A recent decision by the World Trade Organization, and an upcoming one, could have major implications for the budgets and economies of our 50 states -- effects which should be welcomed by progressives who are typically critical of that secretive regulatory body.
United States trade officials and politicians are praising last week's preliminary ruling that certain European subsidies to Airbus violate international trade law. (A final ruling will likely come sometime next year.) It is seen as a boon to US-based Boeing, but the celebration may be premature -- a forthcoming decision will determine whether billions of dollars in government aid to Boeing is also illegal. We should hope the WTO sides with Airbus and the E.U. this time: These grants and tax breaks are busting state budgets, at a time when every last penny is precious. There's a war among the states to lure in businesses; our federal government should mediate it, but it could be the WTO that forces a cease-fire.
Washington State was the long-time home of Boeing, and the state's elected officials have paid due deference to that behemoth of airplanes and military machinery for generations. Senator Henry "Scoop" Jackson earned his nickname as "The Senator From Boeing" -- and worse ones -- for doing Boeing's bidding in the halls of Congress.
More recently it was Gary Locke, Washington's governor from 1997 to 2005, who worked hard to minister to the needs of the hometown corporation. Since being appointed by President Obama as secretary of commerce, he has an even higher perch from which he can do so.
Locke made a telling comment about corporate subsidies at this summer's National Conference of State Legislatures. Asked by a reporter if legislators had complained to him about the vicious competition between states for businesses, and the billions of dollars localities have conceded in tax revenue to entice their presence, he answered, "I really think that's a states-rights issue ... I understand companies wanting to move, looking for a better business climate."
Large corporations have become adept at pitting state and city governments against each other to secure ever bigger budget-busting tax concessions and subsidies, ever threatening to locate their facilities in some more 'business-friendly' state.
In fact, many fellow state legislators and I were lamenting these wasteful tax breaks, the race to the bottom they have precipitated, and the harm they have done in this era of budgetary crises. More than ever, we need those squandered dollars for schools and public works and social services. It is unfortunate that our concerns did not reach the Secretary's ear. While disappointing, Locke's reply to the reporter's query was not surprising: As governor, he oversaw perhaps the greatest boondoggle (so far) in the history of tax giveaways to corporations.
It damaged local pride when Boeing moved its corporate headquarters from Seattle in 2001, holding Washington State hostage while securing $60 million in tax breaks and subsidies from Illinois and Chicago to relocate.
Increasingly sophisticated at extracting tax breaks from its easy prey, in 2003 Boeing spread word that it would manufacture its new 787 mega-jetliner in whichever state offered it the deepest subsidy. Stricken with Stockholm Syndrome, Washington State, under Governor Locke's leadership, ponied up a projected $3 billion to secure the few-thousand jobs promised with the factory, out-bidding about 20 other states. (In practice, it appears that the subsidy package will cost perhaps two-thirds of what was anticipated -- while creating an even smaller fraction of the promised jobs.) The 787 has yet to leave the ground. The Washington State tax break plan is now a key plank in the E.U.'s complaint against the U.S. and Boeing.
It is one thing to support such tax breaks as the executive of a single state, recently spurned by a major employer, desperate for new jobs, and wanting to save face. States are trapped in a paradigm wherein it seems to make sense to lure in new corporations, or hold onto old ones, by dangling goodies in front of them -- there's nothing more likely to win a potential vote than securing or saving the job of he or she who shall cast it. A solitary governor ought to lament that corporations regularly hold him or her over the barrel, pitted against governors of neighboring states; it is tragic, but understandable, when he or she succumbs to such pressures by forking over precious public funds.
But a Democratic commerce secretary with a birds-eye view of these United States, and a responsibility to act in the interest of all of its citizens, should take a very different stance. As states swipe employers from each other with tax breaks, businesses are moved around and countless tax dollars are lost, but on the net, few new jobs are created. The Boeing plant would be built somewhere, no matter what. If we care about all Americans equally -- as should any cabinet secretary -- it's clear that it would have been better for the public if it had been built without a mammoth subsidy, even if not in Washington State. The same phenomenon, on a somewhat smaller scale, manifests countless of times over, as states and cities compete for factories, stadiums and their sports teams, and corporate headquarters. Public coffers throughout the nation are poorer for it.
Locke suggested such interstate competition is a matter of "states' rights." One could argue, however, that it's really a matter of interstate commerce, and hence under the purview of the federal government; the Constitution's commerce clause empowers Congress to regulate commerce "among the several states." Unfortunately, the courts have made it unclear who, if anybody, has standing to force a ruling on the matter.
Regardless of its constitutionality, the phenomenon is a destructive one. Rather than encourage the practice, the secretary of commerce should facilitate cooperation among the states -- via federal legislation or an interstate compact -- to reduce corporations' abilities to extract subsidies by playing states and their residents off of each other, as states sprint past one another, into ever deeper deficits.
We ought to celebrate the WTO's recent decision not because it hurts Airbus and Europe, but because it reduces pressure to cede public money to corporate giants like Boeing. A ruling against Boeing in coming months could circumvent a complacent administration and commerce secretary and force a reorientation of tax policy that will leave cities and states across our country better off.