President Obama spoke today at the Chamber of Commerce (the text is here) and one thing that was remarkable is how many of the businesses he mentioned by name are essentially his cronies. Here is the key paragraph:
Right now, businesses across this country are proving that America can compete. Caterpillar is opening a new plant to build excavators in Texas that used to be shipped from Japan. In Tennessee, Whirlpool is opening their first new US factory in more than a decade. Dow is building a new plant in Michigan to manufacture batteries for electric vehicles. A company called Geomagic, a software maker, decided to close down its overseas centers in China and Europe and move their R&D to the United States.
Whirlpool? The Wall Street Journal reported that "Tennessee and local governments committed to providing Whirlpool with about $45 million in tax breaks, abatements and grants to offset the company's costs of building the plant." Whirlpool CEO Jeff Fettig was a guest at the White House in January, and Whirlpool got at least $21.3 million in stimulus money from the Department of Energy.
These guys may be fine companies and executives, but they aren't necessarily "proving that American can compete" if what they are doing is taking money from taxpayers who work in companies or industries without the political clout to win such subsidies.
Caterpillar? It's based in Mr. Obama's home state of Illinois, and its chairman, Jim Owens, has been a White House state dinner guest and a member of the President's Economic Recovery Advisory Board. The Texas plant the president mentioned is subsidized with a $1.18 million grant from the Texas Enterprise Fund, which is money taken from Texas taxpayers who work at companies that may compete with Caterpillar or who work at other, less favored industries or smaller businesses.
Dow? The Michigan battery plant the president mentioned was made possible with $42 million in state tax credits from the Michigan Economic Growth Authority, small consolation to those Michigan small businesses and individuals who are paying their tax bills in full because they don't have the political clout of Dow or they don't work in a politically favored industry. And we've already covered here, in the post headlined "Obama's Second-Favorite CEO," the extensive connections between Dow CEO Andrew Liveris and Mr. Obama: "In November 2009, President Obama named Mr. Liveris to the U.S.-India CEO Forum and invited him to a meeting at the Treasury Department with Secretary Geithner and Lawrence Summers. In July 2010, Mr. Obama appointed Mr. Liveris a member of the President's Export Council." Mr. Liveris was invited to the White House to meet with President Obama and Chinese leader Hu Jintao, and Mr. Liveris stayed for the state dinner.
Geomagic? The company's co-founder sat in Michelle Obama's box during the 2010 State of the Union address. The company has received ten grants from the National Science Foundation, totaling $2,935,434, dating as far back as January 1997. Not to take anything away from Geomagic co-founder Ping Fu, who has an inspiring personal story, who knows what else might have been produced with that $3 million were it invested privately rather than taken from the private sector in taxes and spent by the government on a government-chosen business?
Of course, no Obama speech about business without lavishing praise on General Electric and its CEO, Jeffrey Immelt, who was paid more than $90 million while destroying $100 billion in shareholder value:
Recently, I visited GE in Schenectady, New York, which has partnered with a local community college. While students train for jobs available at the nearby GE plant, they earn a paycheck and have their tuition covered. As a result, young people can find work. GE can fill high-skilled positions. And the entire region has become more attractive to businesses. It's win-win for everyone, and something we're trying to replicate across the country....I've asked Jeff Immelt of GE to lead a new council of business leaders and outside experts so that we're getting the best advice on what you're facing out there – and we'll be holding our first meeting two weeks from now, on the 24th.
This is not "proving that America can compete." This is proving that President Obama and state governments can lavish subsidies on some favored businesses using tax dollars taken by force from other, less-favored businesses and individuals.
If there's competition involved, it's the competition for the taxpayer money as much as competition in the marketplace for products and services.
Such a system may be good for politicians — they get campaign contributions because they are in a position to dispense tax breaks or grants, or to pick industries to subsidize. But it's bad for the country, because it breeds corruption, and because experience has shown government officials aren't particularly good at picking which businesses to subsidize. Also, it leads to bidding wars, in which states and national governments compete for factories not by setting low taxes across the board but by cutting special deals for bigger players, entrenching established players in a way that penalizes would-be new entrants.
Not only is it bad on those utilitarian grounds ("it doesn't work"); it's also bad on libertarian grounds ("it's unjust"). Even if government were better than individuals at allocating capital to private businesses, it'd be unjust to take money from some businesses in taxes and use it to subsidize their competitors, because doing so is basically taking the private property that belongs to one business (or its owners) and giving it to the other business, without fair compensation.
If the president really wants to demonstrate that American manufacturing can compete, he'll have to find some examples that don't involve government subsidies or special treatment. Until then, his speech to the Chamber of Commerce just looks like a display of cronyism.
