Spring, 1998
Corporate Welfare: The High-Tech Connection
by Sharon Bashan
Increasingly, we are seeing more high-tech companies receiving more forms of corporate welfare. Handed out under the premise that it will give recipient industries a leg up in the competitive global marketplace, or to help develop local economic bases, many opponents contend that it actually reduces healthy competition by unfairly favoring corporations that often have the most political influence. In addition, forms of corporate welfare are often given to self-sufficient corporations with records of high profit margins.
Corporate welfare can be defined as any governmental spending that provides unique advantages to certain corporations. Examples of financial incentives include direct grants, subsidies, investments, preferential loans, enterprise zones, corporate tax exemptions, and other tax breaks. "Historically, the classical package was tax reliefs, but in the 1990s it has changed into direct financial incentives and cash," said Gene Conner, senior vice president of operations at Advanced Micro Devices. (Source: Semiconductor Business News 10/24/97). Incentives can also appear in the form of relaxed regulations.
What most often ends up happening is a situation where states or cities are pitted against each other in an incentive package bidding war in attempts at getting a high-tech corporation to locate in one of the bidders' regions. There is a current trend in which southeastern states are actively trying to lure semiconductor corporations to the region. North Carolina and Virginia recently revised state incentive laws to offer greater tax breaks and economic incentives to semiconductor companies.
A few years ago, California offered Intel Corp. $300 million worth of incentives, yet this was not enough to lure Intel to build a computer chip factory in the state (Rebecca Smith, San Jose Mercury News 7/20/94). According to Rebecca Smith, "Intel began the horse race in April 1992 by giving the Commerce Agency a list of 104 demands, politely characterized as an 'ideal incentive matrix', against which the state's final offer was measured. Oregon, Arizona, Texas, Utah and New Mexico received the same list. . . .The incentives dream list covered big-ticket items -- like free utility service and roadways -- and surprisingly little things like a reduction in apartment security deposits for employees, roughly 1,000 of whom [are] employed at each plantÓ. New Mexico "won" the competition with its $250 million dollar incentive package and an $8 billion industrial revenue bond, believed to be the largest such bond in history.
Regions in the United States are increasingly focusing on luring Asian high-tech companies with enticing incentive packages. For example, Virginia offered an IBM-Toshiba joint venture a $118 million incentive package. However, corporate welfare is by no means limited to the Unites States. Dresden, Germany negotiated about $550 million in government incentives (for a total of $1.9 billion in investments over ten years) with Advanced Micro Devices of Sunnyvale to set up an offshore wafer fab. This deal ended up being one of Europe's biggest incentive packages for a new chip plant. Northern England, Wales, Scotland, and Ireland offer strong incentives, and are locations that high-tech corporations deem to be favorable.
Regions that attract industry by offering extravagant incentives can experience an over-saturation of firms. The Semiconductor Industry Association has predicted that approximately 35 semiconductor plants will be built in the U.S. during the next five years. Unfortunately, there is an element of instability that high-tech corporations face -- swinging phases of growth and collapse. Frequent corporate downsizing mean that states do not always see a return from the money they put into a high-tech plant. For example, IBM received $58 million between 1990 to 1994, while at the same time laying off 100,000 workers (according to Corporate Welfare Information Center).
Many opponents of corporate welfare contend that these governmental favors burden the average taxpayer as well as the economy. The Corporate Welfare Information Center states on its webpage, "The $150 billion for corporate subsidies and tax benefits eclipses the annual budget deficit of $130 billion. Its more than the $145 billion paid out annually for the core programs of the social welfare state: Aid to Families with Dependent Children (AFDC), student aid, housing, food and nutrition, and all direct public assistance (excluding Social Security and medical care)". (www.envirolink.org/issues/corporate/welfare/index.html.)
Many of the high-tech corporations benefiting from corporate welfare are environmental polluters. They seek out "hot spot" regions that not only offer lavish financial packages, but cheap power and water as well. In the face of these benefits, high-tech companies are taking advantage of these million dollar handouts every step of the way. When asked whether Intel would build a second facility in New Mexico, Intel Corp. president Craig Barrett replied, "Figure out what you want to do about the regulatory process, and we'll talk." (Albuquerque Business Journal, Sherri Chenn)
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