Another Corporate Welfare Failure

In a story (paywall) on Pennsylvania’s Redevelopment Assistance Capital Program (R-Cap), Robert Swift raises a valid concern about the role the program plays in elections. R-Cap, which uses taxpayer-financed bonds for economic development projects, is susceptible to the problem of “press release economics.”

R-Cap allows officials to tout new projects in their district (with press releases), which can serve as a big advantage for incumbent politicians ahead of tough re-election races. These projects can catapult lawmakers into the news cycle, boost their visibility to voters, and allow them to campaign on money they secured for their district.

The political benefits associated with R-Cap—and other corporate welfare programs—incentivizes officials to increase spending in election years. Figures compiled by the House Democratic Appropriations Committee demonstrate this trend going back to 2002 with rare exceptions in 2012 and 2013 calendar years.

This isn’t to say that each R-Cap project decision is politically motivated. However, allowing government to hand out subsidies does set the stage for corruption.

Plus, doling out special subsidies just doesn’t work. Hyundai Rotem and Aker Philadelphia Shipyard are stark reminders. The latter announced 275 layoffs back in May, despite receiving taxpayer aid twice in the last twenty years.

Hyundai Rotem recently notified employees of its intention to shut down its plant by the end of the month. The company had previously received $2.2 million in state incentives, according to the Philadelphia Business Journal.

These layoffs will affect hundreds of people, which is a tragedy on its own. But policymakers have made matters worse by subsidizing these businesses. Not only did the subsidies fail to prevent layoffs, but they unfairly rewarded failing businesses at the expense of other Pennsylvania businesses and taxpayers.

No economy is immune to job losses, but policymakers can minimize the stress of job loss by creating the conditions for a robust economy. That means maximizing economic freedom and minimizing unfair government interventions on behalf of privileged interests.