The incoming Trump administration has signaled that it will use subsidies and other business incentives to keep jobs in the United States, seizing on a popular strategy that state governments have adopted to lure businesses to their towns and cities. But there is little evidence the tactic can succeed in the international competition for manufacturing, economists say.
Subsidies? OK, I guess we are paying them to stay. How's that apt to work out?
In most cases, states bid against one another rather than against lower-cost nations. Inducements would have to skyrocket were states to routinely try to keep jobs from, say, Mexico, said Greg LeRoy, executive director of Good Jobs First. Firms that locate overseas typically rely on low-skilled labor in production, and the savings in reduced wages often dwarf any inducements a state can offer.
Not so bad if you can get the people of your state to do away with all environmental protections. Then, convince those workers to give up any benefits and work for $4.35 an hour or less.
For example, the $7 million Carrier would receive from Indiana is “small potatoes” compared with the $65 million that state officials have said Carrier told them the company would save every year by shifting production to the new plant outside Monterrey, Mexico, Chirinko said. He suggested that for United Technologies, the conglomerate that owns Carrier, the cost of producing in Indianapolis might be an investment in goodwill with the new Republican administration.
It's nice of them to throw Trump a PR bone. What a deal-maker, he is. Yeah, that $65 million is pocket change.
In a CNBC interview on Monday, United Technologies chief executive Greg Hayes suggested that business with the federal government was a consideration in his decision on the deal.
"There was a cost as we thought about keeping the Indiana plant open," Hayes said. "I also know that about 10 percent of our revenue comes from the U.S. government."
So, about $10 billion in government contracts in exchange for eating $65 million. I'm not so sure it was Trump's charm that won them over.