Values Fund May Not Be So Valuable to Taxpayers

nicholasjohnson.org

by Nicholas Johnson (used with permission)

What's the value of the Iowa Values Fund?  Its promoters say it's a “jobs program.” Its detractors say it smells more like corporate welfare. Who's right?

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Admittedly, it's a little bizarre ideologically. The recipients are often the same folks who praise free private enterprise, repeat “marketplace regulation” like a mantra and oppose universal health care and safety and environmental regulation as “socialistic.”

Governments run programs such as schools and libraries and contract for services such as road building.

But I always thought private enterprise was supposed to rely on private capital, dangling before investors both the risks of bankruptcy and the rewards of riches.

What do you call an economic system in which corporate and governmental profits and power are mixed together like a salad?

Labels aside, if a business can't garner the support of sophisticated investors and loan officers, shouldn't we think twice before filling its tin cup with public money? As it is, one-third of the 800,000 private start-ups each year fail by year four. In 2003, a North Liberty bakery closed a mere six months after getting $7.9 million from <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Iowa's taxpayers.

It's understandable that promoters of the Iowa Values Fund want to call it a “jobs program” rather than an “enrich the wealthy” program. But is it?

Isn't giving CEOs this money another example of economist John Kenneth Galbraith's observation that “if you feed the horse enough oats, something will pass through to the road for the sparrows”?  Shouldn't CEOs be satisfied they're already earning 400 times their employees' wages?

How much are we paying for these jobs? Might it be more profitable to train Iowans for the skilled labor and professional jobs going elsewhere?

If we really want to create jobs with taxes, let's do it directly. There were 50,000 Iowans among the 3 million in President Franklin Roosevelt's Civilian Conservation Corps. They built many of our state parks — at a miniscule fraction of the Value Fund's $700 million.

Not interested? Then stop talking about transferring public wealth to private business as a “jobs program.” Don't count jobs moved from one Iowa town to another, or that pay less than a living wage.

Wells Fargo had revenue of $33 billion last year.  So why did Iowans give the firm $54 million in 2003 when it already had 8,000 employees here? (State and cities contributed $28 million in periodic cash grants and $26 million for infrastructure.) CEO Pete Wissinger had acknowledged the role of “intangibles” in site selection, and that other states offered more cash.

Even if bribery did work, aren't firms that blackmail us into government largesse the ones most likely to leave for even bigger bribes? And how can we distinguish genuine threats to leave from negotiating ploys?

Wouldn't we be better off enhancing and emphasizing Iowa's other advantages: skilled workforce, transportation and communications, our personal values, quality schools and colleges, little crime, livable neighborhoods and cultural attractions?

How can the public or media evaluate these grants? There are numerous programs and hundreds of recipients. There is little follow-up, and what there is sounds more like cheerleading than analysis of hard data.

Nor should we overlook the potential linkage between governmental largesse and campaign contributions that either precede or follow the grants. With the mounting cost of Iowa's political campaigns, the temptations are there. Iowans deserve to know what contributors are getting for their money.

The prestigious, independent Corporation for Enterprise Development concludes that “most economists agree incentives are not good development policy” because they foster unfair competition, don't create net new jobs and divert attention from better strategies.

We know the value of the Iowa Values Fund to the politicians who give away our money, and to the businesses that receive it. What Iowans want to know is the value of the program to those who are paying for it.

Nicholas Johnson teaches at the University of Iowa College of Law and maintains a Web site at nicholasjohnson.org.  Used with permission of the author. 

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