US South Wages a Long War of Incentives, and Citizens Bear the Brunt

In the 1930s, Mississippi was struggling with widespread illiteracy and disease and an under-developed economy heavy on subsistence-level agricultural jobs. The state decided to implement a set of incentives to lure Northern manufacturers south. The incentives worked, although at the expense of unionized northern jobs. Soon other southern states followed Mississippi’s “Balance Agriculture with Industry” example. As Joe Atkins explains in his fine book, Covering for the Bosses, this touched off what has become an ever-escalating race to the bottom on corporate taxes, with industry and corporations benefitting from an ever-more hospitable “business climate,” while undermining conditions faced by the majority of citizens across all the states.

The South has continued to fuel this competition, using huge amounts of taxpayer money to entice corporations. It has had to, because while dirt-cheap wages and a fiercely anti-union environment once attracted a flood of “runaway shops” from the North, the South is now often abandoned by U.S. firms that can find even lower wages, more repressive control over labor, and generous subsidies from Third World governments. As Mary Frederickson writes in her book Looking South, “New [U.S.] South industrialization presaged much of what we are witnessing in the Global South.”

This recent “offshoring” has left the South peppered with dying factory and textile-mill towns that have lost their main employers and face a grim economic future with few prospects of escaping pervasive poverty, Paul Theroux details in his new non-fiction account, The Deep South.

But vast public incentives and low wages have helped the South win the siting of 13 new, foreign-owned auto-assembly plants. The latest is located in South Carolina, presided over by self-proclaimed “union buster” Nikky Haley. South Carolina has distributed incentives worth at least $208 million in public funding. Shackled by “right-to-work” laws which make sustaining unions nearly impossible, labor unions have managed to organize just 2.2 % of workers in South Carolina. The unionization rate is a mere 3.7% in Mississippi, and 1.9% in North Carolina (the very lowest of the 50 states). The increasing weight of the low-wage South has served as what labor journalist Harold Meyerson described as “an anchor,” pulling down earnings for working families nationally.

The inter-state competition for jobs, waged through lowering corporate taxes and handing out huge incentive packages in the name of “economic development,” now costs the states $110 billion a year in lost revenue, according to tax expert and law professor David Cay Johnston. Boeing alone captured $13.2 billion in incentives despite earnings of $7.9 billion in 2013. (The 10 biggest incentive packages issued from the impoverished southern states are listed below, based on data from Good Jobs First.)

This inter-state competition is deepening income inequality in America. “The bottom fifth of households in all but one state pay a larger share of their income in state and local taxes than the top 1 percent of earners. This means that corporate welfare effectively redistributes from the poor to those rich enough to own corporate stock,” Johnston writes.

Despite its shiny new auto plants, the South has hardly emerged as a big winner:

A Low-Wage China Within the United States: The South is now viewed by many corporations as a good alternative to China with higher productivity, competitive wages, and limited shipping costs. As a union representative on the Airbus board explained the key advantages to Meyerson, “When we go abroad, we have the high-value work, the research and development, done in Germany. We [workers in German factories] supply the high-value parts. The workers who assemble the parts in the Airbus factory in Tianjin, China, produce 3 to 5 percent of the total value. But given the 6-to-1 productivity advantage that the United States has over China, it’s cheaper to do the final assembly in the U.S.”

Sacrificing Vital Needs for Tax Breaks: When impoverished states allocate vast sums to lure corporations, the public undergoes immense sacrifices in vital services. As Joe Atkins points out, “At the same time Mississippi was pledging $356 [now estimated at $387 million or more] million to land the Toyota plant in Tupelo, its state legislature failed to build a burn center for the state, forcing burn victims to continue to be transported to Memphis.”

Forfeiting the Future: Improving education remains a crucial ladder to escaping the South’s low standard of living. But the big handouts to corporations shrink the pool of funds available for education. Educational attainment in Alabama remains so poor that, as economist Paul Krugman writes, “trainers had to used pictographs to teach some illiterate workers how to use high-tech plant equipment.”

Heaviest Burden on Black Communities: Not surprisingly, the heavy outflow of subsidies produces budget shortfalls that hit low-income African-American families hardest. “The Black Belt [so named because of rich soil] counties, nearly all of them majority African-American, are scattered with dying towns, few job opportunities and bad health, the New York Times reports. “Corporate tax breaks are generous and the timber and farming interests that own so much Black Belt land enjoy substantial property tax discounts. At the same time, households earning far below the poverty level are required to pay income tax, while the local and state sales tax burden is among the highest in the United States.” The Times reported that state funding cuts means three of the five state parks slated to close are in this region.

These counties also face the loss of political power exacerbated by the closing of regional motor-vehicle offices that are the only sites where residents can receive voter IDs necessary to cast ballots (8 of 10 closings are in the Black Belt). States The Times, “With no early voting and no online registration, Alabama already was one of the least convenient states in which to vote even before it began requiring photo ID.”

In the words of British writer Colin Leys in Market-Driven Politics, popular democracy is being hollowed out and “society is being shaped in ways that serve the needs of capital accumulation rather than the other way around.”