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Cheap American Labor

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Dothan Mayor Mike Schmitz (left) and Lian Ning (center) gesture with Schmitz's signature go-go-go sign after announcing that his company, Nanjing Zijin-Lead Electronics, would open a small 3D printer manufacturing facility in Dothan during the U.S.-China Symposium inside the Dothan Civic Center on Friday.
Dothan Mayor Mike Schmitz (left) and Lian Ning (center) gesture with Schmitz’s signature go-go-go sign after announcing that his company, Nanjing Zijin-Lead Electronics, would open a small 3D printer manufacturing facility in Dothan during the U.S.-China Symposium inside the Dothan Civic Center on Friday.

It’s hardly surprising that if American companies are scouring the globe looking for the cheapest and most easily exploitable labor possible that Chinese companies would do the same within the United States when it is in their interests to do so. This story of how Alabama gave a ridiculous package of tax breaks and benefits to a Chinese company in order to draw low-wage work with no chance of advancement is quite depressing.

To help push the deal, Alabama Gov. Robert Bentley (R) dined with Li. Company executives visiting the region were greeted with imported Chinese tea and Mandarin video messages. Alabama’s state workforce team explained how, if chosen for the job, they would visit Golden Dragon’s Chinese headquarters, study the process, and make videos and training courses for the new U.S. employees. In Alabama, Golden Dragon wouldn’t pay taxes for 20 years; it would get free roads and land.

Alabama also did something no other state was willing to try: Its legislature passed the “Made in Alabama” act, a tailored law that allowed the state to reimburse Golden Dragon for several prior years of tariffs. A version of the law had first been drafted by Cheng and a lawyer, according to Cheng and a lawmaker who sponsored the bill.

Ultimately, the company was given the choice of the reimbursements or an extra $20 million in cash. Golden Dragon chose the cash.

All told, according to interviews and documents reviewed by The Washington Post, Golden Dragon received subsidies worth some $200 million — the bulk of it in local and state tax abatements, plus the cash, $5 million in land and road costs, and nearly $2 million in worker training. County leaders say they had little choice: They had spent years trying to lure companies, reaching out unsuccessfully to more than 100. Even Golden Dragon only settled on Wilcox after a site in a neighboring county proved too small.

The problems here are multiple. First, if the poorest counties in the country are giving these tax breaks, that means that there are no taxes to improve the reasons why the counties are so poor to begin with–poor education, underdeveloped infrastructure, under-trained workforce, etc. Second, the workers, as this article explains in good detail, simply cannot live middle-class lives with these jobs. They barely make enough money to survive. The promises of the Asian companies that this will benefit the states and the workers aren’t proving out. These jobs are better than unemployment–but they aren’t that much better. These jobs don’t build hope and they don’t build a future. The county is no better off than before.

Given that it’s Alabama, I’m amazed that the workers voted to form a union–but it passed by a single vote, giving the company little reason to take it seriously and it has naturally dragged its feet. Good luck to them. But as a whole, this is no way for Alabama to build up its economy.

It’s also worth noting that today is the anniversary of Alabama repealing its child labor law in 1894 in order to attract New England textile factories fleeing worker agitation and state restrictions on how it treated labor. That really built the Alabama economy too.

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  • john theibault

    Dothan, AL. Gee, I’m sure I’ve heard about it recently in the news for some other reason. I wonder what? Oh, yeah https://www.washingtonpost.com/news/the-watch/wp/2015/12/03/serious-doubts-raised-about-report-that-dothan-ala-police-planted-drugs-on-young-black-men/

    • To be fair, the story is not in Dothan. But there’s no good picture of it I could find so I went with another similar deal in Dothan.

  • AMK

    I feel bad for these people….but at the same time, the Chinese are not the ones who keep pulling the lever for Bentley and his ilk in the voting booth.

    One issue the article doesn’t mention (and which makes much of the south even more like the third world) is the brain drain dynamic. People who can get out and get ahead (through scholarships, family money/connections, or even just not having kids they can’t afford) do so. In an earlier time, many of them might have stuck around as a local elite and influenced things for the better. But now there’s no reason not to find greener pastures in the South’s more vibrant metro areas or one of the big “creative class” cities.

    • White solidarity beats out class solidarity almost every time.

      • Sly

        No one could have predicted that a thing solely designed to do X very well actually does X very well.

      • Phil Perspective

        You do realize what a hot mess the Democratic Party of Alabama is, right? So much of a mess that they can’t even field a full slate for state-wide elected offices. So sure, crap on the voters and not the Democratic elite who don’t give a crap.

        • jim, some guy in iowa

          how should the Alabama Dems get people to run for office? Bribery? Force? Lottery?

          • I for one am waiting for Phil’s plan on making Democrats–especially not the conservative Democrats he hates–competitive in Alabama.

  • angrifon

    How is this better than giving direct subsidies to workers? Alabama is paying the workers, they’re just doing it through a filter that will skim off everything above the minuscule wages that the workers get paid. I see no benefit to taxpayers in this arrangement.

    • cpinva

      “I see no benefit to taxpayers in this arrangement.”

      see, it’s this kind of crazy talk that makes it so hard to attract businesses and people with skills to the south. you actually think the state (and federal) governments are supposed to do things that actually benefit more than the 1%.

      silly boy (or girl)!

    • UserGoogol

      The implicit logic seems to be that bringing investment into the state will have a multiplier effect, creating more money than otherwise would be. But the thing is, if you assume efficient markets, (as defenders of these policies often do) you could get the same result by just investing the money in the stock market instead of trying to lure specific employers in. And even if you don’t, it’s not particularly clear why this is a reasonable way for the government to beat the market.

      But these sorts of policies are a kind of industrial policy which is very congenial to conservative dispositions. The way these policies are structured, they can persuade themselves that they’re just “unleashing the free market” instead of actively subsidizing particular industries like those rude commie Democrats want to do.

      And of course if this method allows brazen corruption to grease the wheels that’s a factor too.

      • Lee Rudolph

        And of course if this method allows brazen corruption to grease the wheels that’s a factor too.

        I am sure it is a very large factor.

    • Chuchundra

      Sounds like the majority of the money given to GD is in the form of foregone taxes, so it’s money that the state and local governments wouldn’t have anyway. There’s no way they could have hired 500 workers for what they were out of pocket on this deal, even if you include the infrastructure spending in that amount.

      • cpinva

        “Sounds like the majority of the money given to GD is in the form of foregone taxes, so it’s money that the state and local governments wouldn’t have anyway.”

        read it again. it’s not just foregone taxes, it’s both cash payments to the company, and the cost of building necessary transport infrastructure, specifically for that company. so it’s not simply a matter of not getting tax revenues that they wouldn’t have gotten anyway, it’s millions in cash out of pocket, that they already don’t have.

        • Chuchundra

          Yes, I did read it. That’s why I said the majority of the money not all the money.

          Here’s a listing of the incentives

          •Capital income credits worth up to $160 million over 20 years
          •$20 million in state economic development discretionary incentives
          •$8.5 million in property tax abatements
          •$5.1 million in sales and use tax abatements
          •$5.7 million for an industrial road and bridge to support the plant
          •$1.8 million in worker training services
          •Site purchase, prep and water and sewer improvements worth about $1 million.

          Again, the majority of that money is money the government wouldn’t have if the plant was not built.

          And while this isn’t a great deal, it’s ridiculous the argue that the government could have just given the money it spent directly to the workers.

          And lastly, according to the 2013 US census update data Wilcox county was the fourth poorest county in the US at that point.

  • NewishLawyer

    When it comes to jobs policy, there is obviously a very deep philosophical divide on what are jobs policy should be like. There are a fair number of people (and not just corporate CEO loving types) who believe that a good jobs policy is one that creates any kind of work. Their belief seemingly is that it is better to have a lot of bad jobs rather than a few good ones. The justification seems to be an honest and sincere belief that this is a better and more realistic goal.

    I’m not sure what the solution is. I dislike the idea of human decency and dignity being a negative externality* but what should places like Dolthan, Alabama do to pursue jobs. Should we just move people away from economically depressed areas? Not everyplace can be a New York, San Francisco, Chicago, etc. A community like Dolthan is going to suffer serious brain drain.**

    *A while ago some friends posted an article on FB about the benefits of being nice to your employees. What I got from the article is that the nicest firms tend to be the ones that take the top of the top talent. Most of us are not top of the top. This makes me wonder if human niceness and perks are just benefits for the ultra-achievers.

    **Interestingly I have seen rural liberals rebel against college is for everyone and the media because they think it creates brain drain. One went as far to say that the best of the best should be happy enough to stay and work at Wal-Mart or some such. Needlessly to say, I found this paradoxical but it does take a special kind of person to return to an economically depressed area after completing college.

  • shah8

    Eh… I suppose I need to say this, but…

    That Chinese company has little interest in hiring country bumpkins. The actual grift is not cheap American labor, precisely, but the ability to take money out of the Chinese economy. Much like that economically and geopolitically impossible Nicaragua Canal scheme. The Golden Dragon bosses are almost certainly losing money, technically, but they got the dollars, which is what they really want.

    Most desperately poor places in the US are unattractive for business investment because the local area has poor infrastructure and adversarial labor pool (not so much adversarial in the direct sense of unions, but in the sense that they can have troublesome mentality/attitudes). If you’re going to do all that, better to invest somewhere in Mexico.

    It takes crazy high levels of subsidies to get corporations to go to these places, for example the Nissan plant in Jackson, Mississippi–roughly $1.3 billion. Boeing to South Carolina, about the same. And even then, for Boeing, they’re probably going to lose money overall, as a corporation, as a consequence of Dreamliner problems deriving from poor quality labor in South Carolina. http://www.reuters.com/article/us-boeing-dreamliner-idUSBREA1A06T20140211 Airplanes aren’t like cars.

    And when the subsidy games stop, and I do believe it will stop as an increasing array of forces end the looting, most of these deep south industrial areas will cave in almost instantly. It’s about individual money and the power of anti-labor classism, not corporate profit deriving from low labor costs.

    • Derelict

      And when the subsidy games stop, and I do believe it will stop as an increasing array of forces end the looting . . .

      It will never stop. There are too many incentives for everyone involved–except the workers and taxpayers.

      It all works a perfect circle. In the name of lower taxes, starve your schools. The newly illiterate population–unemployed and unemployable–becomes incapable of paying taxes. They are now undeserving of education and fit only for menial repetitive labor, if that. The politicians get the photo ops and contributions, the corporate types get the cash, the locals get to stay impoverished and powerless.

  • DrDick

    I should point out that these are the same folks who have been mortgaging the farm to bribe Wal-Mart to locate in their town and completely destroy the local economy.

  • Bruce Vail

    To add another layer of shit, US military contractors rely on Alabama job training programs to prepare their workers for skilled jobs. Austal shipbuilders in Mobile couldn’t maintain their workforce without this help

    http://inthesetimes.com/working/entry/16365/booming_business_at_alabama_shipyard_gives_unions_a_shot

    and I’ve read that Airbus also relies on this subsidy as it attempts to win defense contracts away from unionized plants in Washington and Kansas.

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