Albion Monitor /Commentary

The New War Between the States

by Michael Finley

Flogging the merits of relocating businesses to the state

(AR) ST. PAUL -- In 1983, a recession year, I lived in Milwaukee -- Beertown USA. I was one of about 30 million jobless Americans, most of them writers. I decided to cash in on hard times by writing about them, and I was lucky to nab a Wisconsin Business Review assignment on the doldrums in Wisconsin and what could be done to bring new business into the state. Ironically, Wisconsin Business Review was published in Eden Prairie, Minnesota.

My article evolved into a discussion about the wisdom of a national industrial policy -- should the USA pick favorites, the way Japan's MITI did? The number one person talking about that issue then was liberal economist Robert Reich. I read everything by him I could find.

I was so new to business, it did not trouble me that Reich was a Harvard liberal. To me, his complaints that our businesses were trapped in a chase for paper profits and ignoring the need for future growth and actual productivity seemed like good common sense.

My story led to several assignments for the State of Wisconsin. Among other things, I wrote a big advertorial for Industry Week, flogging the merits of relocating businesses to the state. The article leaned heavily on beer and cheese.

States kidnap companies from other states, offering them tax abatements, free roads and other incentives

So my eye was caught the other day by a web-based multimedia extravaganza featuring Reich, now U.S. Labor Secretary, at the heart of it. While the federal government veered away from industrial policy (its sole concession to the idea was the Baldrige Award, a kind of business beauty pageant), the states went into it big time, setting up professional agencies charged with kidnapping companies from other states, offering them tax abatements, free roads and other incentives and emoluments. States ever since have been falling all over one another to offer businesses both instate and outstate the most attractive package. Viz., the Mall of America, Northwest Airlines, and Target Center.

The web site, sponsored by Minnesota Public Radio, is called "The Economic War Between the States," and can be reached at The point it makes is that the war has no winners. The states that lose often spend millions to make their pitch. The state that wins the competition collects few taxes from it, forcing it to collect them from other taxpayers. And in this era of corporate free agency, there is no guarantee the company will not pick up and leave after a few years, when a more attractive offer comes by, or it is acquired.

States are caught in a bind. If they ignore the bidding frenzy, they turn their backs on job creation and growth. In sports terms, they become the Minnesota Twins, strapped for cash and unable to compete against the New Yorks and Atlantas of the world.

The economic war is founded on a fairy tale, that the companies states lure across their borders are can't-fail enterprises, as unkillable as -- well, state government. It ain't so. Many businesses look strong one year, and come apart at the seams the next. Technology, market swings, and changes in management ultimately erode even a star performer's prospects.

And even if states were good at picking winners, should they be in the business of doing so? Or this the economic war, which conservatives fight as lustily as liberals, an affront to the principle of free markets?

The worst part of state warfare is that it is a zero-sum game. No new business is created by it. The existing pie is simply resliced into different configurations, at costs borne ultimately by taxpayers who support such corporate welfare and by the customers companies must pass their increased taxes and costs on to.

The website contains eleven essays by economists, business people and public affairs types, plus a public message forum, transcripts of broadcast speeches (including Reich's), and a Harvard case study involving a real-life economic development dilemma in the state of North Carolina. You can even listen to speeches over the Internet via audio plug-in utilities.

The site is part of a grand information campaign masterminded by Len Witt, director of MPR's Civic Journalism Initiative, that sprawls across several months and every medium you can think of, and utilizes the resources of NPR, MPR, the Kennedy School of Government, the Federal Reserve Bank of Minneapolis, and the Department of Labor.

Only Congress can stop this "beggar-thy-neighbor" nonsense

If you are interested in the issue, boot up and give Reich's speech on "Talk of the Nation" a listen. It's a treat hearing your computer talk to you like a very intelligent human being for twenty minutes.

If you are so moved, write your congressperson and tell him or her you think the tiniest sliver of industrial policy might be in order: an act of Congress to prevent states from clubbing one another over the head to attract and retain businesses. Constitutional scholars agree that only Congress has the power to step in and put this "beggar-thy-neighbor" nonsense to an end.

But hey, the economic war between the states has been very good for me. My Minnesota publisher liked my work so much they coaxed me to move to the Twin Cities, eleven years ago. And I have not gone out of business. And get this: I have paid without complaint literally hundreds of dollars in taxes.

So Robert Reich, this Bud's for you.

Comments? Send a letter to the editor.

Albion Monitor July 6, 1996 (

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