Wednesday, September 25, 2019

The Business of Government is Government

When governments get into the business of business, it usually doesn't work out well.

Sad news today from the tiny town of Front Royal, Virginia, the gateway to Skyline Drive and the Blue Ridge Parkway (and the Appalachian Trail).  The Sheriff shot himself, the entire county government is under indictment, and $21 million is missing from county coffers.  The culprit?  A "business deal" the government tried to promote that went horribly wrong - or was fraudulent from the get-go, as prosecutors allege.

Front Royal used to be a manufacturing town.  But with the staggering increase in the size of nearby Washington, DC, it increasingly has become a tourist destination, as there are many campgrounds and hiking trails, as well as Skyline Drive.   When we lived in Alexandria, Front Royal was often a weekend destination, and we would take our camper there, often with friends, to go hiking and whatnot.

The industrial base is long gone, and government officials decided to "do something" to bring back jobs.   Turns out, it would have been better if they had done nothing at all.

Well, not nothing, but just manage a good government.  Pave the streets, staff the schools, keep taxes low, spend taxpayer's money wisely.   Create the infrastructure for people to live, work, and play, and businesses will come.  Jack up taxes to pay for a new "business park" and businesses will flee.    Offer generous tax incentives to one business, and you will be at the mercy of that business for the rest of your days.

These sweetheart deals - selling acres of county-owned land for $1 to some businessman on the premise that it will "create jobs" - often backfire.   In Jacksonville, Florida - the largest city in that State - a half-million has gone missing and city councilors are being tried for fraud.  At issue is an attempt to "create jobs" in the minority community by giving grants and loans to a barbecue sauce maker.

What is going on here?   When did government's job become creating jobs?   And do these programs work, or are they just opportunities for more graft, corruption, and greed?   More precisely, even if they did work, are they fair?

Yes, fair.  Fair to the taxpayers, who are effectively subsidizing private enterprises through their property tax dollars (which are often staggering in many places like New York, New Jersey, and Connecticut).    Fair to other business owners, particularly small businesses, competing businesses, and businesses who have been trying to grow slowly over the years through organic growth.

Say you run a small business in Front Royal.  Maybe it is a Motel, a souvenir shop, a campground, a car wash, a restaurant, or a variety store.   How do you feel about your tax dollars being spent to promote someone else's business?    Say you run Fred's Variety Store and the city decides to grant Walmart $1M in "tax amnesty" if they relocate to your town.   Not only are you going to be run out of business, you are paying for the privilege.

I recounted before about a friend of mine who used to own a small chain of grocery stores in Indiana. Walmart came to town, and the city went ga-ga over them, offering all sorts of perks and bonuses, from tax breaks, to infrastructure improvements.   My friend is a bartender now.    He sold most of the stores early on, but as he put it, "I should have gotten out entirely - early on" once it became clear that the government was picking winners.

Picking winners - a phrase the right-wing likes to use a lot, but it does have a nugget of truth to it.   When the government gets into the business of business, it has - by default - to favor one business over another.  And often, this favoring is not by default, but by design, as the larger businesses can bribe government officials (all legally, of course, through campaign contributions and PACs) to make sure that any "pro-business" subsidies only favor their business and put the other guy out-of-business.

And this has been going on for a long time.  Juan Trippe, who is celebrated as the visionary who stated Pan Am, also wanted the U.S. Government to anoint his airline as the "Flag Carrier" of the United States - effectively having a monopoly on overseas travel.  And with a Maine Senator in his pocket, Trippe was almost successful in this endeavor.  It was a good thing it didn't work out.  Pan Am went bust eventually, and "Flag Carriers" of all the other nations are also facing economic trouble, if they haven't gone bust already - or are drowning in a sea of red ink and rely on government subsidies to survive.

It is, in a way, like Amtrak.   Amtrak is now thoroughly entrenched in our government, and various Senators and Representatives put their sticky fingers into its management, deciding which routes should be maintained and what fares to charge.   It is unworkable in the same way the Brabazon Committee was - producing one of the world's largest white elephant airplanes, and dooming British aviation by dictating plane designs that were not even popular with the country's flag carrier.  Meanwhile, Boeing, designing airplanes the carriers actually wanted, ended up on top (although to be fair, many airlines were reluctant to sign on to the 707 at first).

Amtrak could make a profit, if it was a private company.   The first thing a private company would do is cut off unprofitable routes and focus capital on profitable ones - such as the Washington-Boston corridor.    But that will never happen, as government officials - like the Brabazon committee - have their own pet theories about how railroads should be run (preferably through their own district) and mass-transit and railroad advocates bend their ear with their beliefs about how railroads are better than cars.  "Why can't we have railroads like in Japan and Europe?" they cry - not realizing that many of those lines are being consolidated or curtailed, are losing money, or are being privatized (with resulting sky-high fares).  The US rail industry isn't like that of Japan or Europe - and never was.  We built quickly and cheaply, because we had thousands of miles to cover.   In places like the UK, they have beautiful stone railway bridges (as opposed to the wooden trestles that still exist in parts of the US today).   But then again, they are building a rail line in a place where people can walk across the entire country on vacation.  The scale is a little different.

But of course, it is hard for government not to be in the business business, as recent events have shown.  When we enact "free trade" we are, in effect, picking winners, and often these winners are overseas.   When we enact tariffs, we are similarly picking winners - particularly when tariffs (and their exceptions) are unevenly applied and favor one company over another.   It is hard for any government body to be value-neutral, particularly when politics are involved.

Oh, yes, politics.   When we lived in Washington DC, the airwaves were filled with ads from K-street lobbying firms, exhorting us to write our congressman to pass the "Fair Fees in Wireless and Cable Act!" which promised to lower our monthly cable bill (the easier way is to just cut off service, of course).    Another ad would exhort us to support the "No, Really, This is the Fair-Fair-Super-Fair Communication Act!" - both proposed pieces of legislation, of course, were not from grassroots consumer groups, but were products of competing Cable and  Telco consortiums.

Even when "the pee-pul" get involved and try to level the playing field, it can backfire badly.  When I was doing a lot of Cable TV Patents, they passed a law requiring that Cable companies offer a "basic tier" of service for about $25 a month - much as the Telcos were required to offer a "basic phone" service (today called Obamaphone, but it started with Reagan) to impoverished customers.  The cable companies revolted and lobbied like hell, but the law passed.

Not to be outdone, the cable companies just raised everyone's rates by $25 a month, calling it a "government-mandated fee increase" and arguing that this "sub-basic" cable requirement was an additional tier that had to be added to everyone's cable service.   It was about that time I decided I had enough, dealing with these crooks, and cut the cable, forever.

So you see, even attempts to "protect the consumer" can end up favoring one business over another.   When governments get into business, it gets sticky really quickly.   And my only thought is, maybe the government should take a minimalist approach to running businesses.

Of course, some on the right tout this view - or at least libertarians or some business people (those not favored by subsidies).  Some argue that these incentives and subsidies only end up wasting the taxpayer's money - and don't influence business decisions one iota.  The recent Amazon "contest" to see which State or City would throw the most amount of money at it, sort of backfired.  Insiders report that the decision where to locate was made in advance, and the whole point of the "contest" was to wring as many concessions from the cities already chosen for these sites.   And in a way, it all went horribly wrong, as folks in the Bronx said "no thanks" to paying Amazon with their tax dollars.

And then there is corruption - as illustrated by the Front Royal and Jacksonville incidents.   Even if people are not convicted and thrown into jail, there is always the appearance of impropriety that can taint a politician's life.  Both Hillary Clinton and Joe Biden are finding that out, to their dismay.   Sadly, the guy who many thought was the "alternative" is running a pay-for-play operation right out of his hotel next to the Whitehouse.    Maybe this sort of thing is unavoidable.

I guess there will always be this overlap between government and private business.  After all, the government is one of the largest customers for many businesses - particularly in defense.  And as a former defense contractor (and small business owner, who was tossed a bone now and then as a result of SBA rules) it is hard to criticize the gravy train, when you are riding on it.  But I guess, now that I am older, I am more skeptical of any politicians - right or left - who claim they will "create jobs" or improve the economy by bulldozing an entire neighborhood (and taking people's homes by condemnation) to put up a warehouse that houses mostly Chinese-made crap.

The photo above is of President Trump and some Foxconn officials breaking ground in Wisconsin to build a factory to make (depending on what day of the week it is) televisions or cell phones, or cell phone displays, or nothing.  Lately, it seems nothing is winning out, as the touted economic revival has amounted to little more than a warehouse, condemned properties which are now vacant, and a huge tax bill for county taxpayers.  But like most of these deals, the politicians (in this case, Trump) declare victory and walk away, not much interested as to whether the great plans worked out or not.  Sort of like how the villains are always trying to dispatch James Bond by leaving him alone in a situation of peril, and then just assuming it all works out as planned.

But maybe the problem isn't the politicians, it's us.  Like I said, I no longer believe in these photo-op moments with the gold spray-painted spades and the ceremonial shovel-fulls of dirt.  Maybe if more and more people became skeptical of them, politicians would stop pandering to us this way.   Maybe.

Maybe we could go back to an era, 40 years ago, before government officials decided that "creating jobs" (in an era of 10% unemployment) was a priority, instead of just "getting out of the way."