October 25, 2021

Economix Blog: Nancy Folbre: The Care and Feeding of Small Business

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

As a growing number of small business organizations pursue a policy agenda distinct from that of corporate America, they may be able to nudge state and local government toward new economic development strategies.

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Currently, the businesses best able to garner generous grants and tax incentives by promising to create jobs within specific political boundaries are large, mobile corporations that can pit communities against one another, demanding ever-higher subsidies.

Greg LeRoy wrote about the problem at length in “The Great American Jobs Scam.” In his 2010 book, “Investment Incentives and the Global Competition for Capital,” Kenneth Thomas estimated the total cost to American taxpayers at about $70 billion a year.

A number of technical issues regarding treatment of tax expenditures and property tax abatements come into play in such estimates, but another accounting based on investigative reporting by The New York Times generated an estimate of $80 billion a year. The details unearthed in the Times series, United States of Subsidies, show that 48 companies have received more than $100 million in state grants since 2007.

A bias toward large companies has been particularly obvious in the retail sector, where big-box stores have been big winners, with adverse effects on small independent businesses. Critics of Walmart have developed an entire Web site devoted to monitoring the public subsidies it receives.

The state of Texas touts its success in luring large companies from other states, offering generous tax subsidies financed by cuts in spending on local education, infrastructure and other public services. But critics of the Texas model contend that corporate relocations have had a “microscopic” impact on the state’s economy.

Meanwhile, alternative economic development strategies are gradually gaining traction. Littleton, Colo., a suburb of Denver, has pioneered an “economic gardening” approach that rejects a “hunting” model in favor of growing its own small businesses, providing supportive services and planning assistance. Its success has inspired pilot projects in several states, including Florida, Iowa, Kansas and Louisiana. The Colorado legislature is currently considering a statewide pilot project.

Economic gardening tends to focus on companies that are well established but ready to move into a growth phase. Many efforts to foster and develop new businesses fall under the rubric of “localist incubation.” My University of Massachusetts student Joseph Costello just completed an undergraduate honors paper on this topic, including a detailed account of the efforts of the Franklin County Community Development Corporation in nearby Greenfield, an area that includes many small farms growing high-quality organic produce.

Their Western Massachusetts Food Processing Center offers food entrepreneurs an industrial kitchen space meeting federal standards for commercial food production, as well as large refrigeration and storage units, and packing machinery. One of its success stories is Real Pickles, a company that supplies high-quality naturally fermented products to about 300 local stores. In business for 11 years, with a current staff of about 12, the company just announced plans to transition to a fully worker-owned cooperative model.

Promotion of worker-owned cooperatives is a way to create entrepreneurs and jobs at the same time. The Evergreen Cooperatives of Cleveland represent a stellar example, recently called out by the Federal Reserve Board member Sarah Bloom Raskin as an effective model of local economic development. A similar effort is on the verge of starting in Springfield, Mass.

States and cities have carried out a variety of other efforts to help small businesses grow. But the level of public investment in such efforts seems tiny compared with the amounts spent on incentives for large companies to relocate. The governor of Texas may dream of winning jobs from California, but the country as a whole would benefit more from the creation of new jobs.

It would be interesting to estimate what $70 billion to $80 billion in subsidies to economic gardening could yield, relative to economic hunting.

Mr. LeRoy explains that the nonprofit organization Good Jobs First has begun a study of relative spending on subsidies for small versus big businesses. In the meantime, he asserts, “Small business groups should put their shoulder to the wheel on state economic development policy reform.”

The jobs they could create, after all, would be their own.

Article source: http://economix.blogs.nytimes.com/2013/05/13/the-care-and-feeding-of-small-business/?partner=rss&emc=rss

Oil Chiefs Lash Out Against Tax Proposal

 Rex W. Tillerson, chief executive of Exxon Mobil, called the proposed tax changes “misinformed and discriminatory” as well as “counterproductive.” He added: “By undermining U.S. competitiveness, they would discourage future investment in energy projects in the United States and therefore undercut job creation and economic growth.” 

His remarks came at a hearing of the Senate Finance Committee on a proposal from Democratic senators to end tax subsidies for five oil companies: BP, Exxon Mobil, Shell, Chevron and Conoco Phillips. Except for BP, which saw its profit fall because of the costs of the gulf oil spill, the companies’ first-quarter profits rose sharply, with Exxon reporting a 69 percent rise in quarterly profits.

The proposal, from Senators Robert Menendez of New Jersey, Sherrod Brown of Ohio and Claire McCaskill of Missouri, would use the money saved to reduce the federal deficit. In announcing the legislation, Mr. Menendez said earlier this week that “we simply can’t afford to keep giving away billions in taxpayer handouts to oil companies that are doing nothing to help lower prices.”

A group of Democrats from the Finance Committee wrote to the oil executives earlier this week, effectively urging them to unilaterally renounce the subsidies, an action that seemed unlikely.  “We urge you to take this opportunity to publicly admit that, given your companies’ prodigious profits, you no longer need taxpayer subsidies,” the letter said.

The now-intertwined issues of gas prices and the federal deficit have taken on such angry undertones that the hearing was expected to be something of a showdown.

 By linking the two volatile issues, senior Democrats said earlier that they hoped to press Republicans to back the measure or explain their refusal to taxpayers facing the increasing burden of high gas prices. 

But many Republicans, along with Democratic senators from energy-producing states, appear sure to oppose the plan, and Democrats will probably have difficulty obtaining the 60 votes needed to overcome a filibuster. One oil-state Democrat, Mary L. Landrieu of Louisiana, said this week that oil and gas subsidies account for less than 13 percent of all United States energy subsidies.

The ranking Republican on the committee, Senator Orrin Hatch of Utah, suggested that Democrats were playing a cynical game, seeking to blame oil companies while, he asserted, intending to raise gasoline prices in order to reduce consumption.

“So while the American people ask Congress to do something about high gas prices,” he said, “the response of Democrats is to rail against oil executives, to mask the fact that their policy is actually to make the price at the pump more painful.”

He called the hearing a “dog and pony show” and displayed a blown-up picture of a dog riding a pony, to make the point that the hearing was just a chance for Democrats to score political points, without doing anything about high gas prices or a sensible energy policy.

Marvin E. Odum, president of Shell Oil Company, argued Thursday that high oil prices result not from oil companies’ greed but from an ever-changing confluence of political, economic and climatic factors. “No one person, organization or industry can ‘set’ the price for crude oil,” he planned to say, according to advance remarks. The resumption of world economic growth, and the weakness of the dollar — the currency used in oil transactions — were now driving up prices, he said.

Senate Democrats, however, were not the only ones adding to pressure on the oil companies. President Obama said in his weekly address that while he had no problem with any company reaping the rewards of success, “I do have a problem with the unwarranted taxpayer subsidies we’ve been handing out to oil and gas companies — to the tune of $4 billion a year. When oil companies are making huge profits and you’re struggling at the pump, and we’re scouring the federal budget for spending we can afford to do without, these tax giveaways aren’t right. They aren’t smart. And we need to end them.”

The hearing, which started at 9 a.m. Eastern time, can be viewed on the committee’s Web site.

John M. Broder contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=db6688b9e99f87132f62d2e1813b14b8