Saturday, December 1, 2012

Trying to Buy G.M.'s Friendship

The New York Times has a story today illustrating one of life's lessons that Flint learned long ago...just because a city is nice to a corporation like G.M. doesn't mean G.M. is going to return the favor.

Louise Story reports:
In the end, the money that towns across America gave General Motors did not matter.

When the automaker released a list of factories it was closing during bankruptcy three years ago, communities that had considered themselves G.M.’s business partners were among the targets.

For years, mayors and governors anxious about local jobs had agreed to G.M.’s demands for cash rewards, free buildings, worker training and lucrative tax breaks. As late as 2007, the company was telling local officials that these sorts of incentives would “further G.M.’s strong relationship” with them and be a “win/win situation,” according to town council notes from one Michigan community.

Yet at least 50 properties on the 2009 liquidation list were in towns and states that had awarded incentives, adding up to billions in taxpayer dollars, according to data compiled by The New York Times.

4 comments:

  1. > ...the company was telling local officials that these sorts of incentives would “further G.M.’s strong relationship” with them and be a “win/win situation,” according to town council notes from one Michigan community. <

    Yep, and it was literally true. You want the jobs, you play the game; and, you win the game, you get the jobs. That's the substance of the "strong relationship". Aside from maybe some charitable contributions, community affairs participation or beautification efforts, jobs are what it's about. Some places have them, some don't.

    There's a technical-legal lesson underlying this for the lawyers and MPA types: structure your motivations so that they're provided on a year-to-year basis and linked to job presence, as opposed to being front-loaded...because no matter what anyone says, the motivations don't assure that the jobs will stay, because you can't control the overall economy, corporate financial mistakes, corporate leadership changes, competitive pressures, strategic mistakes by others (union locals, etc.) with whom the corporation must interact, and so forth.

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  2. A note from Ms. Story's piece:

    > Ms. Reese advises local governments to invest in residents through education and training rather than in companies where “it’s hard to pick winners.” <

    This however raises an important conceptual issue: is the responsibility of a local leader to the individual persons who presently live in his/her community, or to the Community itself as distinct from those individuals?

    It's individuals that become educated. Individuals are highly mobile, particularly when they're young and just out of college or grad school. In some respects, increased public expenditures to support higher education are just a subsidy to the rest of the country, because there's little assurance that the recipients of that higher education will stick around to pay taxes back into the Community that (it's being argued) should have subsidized their education via taxation.

    In that respect, trying to achieve a deal with a company to bring your Community jobs is more reliable. You give the tax break, and if your lawyers structure the deal well, the jobs do come...and as long as you keep the jobs, the Community does benefit.

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  3. Wow...I thought that once the government took over General Motors and gave most of it to the unions everything would be wonderful. Did they mention that in the article?

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  4. And the negociated higher wages and benefits ultimately did GM in.

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