When General Motors announced that it was idling five plants in the United States and Canada last week, there was shock in two American cities.
One was Warren, Ohio, where G.M. builds the Chevrolet Cruze at its Lordstown assembly plant. Folks in the industrial heartland are no strangers to this kind of betrayal. But after forking over $60 million in state and local incentives in the last decade, they believed they had done enough to get G.M. to maintain Lordstown, which has built 16.3 million vehicles since 1966.
The other shocked town was Washington, D.C., where President Trump learned that thousands of the manufacturing jobs he had promised — a promise that had helped him win the state of Ohio in 2016 — were being killed. Mr. Trump reminded G.M.’s chief executive, Mary Barra, that the federal government had propped up the company to the tune of $50 billion in loans and other assistance during the Great Recession. He told her to shut a factory in China and move the work to Ohio.
Ms. Barra made it clear that G.M. has to operate on behalf of G.M. shareholders, not Mr. Trump. The company has excess manufacturing capacity — sales of sedans like the Cruze and the Impala are falling — and it has to invest in autonomous cars and other technologies. Somewhere else.
Federal, state and local governments have gotten into the habit of providing corporations with incentives to move, incentives to stay, bailouts to stave off failure and tax benefits to build on success and create more jobs. All are based on promises about job creation and economic development that more often than not prove hollow.
The Republicans promised that last year’s tax cut would prompt investment that creates jobs — G.M. got a $157 million tax bonus through its third quarter — but corporations have also used that money to cover the expenses of closing plants. (So far this year, companies in the United States have cut about a half million jobs, 28 percent more than at the same time last year.)
Corporate incentives tripled between 1990 and 2015, according to the W.E. Upjohn Institute for Employment Research. The trend seemed to slow a bit after that, but then Nevada changed the game, plunking down $1 billion for Tesla’s battery plant. Wisconsin topped it with a $4 billion offer for a Foxconn plant. This year Virginia and New York rang up $6 billion for Amazon’s benefit. “There is now a new normal,” says Amy Liu, vice president and director of the Metropolitan Policy Program at Brookings Institution, “among Tesla, Foxconn and Amazon, we are breaking the billion dollar bank for the first time.”
By paying incentives, governors, mayors and other politicians feel they’re “winning” jobs from competitors. As New York City mayor, Bill DeBlasio, put it, at the end of the day, 25,000 jobs are going somewhere. Why shouldn’t the city have them?
The Foxconn deal might hold part of the answer to that question. Foxconn, an Apple components supplier, plans to build an electronics plant south of Milwaukee that would employ 13,000 people. But its incentive agreement works out to an astonishing $230,000 per job, which defies a reasonable return on investment.
The auto companies are particularly good at the incentives game because they can offer relatively high-paying manufacturing jobs that don’t require four-year college degrees. Remember that G.M. pioneered the auction approach in 1985 when it ran a national beauty contest for a site to produce its new Saturn brand cars. Spring Hill, Tenn., was the winner, and agreed to cough up decades of tax revenues. The United Autoworkers agreed to reduced wages. (“Today’s Jobs at Yesterday’s Wages,” declaimed one headline.) Saturn production died in the downturn, and Spring Hill’s manufacturing lines were closed in 2009. They reopened in 2012 after, yes, more concessions from Tennessee. To be continued?
For a corporation looking to move, site selection specialists are good at identifying multiple locations that can meet their needs. Amazon’s search for a second headquarters sent economic development agencies around the country into peak insanity. The reality, though, Ms. Liu said, is that most job creation comes from the expansion of existing companies and from start-ups, not by luring companies from other locations.
Still, the game goes on. In 2015, the conglomerate Honeywell took a $40 million tax credit from New Jersey (Chris Christie, proprietor) to induce it to remain based in Morris Plains, N.J. Then the tax credit ran out, and so did Honeywell. Honeywell will soon be based instead in Charlotte, N.C. — after getting $46 million to grease the move south, plus added incentives that could amount to as much as $16,000 per job. North Carolina is so hungry for corporate headquarters that its legislature passed a bill that directly underwrites Honeywell’s move. Honeywell is also moving jobs to Charlotte from South Carolina, which had used incentives in the past to grab them from other states.
In leaving metropolitan New York for Charlotte, Honeywell cited the ability to recruit talent, which is, oddly enough, the same reason Amazon cited to choose metropolitan New York, in the form of Queens, for its HQ2. That, and as much as $3 billion in incentives.
In announcing the move, Honeywell’s chief executive, Darius Adamczyk, tried to smooth any ruffled feathers in the Garden State, saying his decision “does not reflect any issues with the quality of our experience in New Jersey … New Jersey will remain a substantial employment center for us.”
Of course it will, until a better offer comes along. And that’s exactly the problem with our corporate welfare system. Companies like G.M. know that if they dangle a new plant like a piece of meat — perhaps the one that will make autonomous vehicles — the political and economic development dogs will come running. And they will always find lawmakers ready to provide tax breaks with a wispy hope that they will make everyone’s life better.
Like G.M., they’ll behave as if the Lordstown plant never existed. And soon, it might not.