Charlotte’s Chiquita Slip-Up | Eastern North Carolina Now

    Publisher's note: The author of this post is Michael Lowrey, who is an associate editor for the Carolina Journal, John Hood Publisher.

    CHARLOTTE — The common complaint about economic incentives is that they amount to having the government pick winners and losers. That's certainly true. However, as recent events in Charlotte show, another problem with incentives is that government handouts can go to winners and losers.

    In 2011, state, Mecklenburg County, and Charlotte officials went bananas over the possibility of getting Chiquita Brands to move to Charlotte. No, this didn't involve turning large portions of the Queen City into a banana plantation, but rather in attracting Chiquita's corporate headquarters from that other Queen City, Cincinnati. To help seal the deal, state and local governments offered up to $22 million in incentives over 10 years.

    Chiquita's stay in Charlotte lasted nowhere near a decade. The company was bought out in January by a Brazilian firm and promptly announced that it will leave town by the end of the year. The move will cost Charlotte 320 high-paying jobs. Under its agreement with the state, county, and city, Chiquita will repay all incentives it has received to date.

    "You can't expect loyalty from any company if you're paying them to move," The Charlotte Observer quoted Mecklenburg County commissioner Bill James as saying. "Government was basically prostituting themselves to get them here. ... Nobody falls in love with a prostitute."

    James is correct that there's no reason to expect loyalty from a business that came to your town because you threw the most money at it. But his criticism misses the real reason Chiquita left.

    Chiquita's executives did not spend 2014 looking to move a mere four years after shifting their corporate headquarters. No, Chiquita's problems were more basic: Though an iconic brand, it had long been an underperforming business. For example, the company posted a net loss of $18 million for the third quarter of 2014, results hailed by company officials as "the strongest in the last five years for this period." Ouch.

    Ultimately, like many underperforming companies, Chiquita was sold. Chiquita's preferred merger partner would have been Fyffes, another banana company based in Ireland. Instead, Cutrale-Safra bought Chiquita for $1.3 billion.

    We also have learned that Chiquita was considering a merger as far back as 2011, at the same time it agreed to take North Carolina money to move its headquarters to Charlotte. The state, the county, and the city made a basic mistake as well: not performing due diligence, not realizing that Chiquita was a sick company, and failing to understand that this sort of forced relocation was almost certain to happen down the road.

    Unsurprisingly, economic development officials defend the use of incentives in general and the ones offered Chiquita in particular. "The incentives tend to be very good business deals, very modest frankly compared to others," said Bob Morgan, the Charlotte Chamber CEO, to the Observer. "They're a win-win for the public sector as well as the company. There's risk in any business deal. You mitigate against those risks with clawbacks."

    Wrong. Giving public money to loser corporations imposes real costs, even if clawback provisions let government get its money back eventually. The first, obviously, is that incentive money could have been used for other purposes, including reducing taxes. Incentives allow companies to divert the money from government coffers for free for years.

    Also, by publicly awarding millions in incentives to a company, state government is effectively becoming the company's champion. There's a psychological cost when public officials invest their faith in a company that either fails to deliver or packs up and leaves.

    So there are many losers when government makes poor choices in offering incentives to businesses, even if clawbacks are part of the deal.