Has the EDC done more harm than good to the economy of Beaufort County? | Eastern North Carolina Now

    Publisher's Note: This article originally appeared in the Beaufort Observer.

   What do Tommy Thompson, Economic Developer for Beaufort County, Bev. Perdue and Nancy Pelosi have in common? They are all economic illiterates. Let us explain.

    Nancy Pelosi said this week that extending unemployment benefits would add "600,000 jobs for our economy." Click here to read that story.

    Seldom does a week go by that Governor Perdue does not put out a press release about the jobs she and her "walking around money" have "created" in North Carolina.

    And the local Economic Development Commission (EDC) puts out a constant drumbeat about how many "jobs" they have created by building "industry-ready buildings" and helping various companies get a tiny slice of Perdue's Walking Around Money.

    Here's why they are economically illiterate.

    Government does not create jobs, except the people they put on the government's payroll and then they steal those jobs from the private sector. The lack of understanding of that basic economic principle is why these "government job creators" can be said to be illiterate.

    Taxing individual taxpayers and taking more money from businesses to dole out unemployment checks does not create jobs. It kills jobs. It kills jobs by draining money from individuals who would otherwise likely spend that money in ways that would impact jobs. So that's a wash. Taxing business, particularly small business that operate on tight margins, simply means they have less they can spend on payroll so that reduces their ability to use the money not only to maintain and create new jobs, but it reduces productivity in the economy because it is those businesses who, at the margin, would produce more if they did not have to pay those taxes.

    But taking money from businesses to pay to individuals to not work is infinitely more "job killing" than just about anything the government can possibly do. A local business person just recently told us she had three vacancies in her small business that if she could fill them would double her sales. She offered one of those positions to a person she knew (former employee) could do the job but the person refused saying: "I can net more from unemployment than I can make working."

    The immediate reaction of most people to that scenario is to get sidetracked into thinking about unemployment as welfare. And it is, but that's not the real problem. The real problem is the loss of productivity that comes with the business person not being able to expand or grow their business...and activity that has the potential of creating multiple jobs as the money turns over. A person sitting at home not working but drawing a government check is extremely expensive if you consider the value of "human capital"...what that person could be producing if they were working.

    The same is true of the state's approach to economic development, and specifically how they count the jobs they, and the county EDC, claim they have created. Unless they have solid evidence that the taxpayer money they spent increased productivity that would not have been achieved without the dole, then they have not "created" any jobs.

    Rather, what the state and county do is give a little money to a company and then if the company hires a certain number of people they claim they created jobs. That may or may not be true however. The company might have created those jobs anyway even without the government check. But regardless, for the government to claim they created those jobs is like the crew that sells Pirate Club members taking credit for the ECU football winning ball games.

    Consider another way of looking at it. Let us assume that Company A produces widgets. To produce those widgets they buy raw materials, invest in equipment and/or hire workers. But if they produce the same number of widgets, or sell more widgets for less than before, what has actually been produced? It might very well be that the handout given by the government to entice the business to hire more people is exactly the opposite of what needs to happen. Perhaps Company A should be investing in technology that would allow it to reduce the number of workers so it could compete more effectively with widgets produced in South Korea or China. Thus, the real impact of the "incentives" the government provided was actually bad economics.

    The same can be seen for these "industry ready buildings" the EDC touts. They build a building for two million dollars. That building sits empty, producing nothing--except maintenance costs from not being used. That is two million dollars they drain from other small business and this decreases those businesses' ability to increase their production. That loss of production is a real cost that should be added to the two million visible cost of the building. Then if the county sells or leases the building it eliminates some other entity from being able to sell or lease their building to the company that took the government building. So now some building sits empty or a vacant lot that might otherwise have a building built on it sits empty. What have we gained? The answer is not only "nothing" but rather we have probably even lost economic activity.

    And another aspect of the economic development charade that many do not consider is the issue of economic impact. Consider the proposed Pantego Wind Farm. Word is that government will pay for half of the cost of installing the windmills. That money will come in part from Beaufort County and North Carolina taxpayers. But it will likely end up being paid mostly to entities outside the state or county. Word is that the electricity produced will be sold outside Beaufort County and even the state. So the proceeds from the sale of the electricity will go somewhere else. Economic impact is distorted and such distortions often work to the detriment of poor counties such as Beaufort. No better example can be found than the timber industry's impact on Eastern North Carolina. And mining companies that take local resources and use them to create huge profits for foreign companies.

    The point being, if state or county economic development policy is to subsidize a business that buys most of its raw material from outside the state and/or sells most of its production outside the state it is not nearly as good a deal for the county or state than if the purchases and sells take place in the county...precisely what most of those small businesses do that footed the bill for economic development. Those costs must be deducted from the credit the EDC claims it is due for "improving the economy" of Beaufort County.

    And then there is the "opportunity costs" associated with all this economic development. We'll address that issue in a future article, but here's the jest of it. What could Beaufort County have done with the six million dollars it has spent on empty fields and buildings and the nearly a million dollars it has spent on salaries at the EDC over the last decade? Suppose it had spent that money at Beaufort County Community College, or in the local high school vocational programs, to train workers with sought after skills that would have attracted businesses to move to Beaufort County because our workers are more productive (there's that word again)????

    Beaufort County was a Tier 1 county when the EDC started spending all this money. It is still a Tier 1 county after all the spending. So what has been gained?

    But "it would have been worse" but for our EDC, wrote one of our county commissioners one of his newsletters recently. To which we would respond: Prove it. Show us the numbers. Show us the impact of that six or seven million dollars that were pulled out of the taxpayers of this county and even more from the state taxpayers. How much did we lose from that? And how much did we lose that we could have done if that money had been spent more wisely?

    Our contention is that unless and until the EDC can produce hard, sound economic data to show otherwise, the fact is the EDC has done more harm to the economy of Beaufort County than it has done good.