ECONOMIC CANNIBALISM: DEVELOPERS EAT THEIR OWN

It’s not often that you’ll find me celebrating the loss of an economic development project that would have created 200 jobs in Western New York. But, I did just that a few weeks ago when a deal to bring a Toronto-based plastics manufacturer to the Buffalo waterfront fell through at the eleventh hour.

That company would have been in direct competition with mine. Even though news reports identified them as a “furniture manufacturer” – which they are – they also produce products that we do like kayaks and spa cabinets.

As a free market capitalist I typically welcome competition. But I don’t when competitors, especially those new to a region we’ve called home for 40-plus years, are given special privilege by the government. To bait the Canadians, the Cuomo Administration and the NFTA would have given them, among other incentives, $2 million in Excelsior tax credits, a sweet deal on publically-owned real estate, and 3.7 megawatts of cheap electricity produced by the New York Power Authority.

It’s that last item that struck me as the most offensive. Long-time readers of this column know that my company has attempted time and again to acquire cheap electricity (to no avail) in hopes of decreasing our third largest cost of doing business. Compared to other plastics manufacturers across the United States, we pay twice what they do for electricity – even though the mighty Niagara River flows in front of our plant.

Had the Canadians pulled the trigger on the NFTA’s real estate offer, the State would have enabled our competitor to produce the same products we do with power at less than one half the cost of ours, all while operating in what’s basically our backyard. It would have been disastrous to the 170 families that I work with as we would have lost clients to the local and cheaper alternative. While the region might have gained 200 jobs from the new company, it could have lost half as many due to disadvantageous competitive factors that were of the governments doing.

This sort of economic cannibalism, in which economic developers sacrifice their own to bring in the next big deal, is not unique to Confer Plastics.

Consider everything state officials did to bring silicone and chip manufacturer GlobalFoundries to the town of Malta. In 2008-2009, at the height of the Great Recession and while the state was facing a $15 billion budget gap, New York officials brokered a $1.3 billion incentive package for them, of which $650 million was cold hard cash.

This gave them a distinct advantage over other New York-based plants and it put the burden of funding the deal on New York taxpayers and businesses across all sectors who were attempting to survive not only the recession, but decades of malaise in New York. While GlobalFoundries grew, it was done on the backs of others.     

Also ponder what’s brokered at the local level across the state, where over the past 20 years we’ve seen a stark transformation of Industrial Development Agencies. Originally created in the late-1960s to ease the tax and regulatory burden on manufacturers (hence the “industrial” moniker) who compete across state lines and need help to stay competitive with the Ohios and Chinas of the world, the 113 IDAs have deviated from their original intent and now grant, in volume, tax breaks to retail projects (automotive lots, hotels, malls and more) who aren’t competing out-of-state, but instead are competing directly with businesses in their neighborhoods and nearby towns and cities.

The direct outcomes of those practices are two-fold. First, well-established retailers and hotels lose clients (and therefore revenues and employees) because their costs to do business (sales taxes, property taxes) are much higher than the competitors granted favor. Secondly, neighboring counties end up stealing companies and/or jobs from one another and never really create them when looked at from a regional standpoint.

You can certainly appreciate some of the efforts and intent of economic development officials (most want to make the economy in their community, region or state better), but they tend to be a little overzealous at times. That can be dangerous, because that ends up cannibalizing jobs in one place to make jobs in another. In that case, economic value isn’t created, it’s only shifted -- at the whim of government.

To make economic development work properly they need to drop the blinders and parochialism and approach things with a collective or regional view and ask two critical questions: Who wins? Who loses? They’d be surprised by the answers.