Friday, June 1, 2018

Hageman: Picking Winners and Losers?

The other day I sent a note to gubernatorial candidate Sam Galeotos that it was time to get his facts straight, after he said that energy, agriculture and tourism are Wyoming's biggest industries. There is simply no metric to validate that claim.

That does not mean Galeotos is not a viable candidate for governor, but, as I explained,
can we trust Galeotos with the governorship if he cannot get basic facts straight about our state's economy? Can we trust that if he is elected, he will not just focus on fully supporting the top three industries? If he is elected, and were to decide to forge ahead with substantial reforms to our state's economy, and if he did so based on erroneous numbers; then how can we be reasonably sure that he is not going to make big mistakes that end up costing us more in taxes? 
When a candidate for governor says that he or she is going to favor, support or back a certain set of industries, there is a not-so-implicit message in this that those select few industries will somehow get preferential treatment. This can happen in either or all of three ways:
  • Corporate welfare, sold to taxpayers as "economic development",
  • Tax breaks carved out specifically for those industries, and
  • Selective regulatory rollback making lives easier for some industries at the indirect expense of others. 
The question of giving preferential government treatment to some industries, directly or indirectly over others, just got a bit more prominent:
Hageman isn't in favor of higher taxes, and repeatedly told Mesa Natural Gas Solutions employees that state spending can be reduced significantly. "But what is important is, as governor I still have to figure out how am I going to fund state government, how am I going to provide services to the citizens of the state of Wyoming," she said. "How do we make sure our highways are fixed? How do we make sure that our city streets are fixed?" 
The same funding questions, she added, apply to caring for the elderly, providing health care, funding the Department of Environmental Quality and the State Engineer's Office. "How is that funded," Hageman asked. "It's not funded by tech unless he (Galeotos) is advocating for something along the lines of an income tax." That's why she is adamant to protect and fight for the legacy industries of minerals, agriculture and tourism, she said. "That's where the revenue in Wyoming comes from."
There are several points to be made here, one of which touches on the core-functions issue question we discussed yesterday. but the most important one is that Hageman apparently is "adamant to protect and fight for the legacy industries", and her motivation: they provide the tax revenue in Wyoming.

If we set aside the issue of whether or not those industries really provide the bulk of tax revenue, another question pops up: what exactly does Hageman have in mind when she says she will "fight for" the big revenue producers? Which of the three methods mentioned earlier is she planning on using to protect those industries?

This preferentialism has broader consequences than, frankly, I think most politicians realize. It becomes easier for businesses in favored industries to raise venture capital than for businesses outside of the favored zone. (And since Wyoming is dead last in the country in terms of attracting venture capital, we need all the venture capital we can get...) The favorite children of government will have an easier time attracting and compensating good employees, giving them yet another leg up on competitors in other industries.

Over time, industrial preferentialism cements an economic structure and makes government dependent on a narrower tax base. This comes back to bite government in the rear end when those industries go stale.

And stale they go. The more perks a business receives from government, the more it takes those perks into account when making its own case for doing business. This leads over time to a sloppiness that reduces productivity and viability vs. competitors from other states - or other countries. There is plenty of evidence to this, especially if we look at the industrial structure in Europe, but it is also visible here in Wyoming. We could have a vibrant and industrially diversified economy like South Dakota or Utah; we don't, because prior to the big decline in minerals industry activity that started in 2015, severance taxes flowed in like manna from heaven.

It is only in the last couple of years that our politicians have begun discussing other industries. Too bad, then, that they are stuck in the same mode of thinking, namely that they somehow have to pick winners and losers in the economy.

Somehow I have a feeling this is not really what Harriet Hageman is saying. She does point out that she thinks we can reduce government spending and that she is opposed to higher taxes. However, she needs to clarify what exactly she means by protecting and fighting for the biggest tax revenue sources, as opposed to protecting and fighting for the entire private sector in Wyoming. If she explains this well, she will have a leg up on Sam Galeotos who seems to be perfectly confident that he knows exactly what he is talking about on this matter.

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