{"id":19337,"date":"2018-01-31T14:01:57","date_gmt":"2018-01-31T19:01:57","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=19337"},"modified":"2018-01-31T14:06:39","modified_gmt":"2018-01-31T19:06:39","slug":"amazon-should-stick-to-capitalism-and-avoid-the-crony-game","status":"publish","type":"post","link":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/2018\/01\/31\/amazon-should-stick-to-capitalism-and-avoid-the-crony-game\/","title":{"rendered":"Amazon Should Stick to Capitalism and Avoid the Crony Game"},"content":{"rendered":"

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I\u00a0explained back in 2013<\/a>\u00a0that there is a big difference between being pro-market and being pro-business.<\/p>\n

Pro-market is a belief in genuine free enterprise, which means companies succeed or fail solely on the basis of whether they produce goods and services that consumers like.\"\"<\/p>\n

Pro-business, by contrast, is a concept that opens the door to inefficient and corrupt cronyism, such as bailouts and subsidies.<\/p>\n

It basically means big business and big government\u00a0get in bed together<\/a>. And that\u2019s going to mean bad news for taxpayers and consumers.<\/p>\n

Washington specializes in this kind of cronyism. The\u00a0Export-Import Bank<\/a>,\u00a0ethanol handouts<\/a>,\u00a0TARP<\/a>, and\u00a0Obamacare bailouts for big insurance firms<\/a>\u00a0are a few of my least-favorite examples.<\/p>\n

But state politicians also like giving money to rich insiders.<\/p>\n

State Governments Are Providing Incentives to Big Companies.<\/strong><\/p>\n

A\u00a0report<\/a>\u00a0in the\u00a0Washington Post\u00a0reveals how states are engaged in a bidding war to attract Amazon\u2019s big new facility, dubbed HQ2.<\/p>\n

Maryland Gov. Larry Hogan (R) will offer more than $3\u00a0billion in tax breaks and grants and about $2 billion in transportation upgrades to persuade Amazon.com\u00a0\"\"<\/a>to bring its second headquarters and up to 50,000 jobs to Montgomery County. \u2026It appears to be the second-most generous set of inducements among the 20 locations on Amazon\u2019s shortlist. Of the offerings whose details have become public, either through government or local media accounts, only New Jersey\u2019s is larger, at $7\u00a0billion.<\/blockquote>\n

Richard Florida, a professor at the University of Toronto,\u00a0explains<\/a>\u00a0to\u00a0CNN\u00a0why this approach is troubling.<\/p>\n

\u2026there\u2019s one part of Amazon\u2019s HQ2 competition that is deeply disturbing \u2014 pitting city against city in a wasteful and economically unproductive bidding war for tax and other incentives.\u00a0\"\"<\/a>As one of the world\u2019s most valuable companies, Amazon does not need \u2014 and should not be going after \u2014 taxpayer dollars\u2026 While Amazon may have the deck stacked in picking its HQ2 location, the mayors and elected leaders of these cities owe it to their tax payers and citizens to ensure they are not on the hook for hundreds of millions and in some cases as much as\u00a0$7 billion\u00a0in incentives to one of the world\u2019s most valuable companies and richest men. \u2026The truly progressive thing to do is to forge a pact to not give Amazon a penny in tax incentives or other handouts, thereby forcing the company to make its decision based on merit.<\/blockquote>\n

It\u2019s not just a problem with Amazon.<\/p>\n

Here\u2019s are excerpts from\u00a0a column<\/a>\u00a0in the\u00a0L.A. Times\u00a0on crony capitalism for Apple and other large firms.<\/p>\n

State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple, one of the world\u2019s richest companies, for a data facility that will host 50 permanent jobs. \u2026the Apple deal shows the shortcomings of all such corporate handouts, nationwide.\u00a0\"\"<\/a>State and local governments seldom perform cost-benefit studies to determine their value \u2014 except in retrospect, when the money already has been paid out. They seldom explain why some industries should be favored over others \u2014 think about the film production incentives offered by Michigan, Louisiana, Georgia and, yes, Iowa, which never panned out as profit-makers for the states. \u2026the handouts allow big companies to pit state against state and city against city in a competition that benefits corporate shareholders almost exclusively. Bizarrely, this process has been explicitly endorsed by\u00a0Donald Trump. \u2026politicians continue to shovel out the benefits, hoping to steer their economies in new directions and perhaps acquire a reputation for vision.\u00a0Nevada was so eager\u00a0to land a big battery factory from Tesla Motors\u2019\u00a0Elon Musk\u00a0that it offered him twice what Musk was seeking from the five states competing for the project. (In Las Vegas, this is known as \u201cleaving money on the table.\u201d) Wisconsin Gov.\u00a0Scott Walker\u00a0gave a big incentive deal to a furniture factory even though it was\u00a0laying off half its workforce. He followed up last month with an astronomical $3 billion handout to electronics manufacturer Foxconn for a factory likely to employ a fraction of the workforce it forecasts.<\/blockquote>\n

And here\u2019s\u00a0an editorial<\/a>\u00a0from Wisconsin about a bit of cronyism from the land of cheese.<\/p>\n

The Foxconn deal\u2026should be opposed by Democrats and Republicans, liberals and conservatives. There are no partisan nor ideological \u201csides\u201d in this debate. The division is between those who want to create jobs in a smart and responsible way that yields long-term benefits\"\"<\/a>\u00a0and those who propose to throw money at corporations that play states and nations against one another. The Foxconn deal represents the worst form of crony capitalism\u00a0\u2014 an agreement to transfer billions of dollars in taxpayer funds to a foreign corporation. \u2026Walker offered the company a massive giveaway\u00a0\u2014 discussions included a commitment to hand the Taiwanese corporation nearly $3 billion in taxpayer funds (if it meets hazy investment and employment goals), at least $150 million in sales tax exemptions\u2026the Legislative Fiscal Bureau, which analyzes bills with budget implications\u2026pointed out that Foxconn would receive at least $1.35 billion and possibly as much as $2.9 billion in tax incentive payments even if it didn\u2019t owe any Wisconsin tax\u2026 This is a horrible deal.<\/blockquote>\n

Amazon Gets Priority with the Postal Service.<\/strong><\/p>\n

Let\u2019s now circle back to Amazon and consider how\u00a0it gets preferential treatment<\/a>\u00a0from the Post Office.<\/p>\n

I don\u2019t feel guilty ordering most of my family\u2019s household goods on Amazon. \u2026But when a mail truck pulls up filled to the top with Amazon boxes for my neighbors and me, I do feel some guilt. Like many close observers of the shipping business, I know a secret about the federal government\u2019s relationship with Amazon: The U.S. Postal Service delivers the company\u2019s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon. \u2026First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from\u00a0Citigroup\u00a0estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip\u2014a gift card from Uncle Sam. Amazon is big enough to take full advantage of \u201cpostal injection,\u201d and that has tipped the scales in the internet giant\u2019s favor. \u2026around two-thirds of Amazon\u2019s domestic deliveries are made by the Postal Service. It\u2019s as if Amazon gets a subsidized space on every mail truck.<\/p><\/blockquote>\n

Privatization Is the Key to Removing Subsidies.<\/strong><\/p>\n

In this last example, the real problem is that we\u2019ve fallen behind other nations and still have a government-run postal system.<\/p>\n

The way to avoid perverse subsidies\u00a0is privatization<\/a>. That way, Amazon deliveries will be based on market prices and we won\u2019t have to worry about a tilted playing field.<\/p>\n

And that last point is critical.<\/p>\n

Cronyism and Corporate Welfare Is an Economic Issue.<\/strong><\/p>\n

Yes,\u00a0cronyism<\/a>\u00a0and\u00a0corporate welfare<\/a>\u00a0are an economic issue. It is bad for long-run growth when political favors\u00a0distort the allocation of capital<\/a>.<\/p>\n

\"\"<\/a>But an unlevel playing field is also a moral issue. It simply\u00a0isn’t fair nor right for politicians to\u00a0give their buddies special advantages<\/a>.<\/p>\n

And it\u2019s both economically harmful and morally harmful to create a system where the business community views Washington as\u00a0a handy source of unearned wealth<\/a>.<\/p>\n

For what it\u2019s worth, I also think it should be a legal issue. For those of us who believe in\u00a0the rule of law<\/a>, a key principle is that everyone should be treated equally. Heck, that principle is enshrined in the Constitution.<\/p>\n

So I\u2019ve always wondered why courts haven\u2019t rejected special deals for specific companies because of the equal-protection clause?<\/p>\n

Then again, maybe I shouldn\u2019t wonder. After all, the Supreme Court\u00a0twisted itself into a pretzel<\/a>\u00a0to miraculously rationalize Obamacare.<\/p>\n

But none of this changes the fact that it\u2019s time to wean big business off\u00a0corporate welfare<\/a>.<\/p>\n

P.S. Just in case you harbor unwarranted sympathy for big companies, remember that these are the folks\u00a0who are often keen to undermine support<\/a>\u00a0for the entire capitalist system.<\/p>\n

Reprinted from\u00a0International Liberty.<\/a><\/em><\/p>\n


\nDaniel J. Mitchell
\n<\/a><\/p>\n

Daniel J. Mitchell is a Washington-based economist\u00a0who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.<\/p>\n

This article was originally published on FEE.org. Read the original article<\/a>.<\/p>\n

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