If it truly is more blessed to give than receive, the governor of Illinois and the mayor of Chicago have just booked their reservations in heaven.
In the state and the city, the spirit of Christmas seems alive and well. But neither economy is doing so hot, and the two leaders' generosity will only make things worse.
Gov. Pat Quinn and the Illinois legislature have approved a $371 million tax-break package that includes more than $100 million for Sears Holding Corp. and the Chicago financial exchanges, which had threatened to leave the state unless they got this deal. Mayor Rahm Emanuel has given Sara Lee Corp. between $5 million and $6.5 million, depending on how many jobs they keep, to move part of its headquarters from the suburbs to downtown Chicago.
Even at this time of year, these are some sort of stocking stuffers. But it's a suitable end to a year that has seen Midwestern cities and states, all desperately needing to create new jobs and stimulate new businesses, throwing multi-billion baubles instead at old companies, many of them shrinking, in deals that seldom add one job to the Midwestern economy.
We've written about this repeatedly -- about Ohio bribing a company to move 15 miles from Kentucky, about Wisconsin and Indiana trying to steal companies from Illinois, about Kansas and Missouri battling each other so fiercely for jobs that some of Kansas City's leading businessmen wrote them both a letter telling them to grow up and cut it out. [See posts on Illinois and Ohio, and Kansas and Missouri]
All the Midwest, including Chicago and Illinois, has many needs, all expensive, if they are going to thrive in the new global economy. These needs include education, infrastructure, venture capital, fiber optics and other information economy investments -- in general, creating the kind of society and economy that will enable the region to succeed economically in the 21st century as it did in most of the 20th century.
A lot of this goes under the name of economic gardening, which means planting your seeds now and reaping the harvest later. The best way to do this is to make it easier for young, small, limber start-up companies to take root and grow into the economic engines that the big old companies were in the past.
The worst way to do it is to keep throwing money at these big old companies, for fear they will pull up stakes and leave. Not that they are insignificant employers: many are still big, if not so big as they once were. But they aren't growing, at least not here. Many are shifting routine manufacturing and clerical jobs abroad, while keeping a smaller headquarters in the Midwest. They are icons of the past but not lodestars to the future.
The problem is that politicians govern short-term, while the real needs are long-term. Quinn won't be around 20 years from now to enjoy the praise and votes of the newly employed and, probably, neither will Emanuel, unless he has inherited the Daley family's political genes. Both get paid and re-elected for cutting ribbons now.
Big companies know this and, in the Midwest, they have begun a campaign that is no more or less than corporate blackmail. Pay us, they say, give us big tax breaks right now, or we're going to move to some other city or state.
It takes political guts to stare down this kind of blackmail and no Midwestern politician has this kind of nerve. Instead, they cave. Which means that other companies are lining up to make the same threats. Everybody knows what's going on, and no one seems able to call the companies' bluff.
In Chicago, Emanuel promised Sara Lee Corp. incentives worth between $5 million and $6.5 million, equivalent to $10,000 per job, for moving 500 to 650 employees of the company's meat business from its present office in suburban Downers Grove to an old building south of the city's central Loop district. The payout is justified, the mayor said, because it will "create good-paying jobs."
It does nothing of the sort. No jobs are created. Instead a few hundred jobs are moved 22 miles. These workers will be the same people, doing the same jobs, but commuting in a different direction. In fact, Sara Lee plans to fire about half of its present staff as part of the move.
The subsidies are the action of a mayor who felt that the health of the city's suburbs has nothing to do with the city itself.
In fact, it appears Emanuel did it just to prove he could. Having denied that the move implied a "battle" with the suburbs, he added, "it implies the DNA of an Emanuel."
Sara Lee promises to rehab its new building, which needs it. But the company's executive chairman, Jan Bennink, said they would have made the move and invested the money whether or not Chicago tax-payers picked up the tab. The incentives, he said, are "important," but "I wouldn't call it a deal-breaker."
The state's incentives went to once-mighty Sears and the still-mighty financial exchanges -- Chicago Board Options Exchange and the CME Group, parent of the Chicago Mercantile Exchange and the Chicago Board of Trade. They were part of a $371 million package of tax reductions, partly for breaks for wealthy taxpayers, mostly for businesses.
The idea seems to be to prove that Illinois isn't as business-unfriendly as the state's critics, especially neighboring states, make it out to be. But a state government awash in red ink, as the Illinois government is, shouldn't be giving away $371 million that could be better used elsewhere.
Illinois gave Sears $250 million twenty years ago to stay in Illinois. The break this time will save the company some $275 million over fifteen years. It had been threatening to move out of the state unless it got these concessions, possibly to Ohio, which had offered the company $400 million to go there.
The loss of the financial markets would be a severe blow to Chicago's economy and image. They've been in Chicago since the 19th century and played perhaps the key role, along with the railroads, in the growth of the Midwestern economy.
But if Chicago needs the markets, the markets need Chicago. The city is a repository of the sort of human capital -- the traders, economists and support services -- that the markets need. A recent example: the Chicago markets pioneered global derivatives trading largely on the ideas of economists at the University of Chicago, a bus ride south of the trading floors.
Would the markets really have left Chicago? Would Sears really have left Illinois? Would any company, in any state, go to the hassle and expense of moving operations and headquarters if they weren't bribed to do so?
No one knows and, at this rate, we'll never find out. Businesses have learned that, in a time of high unemployment, they can whipsaw governments, which will give them what they want rather than be accused of risking jobs.
The only solution is a truce, an agreement between states, cities and counties to end this piracy. Such truces exist in some localities around the Midwest. But a regional cease-fire seems unlikely.
Christmas is supposed to bring peace on earth. I'd be satisfied with peace in the Midwest.
This is so typical. Now they are going to turn on the teachers again and try to take away their pensions. They will say, "The state is broke." I am not optimistic about this country right now. Mr. Longworth wrote a brilliant book about this called "Global Squeeze." I read this years ago, and the things he talked about are all coming true. The final members of the middle class with pensions: teachers, police, and fireman, will now lose their job protection and pensions. Wealthy elites have now received their tax breaks, and now want to destroy the last good middle class jobs. Voters should not go for this. People need to wake up.
Posted by: alan | Friday, December 30, 2011 at 11:55 PM