Corporate welfare is risky business

April 28, 2008

by Ivan Raconteur

The proposed Northwest/Delta merger serves as a reminder that subsidizing large corporations is risky business for taxpayers.

From what I can recall from my old college economics textbook, one of the principles behind capitalism is that those who take the biggest risks are the ones who stand to make the biggest profits. This is because they are the ones who could potentially suffer the biggest losses.

Somewhere along the line, we have allowed ourselves to be duped by business interests into believing that they should still be able to make the biggest profits, but now, they expect to do so without the risk.

They have somehow conned us into allowing them to transfer that risk onto the government, which puts it squarely on the shoulders of the taxpayers.

The taxpayers are not in line for any of the profits, but one can be sure that when the fertilizer hits the fan, it is the taxpayers who will be left holding the bag.

Businesses accomplish this by making threats and promises, and government seems to be a willing participant in the charade.

Like so many schoolyard bullies, the corporations threaten to take their ball and leave if they don’t get what they want.

They expect government (that is to say, the taxpayers) to subsidize their expansion when times are good, and cover their losses when times are bad.

It is a pretty sweet deal, when one stops to think about it – at least from the perspective of the corporations.

They sell the ruse by promising to create jobs and stimulate the economy.

It appears that the only ones who are getting stimulated lately are those at the very top of the corporate food chain.

The disparity between workers wages and executive salaries continues to grow.

Companies report record losses, and use this to justify cutting wages and benefits for the workers, while at the same time handing over multi-million dollar bonuses to the CEOs to reward them for their incompetence.

One would not suggest that these CEOs are not bright people. Anyone who can convince shareholders that he deserves a bonus when the company is losing money and share prices are going down must know something.

Corporations sometimes also cut wages and benefits or move jobs overseas when they are making a profit.

Companies like to call this “restructuring,” and while this may sound like a good thing, those who are the victims of restructuring are just as out of work as if they had been sacked, canned, fired, or dumped.

Interestingly, restructuring usually seems to affect those at the middle or the bottom of the pay scale, rather than at the top where it would do the most good.

Negotiations between government entities and corporations are not unlike chess matches with workers and taxpayers as the pawns.

Even after agreements are reached, the corporations apparently reserve the right to ignore or re-negotiate the terms at their own convenience.

Northwest has been soliciting public handouts since the early 1990s.

The State of Minnesota forked over $761 million in public financing to Northwest in 1992, and that was only one deal out of many.

The agreement included construction of a maintenance base in Duluth with a minimum of 1,000 jobs, an engine facility in Hibbing with a minimum of 500 jobs, and keeping corporate headquarters in Minnesota and a hub at MSP International Airport.

Despite concessions by employees and governmental agencies, the company has a history of moving jobs and operations out of the state.

Later in 1992, the company eliminated 1,500 jobs in Minnesota.

The part of the agreement under which the company was to build an engine overhaul facility in Hibbing fell apart in 1997, when the company decided to send its jet engines to a French facility instead.

This may have been good news for the French economy, but it did not do much to improve morale on the already struggling Iron Range.

After much negotiation, and much outside funding, the company opened a scaled-down maintenance facility in Duluth in 1996. At its peak, the facility employed about 400 workers, far fewer than the 1,000 in the original agreement.

Northwest abandoned the facility less than a decade later, eliminating the jobs and leaving local officials scrambling to find another tenant for the facility.

Duluth’s economic development authority had already been stuck making hundreds of thousands of dollars in bond payments for the facility that were not made by Northwest while the company was in bankruptcy.

None of this has kept the airline from asking for more, and in 2007, the Metropolitan Airports Commission gave final approval for a $239 million aid package for the airline. The company signed an agreement with the commission that includes covenants regarding the company’s headquarters and maintaining a hub in the Twin Cities (does this sound familiar?).

These are just a few of the highlights of the company’s colorful history in the state.

Following Northwest’s announcement of the proposed merger with Delta, we have already learned that the corporate headquarters of the new and improved company will be in Atlanta.

In spite of this, company officials assure us that the airline will maintain “a meaningful number” of jobs in Minnesota, and that service levels will not decrease.

One supposes that this could happen – but I wouldn’t bet the rent on it.

And, what about all of the public money that was invested to keep all those jobs in Minnesota? One fears it may be, in the words of the late Margaret Mitchell, gone with the wind.