor as jobs flowed southward, where wages were dramatically lower and unions all but non-existent. And yet, persuaded that only weaker, lower-value-added employers could be enticed by subsidies, northern policymakers generally resisted the practice until the 1970s.

By then, industrial and corporate investment had grown increasingly mobile, both within and beyond the nation's borders, and with the old "Manufacturing Belt" suddenly hemorrhaging jobs and people, according to a Council of State Governments survey, the number of states offering some form of industrial bond subsidies rose from 20 in 1977 to 44 in 1988.  

The use of tax breaks and other incentives expanded dramatically as well, in response to what was now a truly national high-stakes competition to attract new jobs or hold onto old ones. That expansion showed clearly that the old assumptions about which kinds of companies could be attracted by subsidies were no longer correct, if they ever had been. According to Greg LeRoy at Good Jobs First, from 1988 through 2001, New York City alone offered an estimated $2.76 billion in "job retention" subsidies. These were meant to hold on to top-shelf employers such as Merrill Lynch, Morgan Stanley, Time-Warner and others whose presence on the Big Apple's gift list left little doubt that Fortune 500 firms were no longer above playing the subsidy game. This reality was underscored when the city's 14-year retention subsidy total was eclipsed at a single pop by the widely reported $3 billion price tag of the Queens proffer to Amazon.

Despite certain problems, neither Queens nor its competitors like Dallas or Atlanta exactly qualify as hardship cases, and, clearly, with $11 billion in profits and, apparently, $0 in federal tax obligations last year, neither does Amazon. On the other hand, like many others that would follow it for decades to come, the deal struck between Columbia, Miss., and Reliance Manufacturing had paired an economically desperate community and a labor-intensive employer bent on holding down wages and other operating costs.  These included the deal that brought a Cintas sewing plant to Hazard, Kentucky in 1993 by defraying $3.6 million in construction and equipment costs while not only exempting it from corporate taxes, but allowing the company to keep the taxes deducted from the paychecks of workers making an average of $5.00 an hour.

Although the quid[s] pro quo[s] seem considerably better-balanced in the proposed arrangement between Queens and Amazon, the concerns that surfaced as the story unfolded -- not only about the size or actual economic payoff of the subsidy itself, but about fairness to existing employers, equitable distribution of jobs, higher taxes and housing costs, and stress on infrastructure -- might have been raised about hundreds of these arrangements over the years.

 As JFK pointed out back in 1953, someone ends up paying. Yet questions of "Who?" and "How much?" are rarely addressed in projections of the cumulative value of such deals. The critical difference in the current case is that in the great majority of earlier instances, the terms of the subsidy agreements came to light only well after the fact and often remained fuzzy even then. There were certainly complaints about the "opacity" of the actual negotiations with Amazon Still, compared to way most incentive deals are stealthily pieced together in chamber of commerce offices or corporate boardrooms across the country, this abortive arrangement was subject to a rare if not unprecedented degree of public scrutiny. It was the intensity of this scrutiny, in fact, that ultimately led the lavishly courted bride-to-be nixing the trip to the altar altogether.

Like other major competitors for Amazon's favor such as Atlanta and Dallas, Queens scarcely qualifies as a hardship case.  Because the suitors in the case were ardent but by no means desperate, this episode alone hardly suggests that the end of rampant, often reckless, bidding for new jobs by state and local officials is by any means in sight. Still, after witnessing the swirl of debate enveloping this particular affair, those officials and the citizens they represent may be a bit more hesitant to simply embrace the oft-promised benefits of this approach to  economic expansion without pondering its seldom-acknowledged costs. Such a development would surely be welcome, however unthinkable it would have seemed to Hugh Lawson White and the people of his tiny Mississippi town nearly 90 years ago.

(This little piece was written initially for the nice folks at TIME.COM. However, the Ol' Bloviator could not resist tinkering with it a little and rescuing some of his stellar prose from the cutting room floor)

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This page contains a single entry by Jim Cobb published on March 3, 2019 3:46 PM.

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