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Concord Speedway Deal: Legal Corruption

Corruption need not come via bagged cash in bathrooms. It’s happening all around us. Just ask the people of Concord. To change the names and places of the players in the recent Concord-vs-Bruton Smith affair, you’d think it was another sordid event in some banana republic. But no. This is the America of hot dogs, Bud Lite, and cars turning left.

Let me be clear: we shouldn’t fault Bruton Smith for being a billionaire. We shouldn’t even lay full blame at his feet beside all that cash he got to stay in Concord ($80 million). Rather, we have to look at the system itself. Once corruption infects a system, that system becomes an instrument of corruption. It’s a vicious circle. The Bruton Smiths of the world are simply playing according to new rules, which – though they may be morally askew – are legal nevertheless. And that’s got to change.

Consider this list: Phillip Morris, Merck, Dell, Fidelity, Google, HondaJet and Goodyear. Do you realize that within a decade, North Carolina has become a state that has gone from simply attracting companies with economic incentives to one that pays them just to stay? When I say North Carolina, I mean you and me. We’re not paying them in the “thanks, come again” way that makes an honest man a millionaire. We’re paying by way of bureaucratic pilfering, wheeling, and dealing at all levels of government. The recent Goodyear deal was just the proverbial banana peel atop the Crisco slope.

Just think how easy it’s going to be to threaten leaders: “We love it here, Senator, but Mississippi’s awful tempting.” Bureaucrats will scramble to create a package at the People’s ATM. No bluffs need be called. But every dollar spent paying off wealthy corporations is a dollar you and I can’t invest in honest start-ups—maybe the next eBay. Entrepreneurship is fast becoming a blackmail shell game where tremendous resources are thrown at people who were once captains-of-industry, but have since become like caricatures dreamt up by Marxists. Because once tax money and business commingle, little good can come of it.

American capitalism is starting to look more like the Chinese version. When the rules of the game turn corporate heads into patroni instead of entrepreneurs, the spiral goes downward. We can’t expect actors in a perverse system to be angels. We can only expect them to respond rationally to the rules, whatever they are. A couple of pats on the back at church and the faint glow of rectitude ain’t enough to make anybody turn down $80 million. That’s why we must come back to the rule of law. Change the rules so they look more like traffic laws than high-stakes poker: “Drive on the right” applies equally to everyone. “Bluff and winner take all” is a zero-sum game.

The bureaucrats all have an excuse: “If we don’t, someone else will.” And they’re not entirely wrong. Incentives arms races among states would seem to force their hands. But in truth, those in power also have something to gain. Indeed, Governor Easley has made a political cottage industry out of giving away our money and taking credit for bringing business to the state.

Economist Fred Sautet writes: "While across-the-board tax cuts expand economic activity, targeted tax incentives are inevitably financed at the expense of established businesses. Today’s winner of [incentives] is tomorrow’s victim of a broad increase in business taxes. Assuming, that is, this employer sticks around."

Do we want NC companies to become like some teenagers—dependent couch potatoes on an allowance? That is, companies will be far less likely to make the changes needed to increase productivity, free up investment capital or offer better products at lower prices. Instead, they’ll be more likely to invest in getting government goodies (lobbying). Making the wrenching changes required to remain competitive, flexible and solvent in today’s economy will be unnecessary in the short term. Why compete when you can blackmail the government?

Suppose we agree it needs to be stopped. What do we do? It’s not as simple as throwing the bums out. Voters who benefit locally from incentives will be the first to re-elect a politician that ‘kept our jobs’ even though people in the next district lose out. In this case, representative democracy can be as much a hindrance as a help. Changing this perverse system will take either enlightened leadership at the state level, the federal level, or some sort of lawsuit (say, by the good folks at the North Carolina Institute for Constitutional Law). Popular pressure can’t hurt either. Though sadly, it may take a few more unprecedented giveaways before North Carolinians get fed up.

This article was posted in Corruption & Ethics by Max Borders on November 29, 2007 at 1:12 PM.

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