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From: John Young <jya@xxxxxxxxxxxx>
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Date: Tue, 11 Jun 1996 17:13:23 GMT
Financial Times, June 11, 1996, p. 15.
Bribe or subsidy? [Editorial]
When does an incentive to bring jobs to a deprived area
become a bribe? Answer: if somebody else is doing it. And
when everybody does it, defensible subsidies become swamped
in a welter of competing inducements. Multinational
companies pocket the cash. Some build their factories where
they would have built them anyway and send taxpayers the
bill.
This competition has become more intense in recent years,
as European regions bid against each other for inward
investments, much of it from east Asia. It is one economic
race in which the UK can boast remarkable success. The
country attracts almost a third of the EU's inward
investment. Overseas capital now accounts for a fifth of UK
manufacturing employment and about 40 per cent of the
country's exports of manufactured goods. And the pace is
increasing. The Welsh Development Agency, for example, is
now chasing about 100 projects, almost twice the number on
its books a year ago.
It is not difficult to understand why. Foreign-owned
companies played a large part in reducing the despair and
desolation in those parts of the country where whole
communities were pitched into unemployment by the collapse
of traditional heavy industries. In the northern region,
for example, more than 60,000 jobs have been created in the
last 10 years from some 450 projects, which brought
investments of L7bn to the region.
In addition to providing jobs in areas where unemployment
seemed to have become a way of life, the new foreign-owned
factories have brought other profound benefits to the UK
economy. Projects ranging from the earliest television
manufacturing plants in south Wales, to the modern car
factory built near Sunderland by Nissan have brought a
revolution in labour practices, cheerfully accepted by the
employees and emulated by competitors. Wage flexibility,
the dismantling of unnecessary regulations, the lowering of
corporate taxes and more imaginative approaches to planning
have all been encouraged, in part at least, by the need to
attract foreign capital.
These reforms and other advantages of investing in Britain,
such as access to EU markets, are much trumpeted by UK
ministers. So why is it necessary to put together
increasingly sophisticated subsidy packages? Some
companies, such as Toyota, clearly do not need the cash.
Others may be swayed. But even from a narrow national
perspective, it makes no sense for different regions to
increase the bidding by competing against each other. Even
though regional development agencies are constrained by
national and by EU rules as to what they may offer,
ingenious ways of putting together different types of
subsidy can create a fat parcel. More than L37,000 per
worker has recently been offered by the Welsh Development
Agency to LG, a Korean microchip manufacturer.
It is time for the Department of Trade and Industry to
crack the whip, as the Treasury is now proposing. It should
restore consistency, evaluate the real economic benefits of
each project, and limit incentives to general measures to
help deprived areas. More generally the EU needs to press
forward with its efforts to construct clearer rules
governing the packages of subsidies which member states are
putting together with such imagination. Above all, it is
time for a recognition that such subsidies have become good
for each and bad for all.
[End]
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Please note that FT is not terribly happy either with the
way UK's National Lottery Millenium funds are being
dispensed. So it may be that this editorial view supports
the recent barrage of corporate arts and architecture
funding, say as with recent sponsorship of museum
blockbusters (MoMA's automobile show by Jaguar and
Oldenburg's by GTECH) and subsidies like those for Disney's
Times Square mega-cash-cow in Madhatter greased with
dogdigs in less profitable favelas.
Big-time biz-bribe art, you bet, to hell with cheap subsidies!