Wednesday, October 12, 2011

"Business Friendly": The Democratic Version vs. the Republican Version

The leaders of Fairfax County, Virginia, where I live, tout the county as being regarded as "Business Friendly."  The Chairmanship of the Board of Supervisors, which runs the County, has been held by a Democrat since 1995, while Democrats have also long been a majority of the nine supervisors who are also on the Board.  How does a government run by Democrats come to be Business Friendly, and is a Democratic Business Friendly different from a Republican Business Friendly?

Last month, I was at a meeting of the Northern Virginia Democratic Business Council, where the current Chairman of the County Board of Supervisors, Sharon Bulova, spoke about how they enticed Northrop Grumman to move its headquarters to Fairfax County.  They pointed out that Fairfax County has the best schools in the country, has a fine park system, and the residents are relatively well-off, with one of the highest per-capita incomes of any county.  OK, so roads can be congested, but other than that, it's a great place to raise a family.  Bulova said that Fairfax County did not offer any tax incentives. 

So, now there are 11 Fortune 500 companies that have their headquarters in Fairfax County.  That means that just over 2 percent of Fortune 500 companies are located in a county that has less than 0.4 percent of the U.S. population. 

"Business Friendly" for a Democrat should be offering a place where there is a good quality of life, where the business's employees would want to live.  The Republican version of "Business Friendly" would be few taxes and fewer regulations.  Oh, and workers get paid less as well.

The problem with state and local governments trying to entice a company to move its headquarters or facilities to that state or locality with tax breaks, more lax regulations, or lower wages is that, from the point of view of the United States as a whole, no new jobs are created.  They simply move from one part of the United States to another.  One group of potential employees gets "luckier," while another group is unluckier.  Even more pernicious, this process creates a "race to the bottom," where states compete to hollow out their tax bases, make the country more polluted, and keep up the pressure to suppress wages.  Corporate profits may improve, at least relative to the economy, but that's about it.

But don't corporate profits mean more money to invest in more jobs?  Republicans continue to push this line, but as we showed in a previous post, businesses are not going to hire more unless the demand justifies it.  And if wages have been suppressed (or cut), demand is also suppressed.  Businesses would have higher absolute profits if they were able to increase sales to meet increased demand, even if their labor costs were higher.

The Republican "Business Friendly" model, therefore, does not create wealth overall, it destroys overall wealth, even as it concentrates what wealth there is into the hands of the few.

The Democratic "Business Friendly" model, on the other hand, creates wealth.  It invests in education, creating the opportunity for more people to obtain higher-paying jobs.  It creates the infrastructure to improve the efficiency of an area, and it creates a more appealing environment in which people actually want to live.  It actually works out that "People Friendly" is also "Business Friendly."  A place where employees are well-paid, well-educated, and are happy to raise a family there, is a place where businesses will thrive.  They'll just have to settle for the fact that corporate profits will be a smaller percentage of a growing GDP, even if the absolute profits will continue to rise.

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