Jul 182011
 

Owen Courrèges

I frequently receive critical comments in response to my columns.  However, sometimes criticism helps flesh out an issue beyond the (admittedly) narrow viewpoint being expressed.

Last week, I wrote about the hypothetical possibility of a Wal-Mart opening up in the French Quarter.  I stated that there was no legitimate basis for opposing a Wal-Mart in the French Quarter if it applied with all applicable laws.  One commenter, “Cousin Pat from Georgia,” responded that while a Wal-Mart could certainly open in the Quarter, the city “shouldn’t offer them any tax breaks or subsidies to open shop there.”

Now, to my knowledge Wal-Mart actually doesn’t normally receive subsidies or tax breaks to open new stores, and if anything, government tends to be more of an impediment than a benefactor to their business model.

On the other hand, what Cousin Pat identified is actually common and not something to be overlooked.  It’s easy to scoff at those who object to a certain development project without recognizing that monied interests might be compelling the government to subsidize it.  That’s unfair.  It’s unfair to citizens, to other businesses – to the entire free enterprise system.

There’s a saying I once heard. “Corporations, bad. Government, worse. Collusion between corporations and government, worst.”

I’ve often heard that there’s a distinction between being “pro-business” and being “pro-free enterprise” that is often overlooked in debates over development and regulation.  Although I still believe that business in general is at a disadvantage in its dealings with government, there is little doubt that businesses often receive “incentives” so that politicians can claim some kind of fleeting economic victory by buying off a company’s decision to locate in Louisiana.

Louisiana is particularly subject to this dynamic.  All of us recall debates over oil facilities, chicken processing plants, automobile production facilities, and behind it all was some government official who was all-too-anxious to offer subsidies or tax breaks to support it.

Of course, these government officials would probably respond that government incentives are necessary to encourage business development because other states employ them.  “They’re like nuclear weapons,” this trope goes, “they have theirs so we have ours.”  The idea is that our local governments are just leveling the playing field.

What this argument ignores is that when government spends money, it doesn’t come from nowhere.  It costs taxpayers and distorts the system.  Most of all, it favors big players over the small fish.  Politicians want to speak of creating, at minimum, hundreds of jobs.  They want to talk about millions of dollars.  Established businesses can offer those headlines, emerging businesses cannot.

Oftentimes, you actually find that major corporations support new regulations, far more than smaller businesses.  This is because new regulations create barriers to entry, an economic term connoting anything that makes it more difficult to enter a market.  Larger businesses are far better able to shoulder these costs, to integrate them into the cost of doing business.  For new small businesses with low profit margins, on the other hand, these regulations can be the difference between survival and failure.

The result is that “business” is not really a uniform entity, or at least is torn between two poles – the desire to not be meddled with and the desire for regulation that undercuts potential competitors.

The British Economist has put it this way: “Businessmen themselves—torn between a desire to be left alone and an appetite for special favors—are often unsure quite what they want from government.”

The idea of corporations essentially controlling the agencies that regulate them even has its own term in the field of economics: regulatory capture.  When corporations have essentially “captured” government agencies, they can proceed to approve only those regulations that benefit them and more effectively lobby for tax breaks and subsidies.

Again, that’s just not fair.  In the ongoing debate over whether to allow a particular project to move forward, it’s a valid question to ask whether a corporate chain is receiving “incentives.”  And it’s a reasonable criticism against any argument for unfettered development.

Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.

  6 Responses to “Owen Courrèges: The difference between “pro-business” and “pro-free enterprise””

  1. “Wal-Mart actually doesn’t normally receive subsidies or tax breaks to open new stores”?

    Pretty sure Wal-Mart operates heavily on TIFs (http://en.wikipedia.org/wiki/Tax_increment_financing). At least that’s how I understand the River Garden came about. But! I’ve been wrong before – – –

    • “Pretty sure Wal-Mart operates heavily on TIFs…”

      I don’t think most Wal-Marts are built in TIF districts, but I could also be wrong. My perception has just always been that as corporations go, Wal-Mart benefits significantly less from tax breaks and subsidies.

    • Jean-Paul is correct — both property tax (PILOT) and sales tax (TIF) incentives were used in the financing of Wal-Mart and River Garden. The property and sales taxes generated from the site are used to pay off the bonds for building the project.

  2. I do not think it is a matter of businesses being torn. It is a matter of businesses wanting to be “left alone” unless they can have government provide them competitive advantages, That is why many large corporations are not true advocates of free enterprise because they are more likely to be able to convince government to grant them “favors.” GE is a prime example.

    That is also what is behind the recent controversy over casket sales in Louisiana. Existing businesses were able to convince the state to restrict who could sell caskets so as to protect their profits.

    • Ken,

      I just meant that if you view business as monolithic, it can seem like it’s torn. Of course, it all just boils down to self-interest.

      Good catch on the casket.

  3. Glad to know I’m posing some interesting questions! I absolutely agree that there is a huge difference between “business friendly” and “pro-free enterprise.” Great op-ed.

    WalMart gets subsidies and breaks that often go underreported. Infrastructure also costs money, and the access roads to your new SuperCenter, and its attendant sattelite retail, cost money even after WalMart moves on (two miles) down the road. That ain’t free enterprise or the free market – that’s the well-connected and the government choosing winners and losers. I’m down with government funding infrastructure projects or offering other short term incentives that benefit many businesses, big and small, for things like weatherization – but funnelling tax dollars out of the citizens’ pockets and into competing businesses pockets is decidedly anti-market.

    I’d rather not have Verti Mart’s sales tax revenue subsidizing a French Quarter WalMart in direct competition.

    But this is, unfortunately, a fairly standard way our governments, especially in the South, do business. Georgia put in $400 million in incentives to land their Kia plant, and Tennessee put in $500 million to land Volkswagen. (Both states are gearing up to compete for Audi next). Both are higher-value industries than Jindal’s chicken plant, after all.

    Now, I can understand the idea that offering some incentives to attract business makes for good business, especially businesses that aren’t competing locally with smaller pockets. State subsidies for a Kia plant mostly come out of tax revenues that wouldn’t exist should the plant locate somewhere else. But those are very long term investments, and taxpayers need to know just how much return they can expect both in the short term and the long term, especially as states in this competition are cutting money for road repair and public education.

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