by Christopher Westley
It’s an old story. A manufacturing plant in a small town announces an impending closing, threatening to devastate the local economy and the many families that depend on it. Panic ensues, and politicians intervene. There’s a sense of injustice in the air. Can anything be done?
Although this scenario played itself out many dozens of times in the area now known as the Rust Belt, it was set in motion last week in Northwest Alabama with the announcement that International Paper planned to shutter its largest manufacturing facility in the world — a massive, 42-year-old paper mill in Courtland with more than 1,100 employees, including maintenance workers earning wages that range between $20 to $32 an hour. These were good jobs — if you could get into the union and if paper demand was sufficient to keep those workers productive enough to justify the union wage.
The problem is, the demand fell as communication became more electronic, causing a business model that fit the 1970s to become unworkable in the 2010s. There is much that should be learned from this event, and as much as I feel for the people in Lawrence County whose lives will be upended by it, I’m afraid the lessons will not be heeded.
The first lesson applies to the nefarious influences of the economic development offices that exist in every state and compete with each other for large manufacturing employers. This state’s plucky EDO, the Alabama Development Office, is considered by many to be the gold standard in this area, leaving states like New York and California in the dust while enabling firms like Airbus, ThyssenKrupp, Mercedes, and Hyundai to establish major operations in the state’s politically favored regions.
The trade-off is that the millions of dollars and incentives that go to these firms come from conscripted funds that would otherwise be directed privately in the form of investment or consumption. These unseen effects include investment projects foregone — perhaps in Lawrence County itself — in order to fund the EDO’s redistributive policies. Forcing taxpayers to finance economic development, as opposed to allowing savers to direct their resources to projects they believe will reflect their highest valued use, highlights the contrast between violent means of the government and the peaceful means of the market. Crony operations such as economic development offices exist at the expense of the latter.
Adding insult to injury, EDOs also create a sense of entitlement, even on the part of those entities not favored by the political players who run them. We’re seeing this in Alabama, where workers and politicians have called for the state to intervene to stop International Paper from shutting down, arguing that if conscripted capital partly financed the Honda plant in Lincoln, why can’t it also save paper jobs in Northwest Alabama? They forget, however, that International Paper does not exist to maximize employment or wages but to satisfy consumer demand, and that corporate graveyards are filled with firms that lost their focus on the latter.
The second lesson applies to the union labor force that enables their employees to earn more in wages than their individual productivity contributes in the form of revenues to the firm. When this happens, firms lose money by employing such labor, and since labor laws overwhelmingly support the worker over management, companies often have no recourse other than to shut down operations when economic forces turn against them.
Would the Courtland plant remain open if workers were allowed to accept reduced hours or wages more in line with the demand for its output? We’ll never know.
The last lesson is that any economy, and especially small local economies, should never become dependent on one or a few employers. The problem is that large, unionized operations such as International Paper’s often have the effect of scaring away capital investment over time.
As a result, economies become less diversified and provide poor work opportunities for future generations of workers. This phenomenon explains not only why International Paper’s arrival in Courtland in 1971 may have proved to be its death knell in 2013, but also why Rust Belts happen in the first place.
How different life might be for International Paper employees today if they had other work options in and around the Tennessee Valley. (The message for possible long-term effects of unionizing labor in Tuscaloosa County is obvious.)
Painful lessons like this one are avoidable when business plans and policies do not violate economic laws, when governments refrain from favoring certain forms of capital or labor over others and when firms remain free to adjust their operations in response to changes in the overall economy. When this is the case, old stories like the one coming out of Courtland will be told far less frequently.
There can be no growth without abolishing huge regulation, huge taxation, and huge political corruption. Basil Venitis, venitis@gmail.com, http://themostsearched.blogspot.com
Corpfare is corporate welfare, such as subsidies, bailouts, and monopolies, granted by government to davajides, pimps of kleptocrats. Corpfare is like steroids, it may look attractive in the short run, but it cripples you in the long run! Corpfare destroys the level playing field that free markets depend on, creates a corrupt relationship between government authority and special interests, transforms corps to corpses, and is unconstitutional. Even loans by government-sponsored entities constitute another form of subsidy. Zombiecorps, zombie corporations, badly in need of structural reform, but kept alive by state subsidies, badly hamper growth. At least four trillion euros are wasted on corpfare worldwide every year.
Anticorpfarists are very interesting. 99% of citizens do not enjoy the special benefits of corpfare. Corpfare is very different from capitalism. In corpfare, government hands out special favors and protections to politically well-connected businesses. The TARP bailouts, Solyndra, and the military-industrial complex are all facets of corpfare.
Capitalism is against corpfare. Capitalism is where the government leaves businesses alone, does not attempt to pick winners and losers, does not stifle competition, does not hand out favors, and does not absolve businesses of liability for their actions. Our mixed economy does not resemble capitalism at all.
It's unfortunate that so many businesses today go to kleptocrats begging for handouts and special favors. The real problem is the kleptocrats who choose to give those favors, at everyone else's expense. We hope anticorpfarists will start to direct their anger away from Wall Street and big businesses, and toward kleptocrats, who have done so much to destroy capitalism and entrench corpfare.
The Fed and ECB keep interest rates near zero and keep buying near worthless assets from banks indefinitely. Ron Paul points out this enables kleptocrats to spend without having to take deficits or the debt seriously and there is every indication they intend to spend with impunity until the system collapses. There are no brakes on the runaway train.
Ron Paul notes the federal debt ceiling law does nothing to limit spending. The ceiling will have to be raised yet again. What is happening in Greece with austerity measures and riots in the street will happen in USA within a decade according to some realistic estimates if Americans do not find some way to fiscally restrain their government.
There is little point in a debate about being entitled aid from fellow taxpayers if the whole system has collapsed. And, with the way our politicians have taken over and mismanaged vast amounts of resources, collapse seems almost unavoidable. Yet the number of Americans who have significant dependency on government is dangerously high, and Ron Paul honestly fears for them.
Worse, corporate welfare is also at an all-time high with no signs of diminishing. The government spends nearly twice as much on corporate welfare than on social welfare. Both parties are equally guilty. More and more, the business sector is learning to rely on taxpayer largesse in one form or another. They used to be solely concerned with providing a better product to the consumer at a better price. Now, success on Wall Street depends entirely too much on having the best lobbyists on K Street. If one includes the employees of private businesses who depend on government contracts, grants or bailouts, there are even more people dependent on government in some way.
Ron Paul says government does not create resources when it taxes people and prints money; it merely redistributes the wealth, while supporting a massive, wasteful bureaucracy along the way. Government is a giant, blood-sucking parasite on our otherwise healthy economy. For too long we have entrusted too much economic power and influence to irresponsible politicians in Washington.
It’s the chaos that ensues after they run the system into the ground that will be so painful for so many people. But realigning our economy with the free market and away from government mandates and handouts must happen in order for it to thrive again. The answer is not to keep asking government to do more. Ron Paul declares the answer is to extricate our economy and ourselves from the grasp of Washington DC as much as possible now, before our dependency becomes our downfall.
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