April 9, 2014 10:23:52 AM
In 2013, the Legislature passed a measure creating a "cultural retail attraction" incentive to reimburse developers of outlet malls for up to 30 percent of construction costs.
The bill aided Yates Construction and its affiliate Spectrum Capital, the firms that built the Outlets of Mississippi in Pearl. Those firms were reimbursed to the tune of $24 million, almost a third of the $80 million outlet mall's total cost.
It's hard to keep a good government subsidy secret. Two other developers, one in north Mississippi and one on the coast, got on the bandwagon. Memphis developers are approved to receive a $34 million state subsidy for their planned Outlet Shops of the Mid-South in Southhaven. New York's CBL and Associates has been approved for a $96 million subsidy for its Gulf Coast Galleria in D'Iberville.
As the state tab approached $154 million, state lawmakers started to get antsy. Apparently, it was OK for Yates, a Mississippi company, to get a big tax credit, but when Memphis and New York firms crashed the party, the Legislature decided to yank the punch bowl. The law has now been repealed. As Jackson state Sen. David Blount said, "It's favoritism of one business over another."
Think tank Good Jobs First writes, "Building new retail space doesn't grow the economy, it just moves sales and lousy jobs around." Good Jobs First has rated all the states based on their level of "mega-deal" company-specific subsidies. Mississippi is number two per capita, trailing New Mexico.
Crony capitalism is a term for when the government uses its taxing and financing power to favor one private company over another. This practice is running rampant in Mississippi and is hurting our overall job growth. Other companies don't want to locate in a state where politically-connected competitors can use the government for an unfair advantage.
All of this is done in the name of job growth, but Mississippi has lagged the nation in job growth recovery since the recession. Our state's overall percentage of people in the workforce is second worst in the nation.
The problem is that someone has to pick up the tab. When you excuse one company from paying taxes, another company must pick up the bill. Typically the small companies, which lack political clout, have to cover for the big companies that can hire lobbyists to get their tax advantage through the political system. Given that most employers in Mississippi are small companies, you see how this can undermine job growth. It is also fundamentally unfair.
These tax subsidies reduce money for roads, schools and other legitimate governmental expenditures. Mississippi ends up bribing companies to locate in Mississippi because it has an uneducated workforce. Perhaps spending the money on education and less on private company subsidies would be a better plan.
Crony capitalism empowers politicians who can dole out favors to supporters. But why is it tolerated by voters?
Basically, it is a lack of confidence in the free market system. Many voters think government must run the economy or it will collapse. They think government should "create jobs." You hear this mantra incessantly. President Obama often talks about how he created so many jobs with this or that program.
In fact, the evidence is just the opposite. The most affluent countries are those in which the government is least involved in allocating capital. There are very few simplicities in life, but the equation "free markets = higher standards of living" is a simple equation that has proven itself over and over again in history.
The greatest social experiment of all time was the rise of communism. The whole premise of communism was that the free market was inefficient and chaotic. Government planners could more rationally organize the economy and control production.
Not only did it not work, it was a colossal failure that set the world backward for decades. Millions upon millions of people were killed. Ultimately, the failure was so great that both Russia and China abandoned communism. Only when they allowed the free market some space, have China and Russia revived their moribund economies.
This is not to say there isn't a role for government: roads, schools, prisons, justice, police. But whenever the free market can replace a government monopoly, life will improve.
Take for instance, garbage collection. For years, this was a city-run operation. Now, private companies pick up the trash and do it more efficiently. The city takes bids. Even better, homeowners should be able to contract individually for trash pickup with competing firms.
Education is another area. Mississippi's many good private schools attest to the fact that private schools can deliver quality education. Given that, what is the point of a government-run monopoly, especially when so many of these monopoly school districts are failing?
As our economy advances, government should be handing off responsibilities to the more efficient private sector. Instead, in Mississippi, the government is now in the shopping mall business. Three huge outlet malls are springing up as a direct result of government intervention. Is that really the best use of capital?
People don't part with their hard-earned money without a good reason. A government bureaucrat, backed by the power to tax, can easily misspend someone else's money. That's why it doesn't work.