Subsidizing Business vs. Helping the Poor

business subsidy
Last year the New York Times featured a piece entitled, “The United States of Subsidies.” In this piece, author Louise Story details how U.S. government offices have doled out $80.4 billion in incentives to companies across the country over the years.

The incentives, which are little more than tax payer dollars subsidizing the cost of business, are awarded by states, counties and cities to companies who are looking to invest in a state or city. The idea is that if a local government sweetens the pot for a company, their local economy will then benefit from the company’s presence via the jobs they will create.

Lucrative tax breaks, free buildings and cash rewards are just some of the potential subsidies that cities provide for companies. The problem is that when these companies find their new venture unprofitable they often skip town—taking with them the jobs and the billions of dollars in incentives. Across the country, cities are replete with empty factories, pockets and promises.

The most notorious offender is General Motors (GM). Before the billions in federal bailouts, and before the financial crisis, which saw the liquidation of many of their properties, GM famously built relationships with states and towns, promising “win/win situation[s]” for both the company and the city—the city gets jobs, GM gets tax breaks, all is well. But soon after the collapse of the financial sector GM started shutting down plants and pulling out of towns at record pace.

In Ypsilanti, Michigan an empty warehouse with a $200 million sticker price, is all that remains after GM pulled out. Some states like Ohio and Wisconsin have even tried to no avail, to offer cash to the tune of $56 million and $153 million respectively, to try and keep GM from moving their plants.

The cost of luring a big company like GM to locate their factories or invest in a city can be anywhere from $50 to $200 million or more. The cost for the U.S. as whole at $80.4 billion is telling.

By contrast, USAID’s budget is only $33 billion a year—less than half the cost of subsidizing empty promises. The cost of eradicating hunger on a global scale is similarly, $30 billion annually. For about two-thirds of the cost of ensuring that the path to profit for companies remains unhindered, hunger and poverty can be eradicated.

GM pulled out of more than 50 towns and cities across the U.S. And due to $49.5 billion in bailout dollars, GM is once again profitable, while the cities they took from have been left high and dry—much like the world’s poor and hungry.

Pedram Afshar

Sources: New York Times, USAID, FAO, USA Today