Friday, August 19, 2011

Be wary of "pro-business" politicians

Rick Perry is an unapologetic "pro-business" candidate for President. Columnist Tim Carney unpacks what Perry might mean when he says that:

Perry promises to "get Americans back to work," but his policies -- from backroom drug company giveaways to green energy subsidies -- eerily mirror the unseemly big business-big government collusion that has characterized President Obama's presidency. Judging by his record in Texas, Perrynomics might just be low-tax Obamanomics.

Corporate welfare king Boeing provided a formative experience for Perry. Weeks after Perry took over the governorship in 2001, the jet maker announced it was moving its corporate headquarters out of Seattle and was considering Chicago, Denver and Dallas. Undoubtedly, Texas provided the best business environment: lower taxes, less regulation, better weather, less traffic. But Chicago won because Mayor Richard Daley and Gov. George Ryan offered Boeing $63 million in "incentives," including a $1 million buyout to a tenant who was occupying Boeing's preferred office space.

One problem: Texas' slower legislative process prevented the state from making a counteroffer. Perry was determined to fix this inefficiency so he would never be out-corporate-welfared again.

In his next State of the State address, Perry pushed the Legislature to create the Texas Enterprise Fund, giving the governor, lieutenant governor and House speaker the power to hand out multimillion-dollar grants to businesses seeking to relocate to or expand within the state. Two years later, Perry and the Legislature created another subsidy bank, called the Texas Emerging Technology Fund, using taxpayer money to invest in high-tech companies. Perry made government a venture capital fund.

Muckrakers at the Los Angeles Times and the Austin American Statesman have shown a strong correlation between Perry's biggest campaign contributors and the money handled by these funds and Perry's other public-private partnership. Almost half of Perry's "mega-donors," according to the Times, have received profitable favors from the Texas government. Poultry magnate Joe Sanderson, for instance, gave Perry's campaign $165,000 and received $500,000 from the Texas Enterprise Fund to open a facility in Waco, the Times reports.

I'd continue quoting, but you should really just read the whole thing. Of course, no politician should be "pro-business" when it means that consumers pay the price. Even the father of economics, Adam Smith, wasn't pro-business. He was, like any credible economist, pro-market. Markets are what deliver benefits to consumers by allowing prices to float freely and giving entrepreneurs the signals they need to put their resources where they can do the most good.

Perhaps not surprisingly, Kentucky governor Steve Beshear's re-election campaign reminds me a great deal of Perry's self-promotion. Beshear's campaign seems largely designed to tout the kind of special interest tax "incentives" he's given to businesses throughout the state. Beshear wouldn't apologize for that because it makes some political sense, but he should know that businesses without political connections don't much care for that kind of favoritism.

Beshear, like Perry, perhaps believes that he has the Midas touch when it comes to picking winners and losers in the marketplace. Beshear, after all, can point to the winners he picks. But it's not as if Beshear is investing his own money in these businesses. He's making bets on and rewarding the activities of some businesses as the direct expense of every other taxpayer in the commonwealth.

A wiser tax policy would be to eliminate all special interest tax breaks, lower overall rates (dare I say eliminate some taxes completely?) and therefore send a beacon to would-be entrepreneurs that Kentucky is the place to be. But I doubt that kind of reasoning fits too neatly in a 30-second campaign commercial.

(Thanks to Ryan Young for the tip.)

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