Southern states team to lure business

Alabama is enlisting Florida and Mississippi to help it bring a $2.9 billion German steel mill to Mobile.

from the March 6, 2007 edition

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"Partisanship brings it together, and shared self-interest makes it work," says David Lanoue, chair of the University of Alabama's political science department in Tuscaloosa.

It could spell bad news for Louisiana Gov. Kathleen Blanco (D), who is also vying to lure ThyssenKrupp. Her state is offering a $300 million incentive package.

Competition among states means that corporations can still call many of the shots. North and South Carolina fought hard for a secretive project, which turned out to be a 210-employee Google server station. North Carolina won in January by offering tax breaks that amounted to a record $1 million per job gained.

"Southern states have stirred themselves into a sense of desperation when they shouldn't be desperate," argues Chad Adams of the libertarian John Locke Foundation in Raleigh, N.C.

"It's tricky for poor states," says William Stewart, professor emeritus of political science at the University of Alabama in Tuscaloosa. "[Incentives] involve a sense that we're not smart enough or we don't have enough infrastructure to get this industry otherwise, so we give away as many freebies as we can come up with. On the other hand, most people feel [such incentives have] been a plus."

The problem for critics of incentives is that they seem to work. Alabama, for example, paid $166,000 per job in 1993 to land a Mercedes Benz plant outside Birmingham. At least partly as a result, Alabama's economy sprinted forward. It now has the 15th-fastest growing GDP among the states, up from No. 30 in 2004. To land a plant in 2000, Mississippi gave Nissan a $700 million incentives package. Mississippi's GDP has gone from $68 billion in 2002 to $81 billion in 2005.

"What's happening now ... is we're replacing $30,000 a year jobs with $60,000 a year jobs, and that's how you change not just quality of life, but the culture of life, where people can buy a bass boat where they couldn't before," says Alabama state Sen. Roger Bedford (D).

More broadly, Mr. Whalley says, the state-eat-state model is becoming outdated as Americans face increasing competition from countries such as China.

"I think we're going to see a lot more of these [regional agreements] as we go forward," he says.

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