The 'China Hub': Another flight of fancy?

Tuesday, May 3, 2011

Although the state government is strapped for cash, Missouri's General Assembly is about to place a huge and ill-advised bet on the so-called "Midwest China Hub," or "Aerotropolis." The subsidies would authorize $360 million in tax credits -- although the details keep changing -- primarily for the construction and operation of cargo warehouses near the Lambert-St. Louis International Airport.

At the eleventh hour, legislators tacked on this misguided proposal to another bill that would limit tax credit expenditures. The end result is a 330-page bill that would accomplish little other than take benefits from some -- in this case, the low-income elderly -- and instead award benefits to private developers in Saint Louis.

In a recent state Senate committee hearing on the China Hub subsidies, Sen. Ron Richard opined, "I've got business people and friends of mine that live in Saint Louis that are begging for something new and creative. So we take a chance." Unfortunately, when he advocated trying something new and creative, Richard did not suggest that the state create an environment that encourages all Missourians to be creative and entrepreneurial. His plan entails quite the opposite: gambling hundreds of millions of dollars, and leaving Missouri taxpayers on the hook.

The China Hub subsidies have three critical problems. First, the bill rests on the flawed notion that legislators are all-knowing, and that they have the ability to successfully pick and choose the industries, types of employment, and goods and services that should exist in Missouri. Second, the state government is already short on funds, and it cannot afford to give away hundreds of millions. Revenue lost to tax breaks for favored industries would need to be replaced by increased debt, reduced government spending, or -- more likely -- imposing a higher tax rate for all of Missouri's less fortunate taxpayers.

Third, there has been no in-depth study of the costs and benefits of the proposal, nor do we know the level of commitment from foreign firms. The Saint Louis Regional Chamber & Growth Association recently released an eight-page brief about the China Hub subsidies, but it is by no means in-depth. It merely extends the unsupported assumptions that were built into the legislation.

Major questions remain to be answered. In particular: What's the rush? We don't know with certainty what the legislation will cost, or what business it may bring. Why should state government pick an economic winner when it has such a poor track record for doing so? Also, how do we know that cargo warehouses have the ability to boost the Saint Louis area economy?

Legislators like Richard have a hunch, and they want taxpayers to bear the risk. As Harvard economist Edward Glaeser notes: "Too many officials in troubled cities wrongly imagine that they can lead their city back to its former glories with some massive construction project."

Unfortunately for taxpayers, the strategy taken by state legislators is not a new one -- nor is it effective. The China Hub subsidies rely on the same old policies that the legislature has tried before. Why will this time be any different? Within the last decade, we spent $1.1 billion on a new runway at Lambert, and it sits largely unused. Missouri lawmakers say that they want to rein in tax credits but then turn around and award even more.

If lawmakers were serious about "taking a chance," they would do something that is actually new and different, such as reducing the state income tax or eliminating tax credits altogether. This would create a more favorable playing field for all businesses -- not just a select few. Is there anything creative and new about subsidizing the construction and operation of warehouses?

The best way for Missouri to grow the economy is to provide a business climate that encourages individuals to develop new ideas. If government officials genuinely want to try a new strategy, they should stop attempting to control the state economy from the top down. Creating another layer of bureaucracy -- no matter how well-intentioned -- will only impede this creativity and stifle growth.

Entrepreneurs in Missouri will seize upon the opportunities around them as soon as the government gets out of their way.

Christine Harbin and Audrey Spalding are policy analysts at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

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