No Santa Claus in Appalachia

No Santa Claus in Appalachia Bill Bishop Americans think anything's for sale. Fame, good looks, freedom—they all can be bought. And, by God, so can prosperity. That is the attitude these days, as states and cities have committed billions of dollars (in roads, sewers, grants, and taxes foregone) to attract new business to their jurisdictions. It is a national free lunch, a $253million entree for the Mercedes company in Alabama, a $163 million finger sandwich for Disney in Virginia and, in Kentucky, a full-course meal for a variety of companies at a potential cost nearing $3 billion. And the portions are getting bigger. Nissan received a $11,000 per job package when it moved to Symrna, Tennessee, in 1980. Last year, Alabama ladled close to $200,000 per employee for Mercedes and Kentucky granted tax exemptions worth a maximum of $350,000 per job to a small Canadian steel maker. The easy explanation is that this is a modern war between the states, a test of manhood between governors. It's that and more. The incentives given so freely by the states aren't just the result of opportunistic politics. There is in all these high-bid battles a sense that our policies and politics are stuck. We don't know what makes us rich—as an economy or as a people. So we do what we've always done, even if it doesn't make complete sense. As a result, states flounder. They look for a quick solution. And the quickest way to wealth, they think, is also the oldest. They buy what they can—and then steal the rest. The Mercedes deal in Alabama is the latest, largest example of this attempt to purchase prosperity. But it is by no means new. The use of low taxes and government largesse to lure industry is an old Southern tradition. Mississippi pioneered the technique in the 1930s, with a Bill Bishop is a columnistfor the Lexington Herald-Leader, and before that was a news reporterfor the Mountain Eagle in Whitesburg, Kentucky. At one time he and his wife owned and operated a weekly newspaper, The Bastrop County Times, in Smithfield, Texas. program it called BAWI, Balance Agriculture With Industry. BAWI opened the state's purse to out-of-state industries. The state offered Northern business low taxes, free land, and cheap labor. In exchange, the state won Northern-style industry and jobs. The thinking behind BAWI and its progeny was, and is, simple—and, therefore, powerful. Rural, nonindustrial regions need a jumpstart into a modern economy. If a state can reduce the cost of doing business within its borders by lowering taxes, the cost of land and average wages, it can gain an advantage over its industrialized neighbors. That advantage will be enough to attract industries from higher-cost regions. Any job is better than no job, developers said then and now, so states accept low-wage businesses. That's okay, the theory goes, because this is a natural progression. Higher-wage jobs come only after low-wage development . The walk-before-you-can-run analogy receives heavy use by these developers. BAWI was copied, mostly by Mississippi's Deep South neighbors. By the mid-1960s, five of the seven states most generous in handing out tax exemptions were from the South. From the beginning, the program was a loser. W. J. Cash, in his 1941 book The Mind ofthe South, summarized the effects of BAWI and its imitators. "Through its own connivance and at its own desire," Cash wrote, "Dixie was now being worse exploited than even the tariff gang ever dreamed of. What with free sites and the waiving of taxes, about all it was getting out of the removal of the New England mills was the stingy sums paid in wages, which were in turn paid out to the merchants —this and the patriotic exultation of the conviction that it was somehow making the land rich and great." Cash was dead-solid right. Tax abatements for the rural South weren't just a benign policy choice. At times they made things worse. Arkansas, for example, traded low taxes for low-wage jobs in the...