Greenville-Spartanburg is held up as a model for GSO's economic rejuvenation, and South Carolina's business-friendly climate gets its share of props, too.

How big a role has BMW played in the region's success, and how important were incentives to landing the car-maker and fueling its subsequent expansion?

I think the answer to both questions is, Very.

HondaJet isn't BMW, but we certainly need the kind of jobs it brings. If the deal looks like a good one, we should make it.

Comments

[bubba]

"HondaJet isn't BMW, but we certainly need the kind of jobs it brings."

How many aeronautic industry skilled labor (assembly/mechanics) and professional (engineers) positions are likely to be filled by experienced locals not already employed in those fields?

Because Honda generally pays well and has decent benefits, I suggest that a large number of the those mentioned positions will be filled by those aero workers already working for local competitors, including Honda's adjacent neighbor. There's some local precedence for that sort of thing.

Those engineering positions not filled in that way are likely to be filled by imported employees/contractors.

[Triadwatch]

May I introduce you to DELL

[Ed Cone]

Bob, interesting points. Seems to me that bringing in well-paid, highly-skilled workers is itself a good thing, and that talent poached from local employers would have to be replaced from somewhere. As I understand it, GTCC has played a role in our success in this realm.

TW, Dell was a bad deal to bring mediocre jobs in a dying industry segment. It's a cautionary tale, to be sure, but just as BMW doesn't in itself sell this plan, Dell does not mean it's a bad idea.

[bubba]

"Seems to me that bringing in well-paid, highly-skilled workers is itself a good thing, and that talent poached from local employers would have to be replaced from somewhere."

The normal imported professional employee life span in this industry is probably three years. They get recruited by someone else (sometimes a previous employer) and they're gone.

Their are very few "Kansas City Star" type employees in Aerospace.

[Ed Cone]

Probably true of many high-end jobs these days. Don't really see it as a negative, esp. if it's part of a plan that brings more good manufacturing jobs with it.

And some of them may stay and start their own businesses, a la RFMD.

[Andrew Brod]

I agree that Bubba's point is on the money. That's a real concern. However, given the relatively low educational attainment in our area, if we never land ventures that bring in highly-trained outsiders, our short run will be dominated by projects employing low-skilled workers. It's got to be a mix.

As for our thing with Dell, as frustrating as it was, it's hard to argue that we lost much on the deal.

Back to HondaJet: The real potential from a project like this is the additional business it might attract. And yeah, I said "might." It's uncertain. Either we place a few bets from time to time or we remain stuck in the mire. Our call.

The thing that stuck out for me in the N&R story was Billy Yow's comment: "HondaJet wants more?" Perhaps he's forgotten that the big news about its announcement was how little the incentive package was, only around $8 million. Compare that to the $250-300 million each for Dell and the Google data center in Caldwell County. I don't know how much "more" HondaJet wants, but I'd listen to the request before shooting my mouth off like that.

[Andrew Brod]

The other thing that stuck out in the N&R story was Richard Beard's comment that "we cannot continue to hide behind the 'they’re-coming-anyway’ mentality."

Dude, that's not a "mentality." That's a reality of the strategic challenge any community faces. Yes, it turns out that Dell was probably always going to come to Forsyth County. But we didn't know that at the time, and we can't know that for sure about the HondaJet request or the inevitable one after that.

I've characterized these things as gambles, but that cuts both ways. Sometimes we need to bet that an incentives package will yield a winner, but perhaps sometimes we need to bet the other way and say no to the request. We might find that the company was "coming anyway"; but we might find that the rejection drives it somewhere else.

[Ed Cone]

Two questions:

If a new employer poaches employees from existing employers, forcing existing employers to replace those workers, isn't that net job creation courtesy of the new employer?

And, isn't it a good thing to bring in skilled, high-salary professionals from elsewhere, even if they cycle through fairly quickly, as long as they're replaced by more high-end workers?

[Andrew Brod]

Ed, I'd say yes to both. But the second "yes" depends the incentivized business staying, in which case the high-end workers are bound to be replaced if they cycle through as frequently as Bubba claims.

The concern I noted (about which I could have been clearer) is what happens when the business leaves. My guess is that the managers and engineers who worked at the Dell plant are gone by now.

[Abner]

Extortion

(also called shakedown, outwresting, and exaction)
is a criminal offence which occurs when a person unlawfully obtains either money,
property or services from a person(s), entity, or institution, through coercion.

Refraining from doing harm is sometimes euphemistically called protection.

Extortion is commonly practiced by organized crime groups.

The actual obtainment of money or property is not required to commit the offense.

Making a threat of [taking jobs away]
which refers to a requirement of a payment of money or property
to halt future [taking jobs away] is sufficient to commit the offense.

Exaction refers not only to extortion
or the unlawful demanding and obtaining of something through force,

but additionally, in its formal definition, means the infliction of something
such as pain and suffering or making somebody endure something unpleasant.

Wiki

[Bill Bush]

I can see Google from my mom's kitchen window in Lenoir. Literally! They are building a major expansion right now, working 24 hours a day. I don't think they came back to the Caldwell County Commissioners for any more help, but I could be wrong. I only read the News-Topic sporadically. Other than feeding/housing construction workers, I don't see any evidence in the employment picture there to indicate a lot of gains. Caldwell is a less-educated county than Guilford, I think, and has a large and growing community college. People there are trying, but there are not too many straws to grasp. I remember when Caldwell's furniture factories were bustling, with jammed parking lots and daily rush hours on 321 and 18 that you didn't want to cross. People would still like tohave those jobs and build that furniture from actual wood. Of course, to get consumers to pay for it, you'd need to explain to them that it would last longer than the payments, unlike the present offerings.

[Andrew Brod]

Okay fine, George. But regardless of what moral gloss we place on the incentives game, it's perfectly legal, so you could apply the same (faulty) logic to any negotiation:

Pay my price or I won't supply the goods.
Give me these terms or I won't provide the service.
Put carnations in my dressing room and I'm walking out.

If I drive a hard bargain with you, are you going to accuse me of extortion? You sound like someone with whom people should be careful of doing business.

[Ed Cone]

Bill, I'm not convinced the public officials who pushed through the Google deal understood that they were buying a big refrigerated warehouse. Again, not all deals are good ones.

AB, yeah, we don't know yet that the minijet market will thrive, or that if it does HJ will be a winner (and we don't know that's what Honda is going to expand here, either). But if high-end jobs do rotate through over time, that strikes me as a good thing in more ways than one.

[Abner]

"Okay fine, George. But regardless of what moral gloss we place on the incentives game, it's perfectly legal"

God forbid we stand for anything...

[Abner]

So let's do the math.

Prove giving them more than what we said we would
for them doing what they said they would in the first place.

Do you realize they already said they would do
what they want to be paid even more,
for what they already said they'd do?

[Abner]

"If I drive a hard bargain with you,
are you going to accuse me of extortion?"

"It's buying the same service twice"

RH

[Abner]

Close Summitt House...?

RH

[Abner]

"Where you invest your love,
you invest your life"

RH

[Abner]

"I love my wife"

GH

[Andrew Brod]

My point, George, is that it's fine and good to "stand for something," but assigning morality to something like this is a great way to make bad policy. I don't think it's immoral to make the best deal I can for my community, even if I might wish the deal could be better. Good economic policy isn't immoral, but it's often amoral.

Now, if you don't think a given incentive package is a good deal, then fine. If you think its costs outweigh its benefits, fair enough. That's something two rational adults can argue about. That takes us back into the realm of real-world economic policy.

[Andrew Brod]

Ed, we're on the same page on that point.

[bubba]

"If a new employer poaches employees from existing employers, forcing existing employers to replace those workers, isn't that net job creation courtesy of the new employer?"

Not for us, if they come from someplace else, land here, and take off in a two-three years.

"...as long as they're replaced by more high-end workers?"

......likely from somewhere else again. Plus, there's no guarantee the employee/contractor will be replaced at all....it's the old corporate world concept of "Change", which translates to "Do more with less", and it happens quite frequently.

[Ed Cone]

Right, the deal would have to have a long life to pay off.

But a healthy new employer means a net increase in jobs, even if many of them are filled from elsewhere, and I don't see the downside to cycling people in for a few years, then replacing them with fresh blood. They'll spend and pay taxes while they're here, and some of them may like it enough to stay and start their own companies.

And good jobs bring a multiplier effect -- more people eating in restaurants, using professional services, hiring landscapers, etc.

[Andrew Brod]

Right. And as I noted earlier, an unsuccessful effort (in which the incentivized company is here for only a few years--think Dell) isn't necessarily a disaster. It helps that incentives (other than provision of infrastructure) are generally structured to pay out only when the company passes certain thresholds of activity.

Really, the only way an incentive package can be a big loser is if the company would have come anyway (there's that "mentality" again). In that case, anything paid in incentives is a loss.

But if the package lures the company to locate, then the problem with incentives is that the city or county pays more than it might have to get the siting, due to its being on the short end of the strategic stick. The benefits outweigh the costs but not by as much as they might have. That's not good, but it's not disastrous.

How do you tell the difference? That's a problem. It's subjectivist probability, meaning it's a darned tough nut to crack. You have to reject a few requests and see what happens. And take the heat if the company locates elsewhere.

[Abner]

NON?

We would not be paying for something already paid for?

It's not a quesiton of the first,
but the second time to the punch boul.

g

[Andrew Brod]

I'm curious. In what way does an incentives-granting local government pay twice for something? And what is the thing it pays for twice?

[Abner]

"In what way does an incentives-granting local government
pay twice for something?

The first time for the $8 million.

The second time,
for whatever they ask for next.

"And what is the thing it pays for twice?"

Jobs it shouldn't have to pay twice for.

[Abner]

Do you realize what you are trying to justify?

[TL]

Two days ago I visited South Bend, Indiana, where Studebaker built its last US car in 1963 and the city is just now razing the last Studebaker manufacturing building.

Today I drove past Honda's plant in Marysville, Ohio, where 4,200 workers crank out upwards of 400,000 Accords a year. The plant seems longer than an Interstate mile.

Honda is a better-run company than Studebaker, though it has yet to make anything as timeless as a Golden Hawk or an Avanti.

Would incentives for HondaJet be a gamble? Sure. Any investment has risk. But Honda's track record is pretty good. Remember how some of us snickered when that motorcycle company sent its first tiny cars over here?

[Billy Jones]

A better model for "GSO's economic rejuvenation" would be Detroit, which has begun its triumphant rise from the ashes like the mighty Phoenix of myth and legend.

One has to crash and burn if one is to rise from the ashes.

[Andrew Brod]

First of all, George, I'm not justifying anything. Discussing when something is and isn't a good idea isn't the opposite of claiming it's never a good idea, which is what you appear to be doing.

Second, you appear to be saying that the jobs are paid for twice when the company comes back for more money. Okay, that's not unreasonable. But that implies that in your view it's not the incentives per se that lead to the double-payment, just the repeated requests for them.

For what it's worth, companies that come back for more generally tie their request to an expansion of their operations, hence more jobs. That's what HondaJet is doing here. So strictly speaking, we're talking about different jobs.

[Roch101]

Will city incentives be tied to a requirement that new employees live in Greensboro?

[Roch101]

In the News & Record story, by Donald Paterson, Amanda Lehmert and Joe Killian, Richard Beard is heavily quoted promoting incentives for HondaJet. The reporters fail to reveal that Beard's commercial real estate company represents property for sale and lease in the immediate vicinity of HondaJet's facility.

[polifrog]

Will city incentives be tied to a requirement that new employees live in Greensboro?

Precipitating haves and haves nots and the forging of two Americas via the state cudgel.

But that aside, businesses of like products tend to gravitate toward one another geographically. Automobiles and Detroit, Charlotte and banks.

If "ToyotaJet" were considering Greensboro as a possible location, drawn by the perimeter of businesses already supporting HondaJet, would this process of "incentives" not create a conflict of interest such that Greensboro would be unable to lure "ToyotaJet" to our area?

It appears this government sponsored process of bribing individual businesses to locate in Greensboro ignores the tree for the apple. Perhaps a competitive local tax structure could be the fertilizer upon which is grown more than a single apple.

[bubba]

"Will city incentives be tied to a requirement that new employees live in Greensboro?"

Have they ever been so?

How would such a requirement be enforced?

I think it's pretty clear that further incentives for HondaJet would be a very questionable move for a wide range of reasons.

[Roch101]

I don't know how that would be enforced, Bob, but advocating incentives from Greensboro because new hires will spend and pay taxes is naive unless we can be assured that "here" actually means the place from where the incentive come.

[Ed Cone]

We don't know exactly what the request will be, but as I read it, Honda may be asking for more incentives for additional jobs -- not for maintaining the ones already brought here.

You can't mandate that people live in the city, and you shouldn't try, either. Anyway, the incentive request seems to be going to the county as well.

Frog is correct that businesses of like kind tend to cluster together. That's one of the reasons to support a good incentive plan for Honda -- we're already seeing a nascent aviation/aviation services cluster in this area, and we want to nurture it to maturity.

[Andrew Brod]

The point Frog raises is a good one when we're talking about incentives for retailers. The jurisdiction of the incentive-granting body roughly coincides with the relevant market for the retailer. Hence giving incentives to a local Wal-Mart necessarily affects the local competitive standing of a nearby Target. Incentives of this type amount to choosing one brand over another, which is why I think most retail incentives are bad policy.

(Exceptions involve other economic-development objectives, such as revitalizing a dormant commercial strip in a downtrodden neighborhood.)

But that doesn't apply to industrial incentives. HondaJet's competitors are elsewhere and its market is national if not global. Now, what if one of its competitors wanted to be here? HondaJet's incentives wouldn't discourage "ToyotaJet" from coming to Greensboro. Quite the contrary. If anything, ToyotaJet would find it easier to get them. Either ToyotaJet would appeal to cluster logic or it would invoke fairness. I'd be shocked if local governments turned TJ down after incentivizing HJ.

(And George, I'm not advocating or justifying. This is still just analysis.)

[Roch101]

Promoting tax incentives because the new hires will pay taxes here when they may well not pay taxes here is not a good argument. I think Doug Clark's reason is the most honest: that incentives will be a nice favor, a "token of appreciation."

[Andrew Brod]

There are taxes and there are taxes. Even if these new hires live outside of town but shop in town, they'll be paying sales taxes. And of course the shopping itself is relevant too.

[Roch101]

Another "if."

[Andrew Brod]

That's not an "if." It's data. Dislike incentives if you like (I really don't mind--I have no dog in the fight), but cities like Greensboro suck up retail spending from outlying areas.

[Andrew Brod]

In other words, it's reasonable to argue that the benefits of an incentives package don't outweigh the costs. I don't think that's true for every case, but it is for some. But it's not reasonable to argue that there are no benefits.

[Roch101]

Don't shift this to motives yet, before we decide what our priorities are (corporate incentives or funding the local food bank, for example), let's have an understanding of what we are getting for our money. In other words, I agree, that we should evaluate the benefit first. When it comes to additions to the tax base, some new employees, some of whom might live in town and some of whom might shop in town seems to be accurate. If you know a way to quantify these numbers, that would be informative. But I still think what it really comes down to is Doug Clark's take,

[Andrew Brod]

Of course I know how to quantify these things.

As for Doug's take, note that he more or less assumes that HJ's request will be in the same ballpark as its initial request, namely small. A small cost is obviously relevant as we talk about weighing costs vs. benefits.

[polifrog]

HondaJet's incentives wouldn't discourage "ToyotaJet" from coming to Greensboro. Quite the contrary. If anything, ToyotaJet would find it easier to get them.

Agreed. I was not arguing otherwise.

I am arguing that Greensboro essentially granted HondaJet an attractive comparative advantage over its competitors. But not only is that comparative advantage negated if the city gives "ToyotaJet" the same or similar incentives, but "ToyotaJet's" entry into the Greensboro market would freely take advantage of HondaJet's investment in peripheral support thereby putting HondaJet at a comparative disadvantage to "ToyotaJet".

I was my understanding that such conflicts of interest were addressed in the "incentives contract" such that cities could not for some period of time give business 2 (direct competitors with business 1)an incentive package in exchange for locating in the city's area. Essentially a no compete clause.

[Andrew Brod]

There isn't a "Greensboro market" for jets. That market is, as I noted, national if not global.

As for peripheral support, I'm not entirely sure what you mean. But the point of cluster development is that when you've identified an actual cluster (as aeronautics appears to be), each company in the cluster benefits from the proximity of others. So yes, TJ would benefit from what HJ's done, but HJ would benefit from TJ's addition to that. TJ's arrival wouldn't be a zero-sum proposition for HJ.

[Abner]

News & Record fails to report expert's financial interests in Honda Jet story

http://roch101.blogspot.com/2011/07/news-record-fails-to-report-experts.html

[Andrew Brod]

Roch, it looks like it'll be a small cost.

As for the benefits, we're looking at 400+ jobs, which in these post-industrial days is a lot. It doesn't sound like a call center (it "will provide service, maintenance and annual inspections"), so a significant share of those jobs may be higher-paying.

What do you think?

[bubba]

So how many of those 400+ jobs will actually to to Greensboro/Guilford residents not employed at a competitor?