The Palmetto Insider

The blog of the South Carolina Policy Council

Politicians, Lobbyists and More Special Interest Deals

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The Op-Ed below by Ashley Landess was published in the February 3 edition of The State. Yesterday the Senate Finance Committee approved legislation that would give real estate developer The Sembler Co. millions of dollars to build a retail mall in Jasper County.

Landess: Politically Driven Investments Hurt S.C. Economy

Suppose an investment broker pitched you a deal, but wouldn’t tell you what it was or how much it would cost you until after you committed. When you asked for an analysis of the project, the broker said it was too “secret” to reveal. And because he wasn’t sure what the total cost would be, he asked you for a blank check.

What if you had invested with this broker for 20 years, but instead of a payoff you had been given a long list of failed projects and excuses? Like the fancy “research park” he promised would attract big matching investments, but which failed to do so even after you’d invested $100 million. Or the newest “energy” industry plan, which he claims will be a big success someday, although it hasn’t produced any results yet.

Your broker’s latest great “deal” involves you giving up more than $100 million to finance a new mall. Sure, the economy is terrible and stores are going bust all over the country, but this broker says this one will be different.

Seriously: Would you still give this guy your money? Here’s the punch line: You already have. The broker is your state government.

For years, the politicians who run the government have invested in projects such as Innovista, the hydrogen fuel economy and most recently the Boeing deal. It may be tempting to rely on a few politicians to close the doors and negotiate deals that will make us all prosperous, but that simply doesn’t work. Instead, it distorts the free market and costs existing businesses and taxpayers their hard-earned capital.

We’ve learned a lot about South Carolina’s economic development strategy in the past several months. In Unleashing Capitalism, economists concluded that heavy-handed government planning has not created wealth and jobs in South Carolina. In 1994, the state invested around $32 million in incentives, but by 2007 that number jumped to $250 million. The result? In the 1980s, South Carolina’s economic growth was the 15th fastest in the nation. By the 2000s, it was the 12th slowest.

Despite billions in targeted incentives and government-driven economic development plans, South Carolina has the fourth-highest unemployment rate in the nation and the 46th lowest per capita income.

Politicians truly believe they can – and should – run the economy from Columbia. Worse is the secretive way in which they are deciding. Reporters for the S.C. Policy Council’s The Nerve found that the Boeing deal will cost far more than originally reported; bonds alone (with interest) will total around $400 million, and that doesn’t include all the tax breaks for the company. And taxpayers might not know all the details of the deal for another year.

To top it off, politicians approved a $100 million loan to Boeing out of our state’s “surplus” funds. We certainly weren’t told there were surplus funds when lawmakers were screaming about budget cuts last year, much less enough to front a loan to a multibillion-dollar company.

Amid questions about the true cost of the Boeing deal, the public might expect lawmakers to be more cautious about incentives. Instead, they want to give a wealthy developer who owns the Sembler Co. millions of dollars to build a retail mall in Jasper County. That doesn’t make sense when they’re also talking about raising taxes, forcing teachers to take unpaid furlough and exploring ways to make existing businesses pay for the Employment Security Commission debacle.

It’s tough to find a credible economist who argues that corporate giveaways lead to prosperity for the rest of us. In particular, there is a great deal of research showing the specific failure of retail tax incentives. College of Charleston economist Pete Calcagno concluded the Sembler deal would siphon jobs from existing companies and be unlikely to create any net economic gains for taxpayers. He asks a reasonable question: If Sembler is going to be such a success, why does it need our money to get started?

Unfortunately, there is a new business strategy in South Carolina: Hire lobbyists and consultants to get public money. We can’t blame the companies for practicing corporatism. But as investors, we should demand full public debate and thorough, independent economic analyses before another deal is passed. Furthermore, we are entitled to know if companies meet their promised obligations. Currently, there is little or no reporting by the state on how many jobs actually are created, or how all taxpayers fare as a result of these investments.

Deals made by a handful of politicians will never turn our state around. The only ones benefiting from their failed strategy are a few companies and the gaggle of lobbyists who are paid to influence them. Free-market capitalism is the only formula that has generated wealth in this country. If we want out of the economic mess our politicians got us into, then we need to get them out of the business of investing our money and insist on doing it ourselves.


Written by SC Policy Council

February 4, 2010 at 4:32 pm

One Response

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  1. […] Lobbying by special interests (as well as government funded organizations) creates conflicts of inte… […]

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