Why corporations blackmail government–because they can

If Boeing wants to build the 777X jetliner in the state of Missouri, the state will have to shell out $1.7 trillion, and St. Louis County possibly a similar amount. Why does Boeing ask for so much? Because they can.

Initially, Boeing preferred to build the airliners in its home base of Seattle, WA, but when they had trouble reaching a labor accord with the Machinists Union, they started shopping the massive production facility to a dozen states. The states have lined up like ducks in a row. They all seem to have a cup in hand, but at their feet is a money bag with trillions of dollars. Is this a way to run a government?

We know that Boeing, like virtually every other private corporation, will act in a rational manner to achieve its primary goal – to make money. If they can seek tax concessions from various levels of government, they will do so. If they can seek concessions from private contractors, they will do so too. But one thing they cannot do is force suppliers and vendors to sell their wares for less than cost. While it’s difficult to calculate the real costs of governmental tax concessions, we know that the taxing entity rarely comes out ahead.

Suppose that Boeing felt that the electrical rates in Missouri were too high. Could they get the local supplier, Ameren Union Electric, to give them a special rate? It is true that Boeing could likely get a concession because of the volume that they purchase. However, this rate would be not be lower than that of any other institution that size such, as a hospital complex or a large university.

A mega-company like Boeing tries to bully state and local governments because they are the weak links in the chain. They are most vulnerable to blackmail. But is this healthy for our society? Governments are forced to compete for prizes like as the location of Boeing plant with the awareness that the prize will go to the highest bidder – the state in which the highest amounts of tax breaks are conceded.

Yes, the placement of a mega-plant in their state can be a boon to the economy, with thousands of new workers earning wages and using that money to purchase homes, buy groceries, spend entertainment dollars and much more. But when trillions of dollars are lost in the transaction, the public suffers because its coffers become dry, and the taxing authority can no longer pay for needed public services.

It makes sense for any corporation to shop around. It wants to be closest to its suppliers, be in an area where they have a trained and skillful work force, and where the quality of life will be good for executives and employees alike. On a purely financial level, it makes sense for the corporation to locate in an area that has a lower cost of living. This will mean that they can pay employees less, and the cost of everything from homes to entertainment is less. That comes from a fair playing field. But today’s playing fields are hardly level, when each state is competing to see how much it can give away to a prospective new company that locates within its jurisdiction.

How can this be remedied? Only through the auspices of the federal government, including the courts. It would not be easy, but if the feds could keep states from competing against one another through tax giveaways, corporations could no longer blackmail them, and taxpayers would not be robbed. Something to think about.