Friday, May 19, 2017

When Do-Gooders Meet Corporate Welfare

Governor Mead's ENDOW initiative is moving forward. After last week's two-day event in Cheyenne, the initiative is moving forward with the aim to attract new businesses and new entrepreneurs to Wyoming. 

I applaud the governor's vision. We definitely need to strengthen our state's economy with a more diversified private sector. I also like the fact that the governor, in the introductory video to the ENDOW initiative, emphasizes our state's business-friendly economic climate. 

The governor is wrong on the issue itself: as the CNBC state business climate study reports, overall Wyoming ranks 13th, tied with Virginia and way behind Utah (1st), Texas (2nd) and Colorado (3rd). We rank 3rd in education, 6th in workforce quality and 11th in quality of life, but at the same time we rank 29th in cost of living, 48th in technology and innovation climate and - a point that I have made for years now - 50th in access to capital. 

Poor access to capital indicates a regulatory environment that is far from as friendly as Governor Mead suggests. Alas, my sympathy for his words in the video are not based on facts, but on his attitude: it is far better that he wants to attract new businesses to Wyoming by making sure government is not in the way, as opposed to government being an active partner in new business investments here in Wyoming. 

The alternative, corporate welfare, would be much worse, of course. Unfortunately, we are not immune to that practice here in Wyoming, and the general tendency among states to compete for businesses with grants, incentives and sugar-coated loans has created a sleazy environment where businesses have learned to chase the best "deals". 

And right here is my worry: that the ENDOW initiative, despite the governor's good words, will end up becoming a pipeline for corporate welfare. 

Even if Governor Mead remains true to his words, people at the other side of the pipeline could easily encourage him to change his mind. This is especially the case with savvy entrepreneurs from inside, or even the outskirts of, Silicon Valley. 

Perhaps the most egregious example is Elon Musk and his Tesla Motors business. He is one of the best corporate-welfare players in the country. As of 2015, he had pocketed at least $4.9 billion in "incentives" and tax-paid handouts. That same year, the Washington Post bluntly stated that "Tesla owes its survival to subsidies from taxpayers". In January 2016 Lawrence McQuillan of the Independence Institute explained:
Instead of making money from car sales, Tesla survives by participating in many government subsidy programs. One lucrative program is California’s zero-emission vehicle (ZEV) credit program. ... ZEV credits, pioneered in California, have spread to nine other states. Tesla has collected more than $517 million from competing automakers by selling ZEV credits to those who fail to sell enough zero-emissions cars to meet arbitrary mandates. ... The average household income of Tesla owners is $320,000, according to Strategic Visions, a consumer research company. Tesla buyers have also raked in $38 million in California government rebates (they receive a $2,500 rebate for each Tesla bought) and $284 million in federal tax incentives (they receive a $7,500 federal tax credit for each purchased Tesla).
A year ago, Business Insider delivered a scolding review of Tesla's business practices, and in February this year the same publication revealed that Musk, driven by his insatiable thirst for government handouts, is now going all the way to Sweden to find new taxpayer pockets to milk.

Not only is Tesla addicted to corporate welfare, but just like car manufacturers back in Soviet-controlled Europe, that same addiction incentivizes sloppiness when it comes to product quality. For example, the 2017 Tesla Model X landed on Consumer Reports' Ten-Worst-Cars list

In addition to product quality, Tesla's government-dependency has no doubt contributed to its equally sloppy attitude toward its workforce. Just yesterday, British newspaper The Guardian reported that workers at Tesla's main factory in California
complain of grueling pressure – which they attribute to Musk’s aggressive production goals – and sometimes life-changing injuries. Ambulances have been called more than 100 times since 2014 for workers experiencing fainting spells, dizziness, seizures, abnormal breathing and chest pains, according to incident reports obtained by the Guardian. Hundreds more were called for injuries and other medical issues.
The article provides several examples, with chilling details, of workers being injured while working, being physically worn down with little or no attention from the factory management. Soe workers even faint at the assembly line while other workers just continue to work. In one case the newspaper explains how coworkers just "worked around" a man who fainted.

In a nutshell, Tesla is the nation's prime example of what corporate welfare does to business. Its do-good surface, Elon Musk's constant flirtation with superficial "correct" values and his exceptional skills at making taxpayers pay for his own political vanity, all make him a poster child for everything that goes wrong when government picks winners and losers.

Or, as we also know it, government pursues economic diversity. 

I have no reason to believe that Tesla is on its way to Wyoming. Other than the occasional high-voltage rib cage on four wheels trying to make it through the snow, that company will hopefully stay out of the Cowboy State. That said, I worry that as Governor Mead's ENDOW initiative moves forward, and as the Wyoming economy lands in its new, low-activity normal, he and others on the project will start looking for ways to bribe businesses into coming here. If he does, we might not end up with a Tesla factory here, but the world is full of Elon Musk wannabes who would be more than happy to sell our governor a good business-development story for some tax-paid "incentives" and a nice dinner. 

I hope I am wrong. I hope my worry is unfounded. But I would sleep much better if I knew that Governor Mead had firmly declared that so long as he is in office, not a dime's worth of corporate welfare will ever again be paid out in Wyoming.

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