PAtownhall.com
Pennsylvania's Marketplace of Ideas
Pennsylvania's Marketplace of Ideas
PAtownhall.com
Pennsylvania's Marketplace of Ideas
Pennsylvania's Marketplace of Ideas
by Benjamen Ober
Time and time again, government subsidies for private investors have shown themselves costly, inefficient, and unethical, yet the General Assembly and Governor Rendell continue to push corporate welfare for political gain. One of the more recently proposed corporate welfare projects is a new cargo airport in Hazelton, Pennsylvania. Instead of being cleared for takeoff, this project should be permanently grounded.
The new airport is projected to cost $1.6 billion, which includes an estimated $250 million from state taxpayers. The project's private investors, Gladstone Partners, argue that the airport will fill cargo demands larger airports are struggling to meet. In addition, they claim the new airport will revitalize the economy of Hazleton by creating 5,548 local jobs and 161,000 indirect jobs through the estimated $17.1 billion in revenue generated from the cargo business.
The cargo airport sounds like a profitable project. So why do taxpayers need to kick in a quarter of a billion dollars into this money-making enterprise? The reason is that both Gladstone Partners and local officials know the deal is a financially untenable project, yet doling out public money advances their private interests.
First, political supporters of the airport are guilty of cherry-picking details from a state-commissioned study in order to make the cargo airport sound like a good idea. The study notes that without the commitment of a major carrier, the cargo airport is almost a guaranteed failure. Yet America's three largest carriers—FedEx, UPS, and DHL—have all declined or expressed no interest.
Indeed, the study says, "Hazleton's best prospective hope for an integrators regional hub is UPS ... However, discussions with UPS found the carrier 98% confident its long-term need would be addressed [in Philadelphia]." In other words, Hazelton could receive a host of economic benefits, but the best case scenario of realizing those benefits is a 2% chance of stealing business from another Pennsylvania community.
Second, economic literature shows that the promises of new jobs from government construction projects are illusionary. Research by Minnesota State University economist Phillip Miller found that that government building projects result in job shifts, not job creation. In other words, the redistribution of wealth from taxpayers to private developers does not create jobs, it only moves jobs around.
George Washington University economist Richard Green's study, "Airports and Economic Development," challenges the prevailing notion that airports lead to economic growth. Dr. Green argues that airports are a sign of economic vitality, not a cause of growth. This supports the conclusion of Brookings Institution economist Clifford Winston that government-funded "microeconomic polices ... fail to enrich human capital, improve market efficiency, and spur innovation."
Grant Gulibon, formerly a senior policy analyst with the Commonwealth Foundation, noted in a 2002 study, "Budget Basics: Pennsylvania's Economy Loses When Policymakers Try to Pick Winners," that states with the highest government-directed economic development spending have experienced lower population growth, lower job growth, and lower income growth compared to states with less government-directed economic development spending. Unfortunately, the lessons of Gulibon's findings are generally ignored by Pennsylvania public officials—explaining why corporate welfare expands yearly as the state economy lags behind the rest of the nation.
The reason projects like the Hazleton airport continue is that corporate and political powerbrokers benefit from the taxpayer subsidies. Elected officials (notably state Rep. Todd Eachus) benefit politically by bringing home pricey construction projects to their local districts. Gladstone Partners benefits from corporate welfare subsidies to pad their bottom line and protect themselves from financial risk. This is nothing new for Gladstone founder Robert Powell, who has a history of profiting from taxpayers and is currently under investigation by the FBI and IRS for corruption and white collar crimes.
The tragic irony of the Hazleton airport is that elected officials are raising the tax burden on job creators and taking spending decisions out of the hands of citizens and real job creators—all in the name of "empowering" the local economy of northeastern Pennsylvania.
Citizens should not be fooled. Both economic theory and practical experience have demonstrated that corporate welfare does not work. The surest way to stimulate business growth, create jobs, and provide higher incomes is through less government intrusion into the economy. It is time to ground corporate welfare subsidies and clear for takeoff the proven means of promoting economic prosperity.
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Benjamen B. Ober, a student at Duke University, is a research intern with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.
