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Thursday, September 22, 2011

Poll Results on Electrolux in Memphis

Thanks to everyone who took part in the poll: How likely is it that Electrolux will be in Memphis in 15 years? Here are the results.

0-25%:     11 votes, 65%
26-50%:     5 votes, 29%
51-75%:     1 vote, 6%
76-100%:   0 votes, 0%

Personally, I don't think the likelihood of Electrolux sticking around is very high. Obviously, Memphis is a great distribution hub -- think FedEx -- but this is first and foremost a manufacturing operation. Electrolux has shown it disavows any responsibility to stand by its workers, even in Sweden, even in the CEO's home town. Therefore, my vote would have been 0-25%, and I think the chances are pretty close to 0.

Wednesday, September 21, 2011

Yes, $11 million per job is possible, and a record

I posted on August 29 that it appeared that Sempra Energy had received $55 million in federal tax credits and Nevada incentives for a solar generation facility in Boulder City, Nevada, to just create five jobs. I wondered if this were even possible.

In the course of working to update a table of the largest incentives in the U.S. for an academic article, my research assistant found a website of Department of Energy loan and loan guarantee programs that shows how many jobs each recipient was expected to create. It turns out that solar generator Fotowatio Renewable Ventures, Inc., which received a $45.6 million loan guarantee, will create just four jobs. Granite Reliable's wind generation facility, which received a $135.8 million loan guarantee, will create just six jobs. Note that a loan guarantee does not have a subsidy value equal to its face value, but much less: essentially it is equivalent to what it would cost to obtain such a guarantee on the open market, but that is difficult to determine. I will not attempt this calculation here.

But these figures show that Sempra could indeed just create just five jobs for its Copper Mountain solar generation project, especially since it was adjacent to an existing facility. Thus, it appears that Sempra's subsidy package really does come to $11 million per job. To the best of my knowledge, this is the first time a project has cracked $10 million per job. Obviously, energy is the point of this subsidy, not jobs, but it is still an amazing number. Using a different measure called aid intensity, we find that the subsidy equaled 39% of the $141 million cost of the facility. That is a high intensity, but hardly off the charts. A comparison with aid intensities in the European Union would be useful, and I hope to be able to do that soon.

Update: Sempra Energy, the recipient of this subsidy, has one campaign contribution show up on the Open Secrets website for the 2008, 2010, or 2012 election cycles: $2500 to the San Diego County Republican Central Committee . Nevada Governor Sandoval was there for the ribbon cutting, since Nevada state and local governments contributed $12 million in subsidies for this project.

Historical Notes on Class Warfare

"This is not class warfare. It's math," President Obama said on Monday. There is an important element of truth to this but, as Paul Krugman points out, there has been an "actual class war that has taken place over the past 30 years — namely class warfare for the rich against the middle class." He points to four major elements to this: tax cuts for the rich; a decline in the inflation-adjusted minimum wage (which peaked in 1968 at $10.04 in 2010 dollars); union-busting; and the deregulation of financial markets.

In fact, the war on the middle class goes back even further than that, before President Reagan's crushing of the air traffic controllers' strike, even before he came into office. Douglas Fraser, President of the United Auto Workers, identified a "one-sided class war" in 1978, when he resigned from the "Labor-Management Group" that unofficially advised President Carter. I want to quote at length from this letter, because many of the issues he pointed to then are still with us today.

I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war today in this country—a war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society. The leaders of industry, commerce and finance in the United States have broken and discarded the fragile, unwritten compact previously existing during a past period of growth and progress....

 The latest breakdown in our relationship is also perhaps the most serious. The fight waged by the business community against that Labor Law Reform bill stands as the most vicious, unfair attack upon the labor movement in more than 30 years. Corporate leaders knew it was not the "power grab by Big Labor" that they portrayed it to be. Instead, it became an extremely moderate, fair piece of legislation that only corporate outlaws would have had need to fear. Labor law reform itself would not have organized a single worker. Rather, it would have begun to limit the ability of certain rogue employers to keep workers from choosing democratically to be represented by unions through employer delay and outright violation of existing labor law....

This is, of course, a good description of the state of labor relations today. At the time, one major example Fraser had in mind was J.P. Stevens, a textile maker and serial National Labor Relations Act violator. The movie "Norma Rae," for which Sallie Field won "Best Actress" in 1979, depicts the struggle against Stevens.

We are presently locked in battle with corporate interests on the Humphrey-Hawkins full employment bill. We were at odds on improvements in the minimum wage, on Social Security financing, and virtually every other piece of legislation presented to the Congress recently....Even the very foundations of America's democratic process are threatened by the new approach of the business elite. No democratic country in the world has lower rates of voter participation than the U.S., except Botswana. Moreover, our voting participation is class-skewed—about 50 percent more of the affluent vote than workers and 90 percent to 300 percent more of the rich vote than the poor, the black, the young and the Hispanic. Yet business groups regularly finance politicians, referenda and legislative battles to continue barriers to citizen participation in elections. In Ohio, for example, many corporations in the Fortune 500 furnished the money to repeal fair and democratic voter registration.

Examples of the latter today are too numerous to mention them all. But we obviously have the Koch brothers financing conservatives all over the country, with restrictions on the right to vote proposed or passed in states like South Carolina, North Carolina, Maine, Wisconsin, and others. Class war from the right is alive and well, but now it challenges science and math as well as labor and the middle class.

Sunday, September 18, 2011

Wooing of Electrolux by Memphis Highlights Flaws of Economic Development Subsidies

The Commercial Appeal in Memphis has just published a great series on the subsidized relocation of Electrolux from a suburb of Montreal to Memphis. Electrolux is closing a 1,300-worker facility in L'Assomption, Quebec, and has pledged to create 1,240 jobs in Memphis, receiving a subsidy package worth at least $188.3 million for the $190 million plant there. Electrolux is getting almost $200 million to destroy 60 jobs in North America. Even if we only think about Memphis, we are looking at an "aid intensity" of 99% of the investment or $152,000 per job.

This is a bad deal on its face, even if Electrolux were not cutting 1,300 unionized jobs elsewhere. One way to see this is to understand that $152,000 per job is within the range that automobile assembly plants typically receive in incentives. It is unlikely that this oven plant has nearly the possibility of spurring co-location from suppliers that an auto plant does. Moreover, auto plants pay more, and they do not receive subsidies equal to 99% of the investment, but more like 33%. Plants is Mississippi, Alabama, Texas, and Georgia all fell in this range since 1999; only Tennessee paid more (46% of the investment, about $225,000 per job), for Volkswagen in Chattanooga. These numbers were calculated along with data I presented in my book, Investment Incentives and the Global Competition for Capital

It gets worse. As the paper relates, this subsidy package was negotiated in secret, and the full amount of the incentives were not disclosed to the public; even now, the newspaper has been unable to obtain all the details that likely will add to the cost.

In addition, the state agreed to a clause in the deal that prevents it from getting its money back if Electrolux fails to deliver on the 1,240 jobs or closes. More and more states are using such "clawback" provisions in incentive deals; even Tennessee has such a clause in its contract with Volkswagen. However, since that 2008 agreement, the state has not included clawbacks in deals with Hemlock Semiconductor and Wacker Chemie, according to the newspaper.

According to another story in the series, the workers in Quebec, who were represented by the International Association of Machinists union, earned the equivalent of $18.92 per hour, whereas the workers in Memphis will earn $14.65 per hour. So Electrolux was able to get rid of 60 workers, cut the wages of the jobs they kept by more than $4 per hour, get a more central distribution location, and a free factory courtesy of state and local governments in Tennessee. At a minimum.

To top it off, we have the requisite commissioned studies showing how well Memphis and Tennessee will do if the plant employs 1,240 people for 15 years. One of the reports did not even analyze the costs at all.

Let's review all the things wrong with this deal: Negotiated in secrecy, check. Bad cost-benefit analysis, check. Overpaid relative to what other states have paid for better projects, check. No money-back guarantee, check. Job piracy, check.

One booster of the deal complained that no one was writing about how great this deal could be if there were six or 17 suppliers in five years. But a worker losing his job in Quebec asked what Electrolux would do if Mexican officials offered a big incentive package along with a wage rate that is currently about $2.18 per hour.

What do you think? See the poll to the side.