Corporate Welfare Crash Lands in Triad with Skybus

Chris Hayes and Max Borders

This article originally appeared in the Greensboro News and Record.

Imagine. You get a call from your stock broker. He says he’s got a line on a can’t-miss opportunity: a startup in a hyper-competitive industry, one in which the costs of doing business (inputs) are going up fast, and the failure rate is as bad as the restaurant industry. They’re burning through cash. They’re burning through credit. Meanwhile their revenue per transaction is among the lowest in the industry. Do you pull out your checkbook? Or do you hang up and fire your broker?

In the world of economic incentives, you can’t hang up — and the government’s got your checkbook. The state, Guilford County, Forsyth County, the PTI Airport Authority and area cities got together and decided to be your broker. This time you got Skybus, which crash-landed April 4.

"Their business plan had no chance of survival," said Michael Boyd, the president of The Boyd Group, a Colorado aviation-consulting company. "If oil prices were half where they were, it would have just prolonged the inevitable."

Despite this outlook, Henry Isaacson of the Piedmont Triad Airport Authority said he would put together another incentives package "in a heartbeat." The bravado of those who would spend our money is matched only by their desire to keep their jobs.

It appears the planners got lucky this time by recouping some losses associated with the package. But will they next time? And while PTI may come out OK, will taxpayers ever see any of this recouped money? We won’t hold our breath. In most cases of failed economic incentives, taxpayers aren’t so lucky. We’ll pass over all the government man-hours (read: money) these authorities wasted chasing this pipe dream.

Even if government authorities had picked a winner in Skybus, you wouldn’t have seen any return on investment, either, except the feeling that we’re "bringing jobs."

What about the opportunity costs? That is, consider the healthy companies our money might have helped create if we had been left to spend or invest our money, our way — rather than being forced to subsidize an insolvent company.

But the government didn’t pick a winner. It picked Skybus.

Ironically, all this happened a week after Allegiant Air announced it would close up shop in the Triad — a decision which may have been made, in part, to the state’s favoritism of Skybus.

In other words, while the government was pouring your money into a now defunct airline, we learned that an existing discount airliner, Allegiant Air, would end service from Greensboro.

(Fortunately, for PTI patrons, Allegiant has since changed its mind.)

Still, government, through its recruitment and subsidy, gave Skybus a competitive advantage over an existing business. All of which reflects a horrible trend: the degeneration of North Carolina from a healthy climate of markets to one of patronage capitalism.

They call it economic incentives. Trouble is, bureaucrats playing with your money have far, far fewer incentives to get things right. They don’t lose their behinds. They don’t lose their jobs. They don’t lose any of their own money. When they lose, they lose your money. And the whole scheme creates distortions that simply can’t work themselves out in the long run. Indeed, the only punishment the government gets for their poor choices is bad press.

There is no transparency to the process, either. Five bureaucrats at the Department of Commerce carry out backdoor deals in the name of some errant notion of the "public good." Local officials go into private session to discuss corporate welfare packages.

We learn about the handouts after the fact — the point at which public scrutiny does very little good.

In the case of Skybus, not just the consumer has been harmed. Unintended consequences of the government’s meddling in the airline market have cost North Carolina jobs, customers flights, and taxpayer money to boot.

At a time when jet fuel prices are sending airfares through the roof and making airline margins paper thin, taxpayers were going to be fueling up Skybus’ planes without getting a packet of peanuts in return.

Now all they’ve got are bureaucrats making apologies for failure — claiming they’ll do it again in a "heartbeat."

Should we feel angry at Skybus? It was trying to survive in a difficult and competitive environment. But having government stack the deck in favor of it skews the institutions and muddles the rules that make doing business less corrupt and better for consumers. Of course, none of this skewing works to any "greater good."

Indeed, more companies are now turning to deadweight entrepreneurship — investing resources into lobbying government to prop them up. Good companies don’t need to line up at the trough when the business environment is fertile. And, by the way, it ain’t that fertile here any more. North Carolina has the highest corporate taxes in the Southeast, and the government is using money to play corporate Whack-a-Mole.

Again, investors, having a direct stake in their investments, are much better qualified to judge whether a business is a good investment. Governments have no other stake than expanded power and getting to say "we brought jobs" until insolvent businesses leave or die.

But bureaucrats are immune to the stern punishments of the market. Don’t believe me? Unless a fed-up citizenry makes big changes to the leadership, we bet you’ll see more corporate welfare given out in 2008 than in 2007. In fact, the state probably will use the looming recession to justify such giveaways. Perverse, no?

But there’s one thing we should never forget. All this corporate welfare is our money to start with. The minute we start thinking otherwise is the point our vibrant market economy degenerates into some sort of crass mercantilism.

An economy is a complex ecosystem that cannot be designed by central planners and functionaries with play money. It’s time the government got out of the incentives game. Instead we can create a fertile business environment for all. It’s only fair. It’s the only system that works.

This article was posted in Corruption & Ethics, Economy by Chris Hayes on April 16, 2008 at 3:24 PM.

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