Normative Narratives

Economic Outlook: Public-Private Partnerships, for Better or for Worse

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The following blog combines two previous topics discussed here at NN–Public-Private Partnerships (PPPs) and State subsidies to private corporations. While both technically represent a “pubic-private partnerships” (both public and private money going towards the same goal), that is where the similarities end.

Public-private partnerships, as they are intended, leverage public (tax-payer) money to raise private sector money for a cause. These partnerships often raise money for innovative purposes, in order to help cultivate new industries which indirectly lead to future jobs and tax-revenue. Universities, as centers of R & D and learning / training, also have a role to play in PPPs teaching people the skills needed to take part in this innovation. An example of a PPP that functions this way are President Obama’s recently announced manufacturing institutes.

With less than two weeks till his State of the Union address on Jan. 28, Mr. Obama hastened to make good on a pledge from last year’s speech, announcing the creation of a high-tech manufacturing institute aimed at creating well-paying jobs.

Speaking to 2,000 students at North Carolina State University, which is leading a group of universities and companies that established the institute, Mr. Obama said it was the kind of innovation that would reinvigorate the nation’s manufacturing economy.

This is the first of three such institutes the White House plans to announce in the coming weeks. It will be financed by a five-year, $70 million grant from the Department of Energy, which will be matched by funding from the consortium members, including the equipment maker John Deere and Delphi, an auto-parts maker.

The institute will use advanced semiconductor technology to develop a new generation of energy-efficient devices for automobiles, consumer electronics and industrial motors. Earlier Wednesday, Mr. Obama toured a Finnish company, Vacon, that makes drives used to control the speed of electric motors, to increase their energy efficiency.

Confessing that there was “a lot of physics” in the company’s presentation, the president seemed most interested in which of the components were made in the United States.

The announcement Wednesday of the new manufacturing institute showcased the White House’s determination to press ahead with jobs programs, with or without Congress. Mr. Obama said he was determined to make 2014 “a year of action.”

But it also laid bare the limits of Mr. Obama’s authority, since Congress has stymied his more ambitious proposals that require legislation. In last year’s State of the Union address, the president announced a $1 billion plan, modeled on one in Germany, to create a network of 15 institutes that would develop new industries.

But setting up 15 institutes would require congressional authorization. So last year, Mr. Obama narrowed his focus to establishing three institutes using existing funds and executive authority. At the same time, he increased his long-term goal to 45 institutes over 10 years, while acknowledging this would require congressional action.

To be clear, PPPs are not a call for charity–they represent mutually beneficial and sustainable economic arrangements. Businesses need future employees and customers, governments need non-dependent tax payers, a Universities future success is linked to it’s graduate employment rate, and people need jobs. If these projects prove successful, it will be difficult for congress to block the programs expansion.

Subsidizing individual corporate initiatives, on the other hand, does not lead to many of the positive externalities associated with PPPs. Unlike traditional PPPs, it does not give the government any ownership of a project–a company is free to leave for greener pastures if it receives a better offer after the terms of an agreement end, leaving a municipality with nothing but a large bill. Furthermore, this practice represent one aspect of a “race-to-the bottom” that pits the private sector against workers and society as a whole:

Boeing is a company that pits state governments against one another to compete for larger subsidies and forces communities into a race to the bottom to see who can fight unions and lower wages the fastest. It is a prime example of 21st century business in the United States. As a result of these tactics, American workers, both unionized and independent, have little choice but to accept the lowered living standards their employers offer as conditions for their doing business.

This practice has become common. In the last year alone, 13 states granted corporate subsidy packages of over $100 million to companies like Toyota, Yokohama Rubber, Boeing and MetLife. Many of these subsidies are not for job creation but for job relocation — to lure business over to one state at the expense of its friends and neighbors.

The story of Boeing is an example of how ruthlessly U.S. businesses use the needs of some workers to justify lowering the standards of others, to the ultimate detriment of both.

Boeing’s strategy is a profitable one. It saves the company money, reduces wages and benefits for workers and ultimately absolves the company of any financial responsibility to take care of its retirees. As a result, production workers, regardless of their state, are left with a smaller slice of a bigger pie. This is, of course, the point: “Now that we have internal competition (among production sites), we’re going to get much better deals,” Boeing CEO Jim McNerney explained in May.  The deals aren’t only on the price of labor, but on the size of subsidies, which states and municipalities must fit into their budgets by either raising taxes or cutting services.

Unless American workers miraculously rediscover collective bargaining or begin to lay claims on the government to promise what organized labor once provided, then their lives will continue to be shaped by companies like Boeing. Their wages will be taken out of their pockets, their tax money out of their schools and roads…

These initiatives, unlike PPPs which are aimed at innovation and job creation, only benefit a single corporation. Furthermore, these projects often amount to job relocation, as opposed to job creation. There are many good reasons for subsidies to exist; for example, subsidies can help promote “infant industries” and to reward positive externalities. However, giving tax-payer money to already profitable companies in order to lure jobs from one municipality to another is not one of them. Private sector job creation is not charity, it is a cost of doing business that companies would face regardless of a subsidy.

The problem is this country has empowered corporations at the expense of workers and societies as a whole. Don’t believe me? There is ample evidence of the different “recoveries” experienced by the “haves” and the “have nots” in America (spoiler: the wealthiest have done great post-recession, while masses have seen declining wages and standards of living). There are no easy fixes to this reality; only by championing workers rights, increasing minimum wages, and ending the municipal “race-to-the-bottom” (perhaps by creating a federal oversight board with the exclusive power to negotiate private-sector subsidies, based on needs-based C-B analyses) can we hope to take America back for the average working man / woman. PPPs can play a positive role in this transition, if they are used to spur new investment and industry. On the other hand, taking money out of public programs and giving it to private corporations will only exacerbate the divergence between the “haves” and the “have-nots”.

It is true that we face a depressed labor market; in such an environment, people are afraid to speak up in fear of losing whatever job they do have. On a larger scale, politicians are unwilling to take any stand that may be met with retaliation by corporate interests. This fear is being used against the American public by corporations to further push down their costs even as they realize record profits. If we can overcome this fear, and challenge the bellicose rhetoric of private sector interests, we can begin to realize a redistribution of wealth which would benefit not only individuals but our economy as a whole.

It is up to Americans to decide what role we want the private sector to play in our economy, and elect leaders who will fight for those goals. Will we support corporations that share in the costs of sustainable human development, or will we continue to reward corporations that value short-term profits above all else?

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3 thoughts on “Economic Outlook: Public-Private Partnerships, for Better or for Worse

  1. Pingback: Economic Outlook: In Chattanooga VW Union Vote, It’s One Version of “Business As Usual” vs. Another | Normative Narratives

  2. Pingback: Economic Outlook: De Blasio Administration Rebuffs JPMorgan; Sky Doesn’t Fall | Normative Narratives

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