Sunday, January 27, 2008

How To (And Not To) Grow Iowa's Economy

January 27, 2008, 11:30 a.m., 12:30 p.m.; January 28, 2008, 3:45 p.m.; January 30, 2008, 10:00 a.m.

"Our Quick Take on This Weekend's Stories

The Press-Citizen has a regular Sunday editorial page column called "Our Quick Take on Last Week's News Stories." Editorial, "Our View -- Our quick take on last week's news stories," Iowa City Press-Citizen, January 27, 2008, p. A9.

But its Saturday issue contained so many stories that relate to topics followed by this blog that I've decided we can have an "Our Quick Take on This Weekend's Stories."

The folly of corporate subsidies vs. the sure path to economic development.

We often comment about the folly of injecting taxpayers' money
(in the form of tax breaks, TIFs, infrastructure development, and outright bribery) onto the bottom line of for-profit businesses -- sometimes in general, such as Nicholas Johnson, "Courage, Councillors," Iowa City Press-Citizen, October 3, 2007, and sometimes with specific examples, such as most recently, Nicholas Johnson, "Football, Skating and Corporate Welfare," January 25, 2008 (both Genencor and Burlington's sad mall experience with the disappearing developer).

So yesterday we learned that we must add a couple examples from North Liberty to the long list of disasters following in the wake of such giveaways. Kathryn Fiegen, "N. Liberty looking ahead after closings; Officials discuss what city can do," Iowa City Press-Citizen, January 26, 2008, p. A1.

A company called "Victor Plastics" has begun laying off its 420 workers, following Whirlpool's recent announcement that it is leaving North Liberty -- and its 92 local employees who will be left unemployed.

North Liberty Mayor Tom Salm "said he couldn't remember if any financial incentives were offered to Victor Plastics when it came to the community." However, "North Liberty officials offered Maytag [subsequently acquired by Whirlpool] incentives such as Tax Increment Financing [ a TIF], a tax abatement, construction of the water main and the etension of Jones Boulevard to 240th Street to locate in the community." So it's likely Victor Plastics was similarly bribed in some way.

It's scarcely one day later [Jan. 28] and already we have yet one more very sad story of the "tangled webs we weave" and the consequences of subsidizing for-profit enterprises with taxpayers' dollars: Lee Rood, "An Iowa town's 'gamble on future' stirs concern," Des Moines Register, January 28, 2008.

City Councils: "When will they every learn?"

. . . So how can we more effectively promote economic growth?

By providing the things that really do attract businesses -- as the linked blog entry, above, quotes a Genencor executive as stating its reasons for coming to Cedar Rapids, "
because of its geographic location in the center of the country and its proximity to the fuel ethanol and corn sweetener manufacturing sector."

The Register editorializes this morning,
Editorial, "Make Quality of Life Iowa's Edge," Des Moines Register, Des Moines Register, January 27, 2008, p. OP1. Certainly, that's a valid suggestion.

But much of quality of life, and the things that attracted Genencor, are attractions of geography over which we do not have total control.

A far more universal attraction is the well educated workforce that is dependent on things which we can control.

Iowa has well educated community college and university graduates. Unfortunately, because they leave the state after receiving that education, they don't constitute a workforce and therefore aren't much of an attraction for business.
Kyle Carson, "Young Iowans Do the Math on Salaries -- and Leave; Commission Urges Higher-Ed Tax Credit and Help With Repaying Student Loans," Des Moines Register, January 27, 2008, p. OP1; "Commission Members Weigh In On Worker Shortage," Des Moines Register, January 27, 2008, p. OP6.

For a lawyer, Kyle Carson cuts to the core of the answer with an unusual economy of words: "So what should Iowa do? Pay them more."

And just how bad is it? Consider the recent report on "affordable housing":

The report said about 13 percent of people in the study area work in industries with entry-level wages of less than $15,000 annually, and another 40 percent work in industries with entry-level wages between $15,000 and $20,000. Almost 30 percent of all households in the study area have incomes less than $25,000.

The analysis determined that to afford a median-priced home in the area -- $162,000 -- a household income would have to earn about $53,150 and and not have much additional debt. The study said only 389 units were sold in 2006 that were valued at $100,000 or less, equaling about 15 percent of the total transactions that year.
Kathryn Fiegen, "Study warns of housing shortfall; Area prices outpacing incomes," Iowa City Press-Citizen, January 24, 2008. (The study, prepared by Mullin & Lonergan Associates, Pittsburgh, was described by Fiegen as a "127-page, data-intense report.) That report was the basis for a meeting reported in the paper on Saturday: Rob Daniel, "Summit: Housing policy needed; Lack of affordable housing reaching all area sectors," Iowa City Press-Citizen, January 26, 2008, p. A3.

And how can Iowa "pay them more"?

When was the last time you heard a boss say, "I'm feeling guilty about exploiting you guys with these low wages, seeing your kids go hungry, and without health care or new shoes, so starting next Monday everybody gets a 50% wage hike." It's not likely to happen.

A single person, out of work and desperately needing a job, is not in a very strong bargaining position when confronting a potential employer in front of him -- with 700 people standing in line behind that job applicant, all equally anxious to win one of five new job positions.

That's why they invented unions and "collective bargaining." "For the union makes us strong," is the old union song lyric; at least strong enough to get something more than the minimum wage for long hours at backbreaking work in unsafe working conditions.

Without unions professionals wages are driven down to those of skilled trades people; wages for skilled tradespeople that should be at union levels are driven down to those of unskilled labor; unskilled labor get paid what the working poor earn elsewhere -- and those in every pay category leave Iowa.

That being the case, I find it remarkable that neither Kyle Carson nor any other member of the Commission -- nor for that matter the Governor, members of the legislature, media, education leaders -- seem willing to mention, even as an "option," the possibility of Iowa becoming a little more labor union friendly. Nowhere in today's stories does the word "union" even appear.

In researching an op ed four years ago I discovered that Iowa was then 43rd of the 50 U.S. states in wages; that our State's anti-union "right to work" laws put us in a minority of states that included the solid South: Texas, Louisiana, Mississippi, Alabama, Georgia, Florida, North and South Carolina; that from 1950 until now, anti-union bashing has driven union membership nationally from 35 percent to 13 percent of the workforce, and even less in Iowa.

With corporate campaign contributions going to Democrats and Republicans alike, the disparity between the income of CEOs and hourly workers has gone from 42:1 in 1980 to 531:1 in 2000. Two million workers recently fired for the sake of profits and executive bonuses don’t even have that.

The Occupational Safety and Health Administration reports 70 percent of its investigations involve things management knew, or ought to have known, would cause serious injury or death. Nearly 6000 workers a year are killed, more than 5 million injured.

Even the most minimal efforts to help the working class and working poor are successfully resisted by Iowa businesses and their legislative representatives, most recently the "fair share" proposal (that those who get the benefits of union negotiations, while refusing to join the union, should at least pay their "fair share" of the costs for those union activities from which they personally enjoy increased wages and benefits). I could not get our local school board to support a "project labor agreement" for its new school construction projects. Nicholas Johnson, "Make School Projects Labor-Friendly," Iowa City Press-Citizen, May 15, 2003, p. A11 (with an appended list of sources). And see State29, "Viva La Slave Labor, Child Labor," January 26, 2008.

A mere three days later [Jan. 30] and we find the following in The Daily Iowan:

Union membership rates were down in Iowa and 29 other states in 2007, according to a recent report by the U.S. Bureau of Labor and Statistics.

. . .

[U]nion membership in Iowa is below the national average for a second-consecutive year.

Jennifer Sherer, a labor educator at the UI Labor Center, said . . .
"We're losing higher-paying jobs and gaining lower-paying jobs," . . ..

Sherer also attributed the low rates to employers who make it difficult for new unions to form by using threats and intimidation. The law protecting unionization has not been strongly enforced, she said.

"We need political changes to make it possible for people [to form new unions]," she said.
Ben Travers, "Union Membership Going Down in Iowa; Despite a Report Indicating That Union Membership is Up Across the Nation, the Percentage of Iowan Union Workers Continues to Drop," The Daily Iowan, January 30, 2008, p. A3.

Of course, Iowans and their governments have the political right to continue our anti-labor traditions and reputation. It's just that it's a little self-defeating and hypocritical to continue to do so while simultaneously complaining about the disappearance of the workforce needed to attract the businesses we think we need to promote genuine economic growth.

News From the West Bank

For many Iowans "The University of Iowa" is the athletic program (especially football and basketball) and/or "The Hospital" (UIHC) on the West side of the Iowa River.

And that's certainly where a lot of the news comes from.

And the lack of news. "No news is good news"? Well, not always. It's now over three months since an alleged sexual assault by alleged football players, and there's still not a peep from the University or the Johnson County Attorney as to what the hell's going on (or not).

Meanwhile, there have been enough Iowa football players in trouble with the law recently to make up a full team (11 or more). So we can be grateful (or not) that at least one more has gotten off light -- with the substitution of a "deferred judgment" and "probation" for a two-year prison term for theft -- essentially no penalty at all. (I simply don't know if that is ballpark-standard under these circumstances, or if the fact that this wide receiver "was ranked first in the country among freshmen in receptions and second in yards" played any role in the sentence.) Lee Hermiston, "Ex-Hawk Granted a Deferred Judgment," Iowa City Press-Citizen, January 26, 2008, p. A1.

. . . Build it and they will come -- and pay.

Nonetheless, our emphasis on athletics continues.

Former UI women's athletic director Christine Grant describes the Carver-Hawkeye Arena, built some 20 years ago at a cost of $18 million, as "one of the best in the country."

And yet UI Athletics Director Gary Barta, acknowledging that it's "still a great place" believes "we need to update" -- something women's basketball coach Lisa Bluder refers to as "a face lift."

The renovations he has in mind as an "update," and she calls "a face lift," are already projected to cost $40 million -- more than twice what it cost to build the entire structure initially -- costs Barta represents will be paid with "athletic gifts and earnings" thereby warranting his already having gone ahead with the hiring of a couple of architecture firms and having set a completion date of 2010.

And what will we get for our $40 million? A practice area, elevators, air conditioning, plus "premium seating, club seating rooms and renovating and expanding office space."
Brian Morelli, "UI pushing forward with renovations," Iowa City Press-Citizen, January 26, 2008, p. A5; Brian Morelli, "Still a Hawk stronghold; 25 years in Carver-Hawkeye Arena," Iowa City Press-Citizen, January 26, 2008, p. A1

Far be it from me to suggest that the "scheduling" problems for practices could be resolved with the space available in the Field House, near-by recreation building, and additional facilities scheduled for construction on both the East and West side of the River. I don't know enough to document that.

But $40 million does sound like a pretty expensive "face lift."

Which is just one more reason why it might make sense to completely divest the athletic program/s from the University -- something that is already in progress with regard to their funding -- formalizing the independence that already exists once they are raising their own funds and making the decisions as to how to spend them. For a description of how that might work, see Nicholas Johnson, "Colleges and Universities" in "Athletics and Academics," September 30, 2006. That way, like any other business in "the marketplace," so long as their expenditures do not adversely affect others or otherwise violate the law there would be little basis for comments by others -- like this one.

And, Finally, What's Driving the Emphasis on School Safety?

As usual, Bob Patton's pictures on January 25 -- titled "Safety in Numbers-Crunching" -- are worth more than a blogger's many words (as in Nicholas Johnson, "The Limits of Duct Tape," January 9, 2008):

Copyright by Bob Patton and the Iowa City Press-Citizen, and reproduced here for non-commercial, educational and commentary "fair use" purposes only.

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Anonymous said...

Its a fallacy to think that more union type shops would be a form of economic development. It isn't labor bashing that has numbers down, it is simple economics. Union Labor for manufacturing costs more than Labor in Mexico and China in particular, so Capital (K) follows the cheaper Labor (L). We can't compete with those countries consistently for manufacturing with that much of a cost of production issue. You are right about some of the things that young professionals look for. There is no denying some projects using TIF do not turn out well. However many of them do, and incentives are part of the game, not just in this state but nationally & internationally. Why would we want to handicap ourselves against other regions and countries? Aren't we having a hard enough time now?

"Fair Share" would not help Iowa's problems. It would help drive up the cost of labor to state & local government and taxpayers for the most part. Iowa needs to move away from an identity as an ag state and support the service economy. That is the driving force. We need to invest more money in the areas that generate activity like Des Moines, and Iowa City-CR. The road use tax formula would help by bringing more infrastructure dollars to the areas that need them. We have to realize that our future is not with ag as the state leader. Its the Wells Fargos, Principals & other insurance and financial firms that are.

Alex Lavidge said...
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Alex Lavidge said...

Like a teenager trying to "find themselves," (or others would say create themselves), articulating an economic development vision for any community is a search for authenticity.

The problem I see with a lot of states is that similar to people who aren't sure what to do with their lives, they look for a "formula" they can follow that will "bring in the money" rather than digging deeper before asking "who am I and what do I really love doing that I'm better at than most?"

Paul Graham for instance writes a great piece on how to be [a] Silicon Valley:

The premise is that you need nerds and rich people if you want to recreate an innovation hub. But specifically, you need people who grew up with technology and startup investors with deep pockets who aren't afraid to take calculated risks and have experience under their belt.

To recreate any kind of entrepreneurial hub that can spawn new industries, and bring money in from out-of-state (which is what you want with any economic development initiative), you need more than just "the creative class." That means you need more than a lot of arts & progressive culture, you also need the "startup investor class," a point that gets less attention it seems.

So what attracts startup investors? Friendly investors who have a lot more money than they do.

What attracts nerds? More friendly nerds who are a lot smarter than they are.

But again, suggesting that Iowa try to recreate Silicon Valley is like telling a kid who has the potential to be they next great American author that they should be an investment banker "simply because the money [could be] good." The irony is that if they followed their heart, they could probably make more money in the long run, be a lot happier in the process, and create a lot of opportunities for others along the way. Or at the least they'd be happier.

On that point, with the history of the UI Writers Workshop and its national reputation, I always thought that Iowa City had the potential to turn itself into a cultural hub for writers as well as a film community. The writers are already there but after they graduate they usually leave for LA or NYC. But it's too expensive to live and make films in those two areas so they're all looking for new places to go like Vancouver or New Zealand.

Yet as Graham points out, the way this happens is [in this case] importing communities (not just individuals) of film investors (some of whom are trust fund heirs that love this stuff) and filmmakers. And make Iowa the most economically attractive place in the US to be a media entrepreneur or media artist -- then promote it. From what I understand, Hawaii is a great case study on how to use refundable film tax credits to attract this kind of business.

Already though the green economy is the "next big thing," and like the blonde in the film "A Beautiful Mind" about the economist John Nash, everyone now wants to date her. Iowa I doubt will be the leader in this boom since internationally it's so competitive, but it'll probably be on the forefront in renewable energy (it already is actually) and other types of clean technology. Which is probably closer to its agricultural heritage ethos as well. And the way you attract more companies to come in is, sure, through just selling them on the economics of it for the most part.

So in the meantime, John Barleykorn is probably right and sounds very practical. It's like the parent telling their child, "you can do whatever you want, just find a way to pay for it." So they do a job that isn't perfect, which sometimes equates to working at one of those financial services firms, but it pays the bills until they can figure out how to take the next step.

Yet I still hope that Iowa wakes up and realizes it could be another great American author.

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