Voice For Liberty

Tag: Entrepreneurship

  • Cessna, another Wichita company asking for tax relief

    Wichita City HallThis week the Wichita City Council will consider granting economic development incentives to Cessna Aircraft Company. The incentives are in the form of property (ad valorem) tax relief, implemented through the city’s Industrial Revenue Bond program, as described by city documents:

    Since 1991, the City Council has approved issuance of Industrial Revenue Bonds (“IRBs”) totaling $1.2 billion to finance expansion and modernization of Cessna Aircraft Company (“Cessna”) facilities in Wichita. The City Council also authorized 100% ad valorem tax exemptions for all bond-financed property for periods of up to ten years.

    The city does this for economic development, which in the eyes of politicians and bureaucrats, means jobs. Highly visible jobs, hopefully, that voters will be grateful for. So we might want to examine the record of job creation by Wichita’s economic development machinery. (We should note that Cessna is not the only aircraft company that Wichita has been generous to with subsidy.)

    The Bureau of Economic Analysis, which is part of the U.S. Chamber of Commerce, provides economic data for metropolitan areas. One of the measures that Visioneering Wichita uses as a benchmark of performance is personal income growth. Specifically, per capita personal income growth. There are some issues related to per capita measures that require caution; see Wichita and peer GDP growth for an explanation.

    personal-income-compound-growth-visioneering-peers-2012-11

    Considering personal income growth, here is what Wichita looks like compared to our Visioneering peer cities, based on data from BEA (click on charts for larger versions).

    This chart shows the compound annual growth rate in job creation. Note that Wichita, the violet line, is in last place. But it wasn’t always that way. It was during the decade of the 1990s that Wichita started to slip to last place. Coincidentally, that is the decade in which Wichita started offering economic development incentives to Cessna.

    per-capita-personal-income-compound-growth-visioneering-peers-2012-11

    Since Visioneering uses per capita personal income, I also present it. This time, I start the chart with 1990 data. It’s much the same story as the previous chart: Wichita is in last place.

    Another benchmark Visioneering uses (but won’t present to the council) is job growth. Wichita does poorly here too, ranking in last place among our Visioneering peer cities except in one area: Government jobs. See Wichita job growth and Visioneering peers for details and a video. We should note that to the extent the government sector grows faster than the private sector, we become poorer.

    We might ask the mayor and council members how this proposed action will help Wichita catch up to its self-identified peers. After all, city documents state that we’ve granted IRBs to Cessna in the past: $1,200,000,000 worth, according to city documents. The action contemplated this week is for up to $40,200,000 in bonds, or about three percent of the total granted to Cessna. These amounts are not loans to Cessna from the city, but instead represent the value of property that Cessna may have exempted from taxation: property and possibly sales taxes both.

    Other companies have received similar treatment, and not always with good results. After the announcement of Boeing leaving in 2012, a news report contained this: “‘They weren’t totally honest with us,’ said [Wichita Mayor Carl] Brewer of Boeing, which has benefited from about $4 billion of municipal bonds and hundreds of millions of dollars in tax relief. ‘We thought the relationship was a lot stronger.’”

    The problem with this action

    A major reason why this action is harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As Cessna and other similarly-situated companies escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture. This is being brought into sharp relief as the council considers asking Wichita voters to approve a sales tax increase.

    Last month the Wichita Metro Chamber of Commerce featured a speaker who stressed the importance of entrepreneurship, as evidenced by the headline in the Wichita Eagle: Gallup CEO tells Wichita Chamber: Treat entrepreneurs like star athletes.

    There’s plenty of other evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action the council is considering, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Wichita economy.

    These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.

    Embracing Dynamism: The Next Phase in Kansas Economic Development Policy

    Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    (For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council is considering for Cessna is an example of precisely the wrong policy.

    In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

    We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

  • Wichita won’t consider this, I’m sure

    City of Wichita logoAs Wichita considers continuing taxing everyone to pay for a transit system that few people use, and as Wichita considers taxing everyone even more to pay for a bigger transit system that only a few additional people will use, here’s an example of something that I’m sure is not under consideration: Privatization, entrepreneurship, and diversity.

  • A learning opportunity for Wichita

    Next month the Wichita Metro Chamber of Commerce brings a speaker to town who might be able to offer Wichita helpful advice. As reported in the Wichita Business Journal, “Jim Clifton, the chairman and CEO of Gallup Inc., says cities that create a culture of entrepreneurial development are the ones succeeding today.”

    Clifton is the author of The Coming Jobs War. Here’s material from the inside flap of this 2011 book:

    WHAT EVERYONE IN THE WORLD WANTS IS A GOOD JOB

    In a provocative book for business and government leaders, Gallup Chairman Jim Clifton describes how this undeniable fact will affect all leadership decisions as countries wage war to produce the best jobs.

    Leaders of countries and cities, Clifton says, should focus on creating good jobs because as jobs go, so does the fate of nations. Jobs bring prosperity, peace, and human development — but long-term unemployment ruins lives, cities, and countries.

    Creating good jobs is tough, and many leaders are doing many things wrong. They’re undercutting entrepreneurs instead of cultivating them. They’re running companies with depressed workforces. They’re letting the next generation of job creators rot in bad schools.

    A global jobs war is coming, and there’s no time to waste. Cities are crumbling for lack of good jobs. Nations are in revolt because their people can’t get good jobs. The cities and countries that act first — that focus everything they have on creating good jobs — are the ones that will win.

    visioineering-wichita-video-thumbnail

    It sounds like Clifton has some good advice that Wichita could follow in two areas: Fostering entrepreneurship and improving schools. Wichita certainly needs help in creating jobs. In the nearby video, the record of job growth for Wichita, the nation, and our Visioneering peers (Kansas City, Omaha, Oklahoma City, and Tulsa) is presented. (Click here to watch the video on YouTube, which may work best.) If you don’t have time to watch, I’ll let you know that Wichita performs badly in this comparison. In last place, that is.

    why-kansas-school-standards-low-video

    Regarding schools, the record of Kansas schools is not as good as it first appears if we look beyond a simple comparison of NAEP scores with other states. As shown in Kansas school test scores, a hidden story, Kansas trails Texas in most areas of comparison. Further, the National Center for Education Statistics, in the most recent version of Mapping State Proficiency Standards Onto the NAEP Scales, found that Kansas had weakened some of its standards. NCES judged Kansas’ standards as being low to begin with, and then they were lowered farther. This was during the years immediately after the Kansas Supreme Court ordered higher school spending, and while the legislature complied with that order. See Why are Kansas school standards so low?

    But our government leaders in Wichita and Kansas won’t recognize these facts, at least not publicly.

    Entrepreneurship in Wichita

    Wichita’s economic development policies are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita uses programs that are targeted investment in our economic future, our elected officials and bureaucrats believing that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Wichita and Kansas economy.

    These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

    Embracing Dynamism: The Next Phase in Kansas Economic Development Policy

    Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    (For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates for everyone is an example of such a policy. Abating taxes for specific companies through programs like IRB, EDX, PEAK, and HPIP are examples of precisely the wrong policy.

    In explaining the importance of dynamism, Hall wrote: ” Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

    We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

  • WichitaLiberty.TV July 28, 2013

    WichitaLiberty.TV logo

    In this episode of WichitaLiberty.TV, economist Dr. Russell Sobel joins host Bob Weeks. Topics include local economic development incentives, the environment of favor-seeking, how regulation stifles entrepreneurship, the seen and the unseen, the broken window fallacy, and Dr. Sobel’s research on how intergovernmental grants lead to higher taxes. Episode 6, broadcast July 28, 2013.

    Links to material mentioned in this episode:
    Dr. Sobel’s page.
    Unleashing Capitalism.
    Do intergovernmental grants create ratchets in state and local taxes?
    Bastiat: What is seen and not seen, and the broken window.

  • Without government, there would be no change: Wichita Mayor

    It’s worse than President Obama saying “You didn’t build that.” Wichita Mayor Carl Brewer tells us you can’t build that — not without government guidance and intervention, anyway.

    City of Wichita logoWhen President Barack Obama told business owners “You didn’t build that,” it set off a bit of a revolt. Those who worked hard to build businesses didn’t like to hear the president dismiss their efforts.

    Underlying this episode is a serious question: What should be the role of government in the economy? Should government’s role be strictly limited, according to the Constitution? Or should government take an activist role in managing, regulating, subsidizing, and penalizing in order to get the results politicians and bureaucrats desire?

    Historian Burton W. Folsom has concluded that it is the private sector — free people, not government — that drives innovation: “Time and again, experience has shown that while private enterprise, carried on in an environment of open competition, delivers the best products and services at the best price, government intervention stifles initiative, subsidizes inefficiency, and raises costs.”

    But some don’t agree. They promote government management and intervention into the economy. Whatever their motivation might be, however it was they formed their belief, they believe that without government oversight of the economy, things won’t happen.

    But in Wichita, it’s even worse. Without government, it is claimed that not only would we stop growing, economic progress would revert to a previous century.

    Mayor Carl Brewer made these claims in a 2008 meeting of the Wichita City Council.

    In his remarks (transcript and video below), Brewer said “if government had not played some kind of role in guiding and identifying how the city was going to grow, how any city was going to grow, I’d be afraid of what that would be. Because we would still be in covered wagons and horses. There would be no change.”

    When I heard him say that, I thought he’s just using rhetorical flair to emphasize a point. But later on he said this about those who advocate for economic freedom instead of government planning and control: “… then tomorrow we’ll be saying we don’t want more technology, and then the following day we’ll be saying we don’t want public safety, and it won’t take us very long to get back to where we were at back when the city first settled.”

    Brewer’s remarks are worse than “You didn’t build that.” The mayor of Wichita is telling us you can’t build that — not without government guidance and intervention, anyway.

    Many people in Wichita, including the mayor and most on the city council and county commission, believe that the public-private partnership is the way to drive innovation and get things done. It’s really a shame that this attitude is taking hold in Wichita, a city which has such a proud tradition of entrepreneurship. The names that Wichitans are rightly proud of — Lloyd Stearman, Walter Beech, Clyde Cessna, W.C. Coleman, Albert Alexander Hyde, Dan and Frank Carney, and Fred C. Koch — these people worked and built businesses without the benefit of public-private partnerships and government subsidy.

    This tradition of entrepreneurship is disappearing, replaced by the public-private partnership and programs like Visioneering Wichita, sustainable communities, Greater Wichita Economic Development Coalition, Regional Economic Area Partnership (REAP), and rampant cronyism. Although when given a chance, voters are rejecting cronyism.

    We don’t have long before the entrepreneurial spirit in Wichita is totally subservient to government. What can we do to return power to the people instead of surrendering it to government?

    Wichita Mayor Carl Brewer, August 12, 2008:

    “You know, I think that a lot of individuals have a lot of views and opinions about philosophy as to, whether or not, what role the city government should play inside of a community or city. But it’s always interesting to hear various different individuals’ philosophy or their view as to what that role is, and whether or not government or policy makers should have any type of input whatsoever.

    “I would be afraid, because I’ve had an opportunity to hear some of the views, and under the models of what individuals’ logic and thinking is, if government had not played some kind of role in guiding and identifying how the city was going to grow, how any city was going to grow, I’d be afraid of what that would be. Because we would still be in covered wagons and horses. There would be no change.

    “Because the stance is let’s not do anything. Just don’t do anything. Hands off. Just let it happen. So if society, if technology, and everything just goes off and leaves you behind, that’s okay. Just don’t do anything. I just thank God we have individuals that have enough gumption to step forward and say I’m willing to make a change, I’m willing to make a difference, I’m willing to improve the community. Because they don’t want to acknowledge the fact that improving the quality of life, improving the various different things, improving bringing in businesses, cleaning up street, cleaning up neighborhoods, doing those things, helping individuals feel good about themselves: they don’t want to acknowledge that those types of things are important, and those types of things, there’s no way you can assess or put a a dollar amount to it.

    “Not everyone has the luxury to live around a lake, or be able to walk out in their backyard or have someone come over and manicure their yard for them, not everyone has that opportunity. Most have to do that themselves.

    “But they want an environment, sometimes you have to have individuals to come in and to help you, and I think that this is one of those things that going to provide that.

    “This community was a healthy thriving community when I was a kid in high school. I used to go in and eat pizza after football games, and all the high school students would go and celebrate.

    “But, just like anything else, things become old, individuals move on, they’re forgotten in time, maybe the city didn’t make the investments that they should have back then, and they walk off and leave it.

    “But new we have someone whose interested in trying to revive it. In trying to do something a little different. In trying to instill pride in the neighborhood, trying to create an environment where it’s enticing for individuals to want to come back there, or enticing for individuals to want to live there.

    “So I must commend those individuals for doing that. But if we say we start today and say that we don’t want to start taking care of communities, then tomorrow we’ll be saying we don’t want more technology, and then the following day we’ll be saying we don’t want public safety, and it won’t take us very long to get back to where we were at back when the city first settled.

    “So I think this is something that’s a good venture, it’s a good thing for the community, we’ve heard from the community, we’ve seen the actions of the community, we saw it on the news what these communities are doing because they know there’s that light at the end of the tunnel. We’ve seen it on the news. They’ve been reporting it in the media, what this particular community has been doing, and what others around it.

    “And you know what? The city partnered with them, to help them generate this kind of energy and this type of excitement and this type of pride.

    “So I think this is something that’s good. And I know that there’s always going to be people who are naysayers, that they’re just not going to be happy. And I don’t want you to let let this to discourage you, and I don’t want the comments that have been heard today to discourage the citizens of those neighborhoods. And to continue to doing the great work that they’re doing, and to continue to have faith, and to continue that there is light at the end of the tunnel, and that there is a value that just can’t be measured of having pride in your community and pride in your neighborhood, and yes we do have a role to be able to help those individuals trying to help themselves.”

  • Entrepreneurial activity, Kansas vs. other states

    Entrepreneurship, EntrepreneurEntrepreneurship is important for a growing and dynamic economy. The performance of Kansas in entrepreneurial activity is not high, compared to other states.

    The Ewing Marion Kauffman Foundation prepares the Kauffman Index of Entrepreneurial Activity. According to the Foundation, “The Kauffman Index of Entrepreneurial Activity improves over other possible measures of entrepreneurship because of its timeliness, dynamic nature, inclusion of all types of business activity, exclusion of ‘casual’ businesses, and information on owner demographics.”

    The following interactive visualization presents KIEA data. You may use the visualization below, or click here to open it in a new window, which may work better, as this is a large visualization. Use Ctrl+Click to add or remove states for comparison. Data is from Kauffman Index of Entrepreneurial Activity. Visualization created by myself using Tableau Public.

  • Wichita sees results of new economic development policy

    The first action under a new Wichita economic development policy doesn’t produce economic growth, and in fact, harms the Wichita economy.

    Government takes and gives

    A feature of Wichita’s recently-revised economic development policy grants property tax and sales tax forgiveness for speculative industrial buildings. These are buildings built without having a tenant in place. The proposed plan had a formula that grants a higher percentage of tax forgiveness as building size increases, but the council eliminated that and voted a 100 percent tax abatement for all buildings larger than 50,000 square feet.

    Given tax costs and industrial building rents, this policy gives these incentivized buildings a cost advantage of about 20 percent over competitors. That’s very high, and makes it difficult for existing buildings to compete. Probably no one will build these buildings unless they qualify for and receive this incentive.

    The city hopes that these incentivized buildings will generate new jobs in Wichita. But there appears to be nothing in the policy that prevents existing Wichita companies from moving to these buildings. If this happens, it doesn’t create any new jobs. The company that moves will save a lot in property taxes. Some other landlord in Wichita will have empty space, not through his own fault, but because of Wichita city policy.

    This is what has happened. The first tenant for the first building built under this incentive policy is a company already in Wichita. It’s simply moving its existing operations within the city. The Wichita Business Journal reports that an existing Wichita company will vacate its current space to move in to the new building. It will use about one-third of the available space. (Big industrial spec building signs first tenant)

    (Paying less in property taxes is good, as money remains in the private sector instead of being transferred to government. But city hall doesn’t believe this. Politicians and bureaucrats want to increase the tax base, but here is an example of giving it away.)

    Will the owners of speculative buildings rent only to companies newly moving to Wichita, or will they rent to whoever is willing to pay? Will Wichita companies want to move to a new building with cheaper rent? We now have answers to these questions. So far, the city’s new policy has simply moved jobs from one location to another, creating no new jobs. It has harmed landlords with existing buildings.

    Existing industrial landlords in Wichita — especially those with available space to rent — must be wondering why they attempt to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

    Citizens must wonder about equality. A principle of taxation is that everyone pays equally, and that policy should be applied uniformly. But this program creates a special class of landlords and tenants who do not have to bear their full share of the cost of city, county, school district, and state government.

    Do incentives work?

    We must ask ourselves what do we really get for the cost of incentives. Alan Peters and Peter Fisher wrote an academic paper titled The Failures of Economic Development Incentives, published in Journal of the American Planning Association. A few quotes from the study, with emphasis added:

    Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

    On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

    The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

    In 2008 Kansas Legislative Division of Post Audit investigated spending on economic development. It found about the same as did Peters and Fisher.

    There is one incentive that can be offered to all firms: Reduce tax costs for all. The Tax Foundation report from last year should be a shrill wake up call to the city and state that we must change our ways.

    There is a lesson to be learned: Economic development incentives have a cost. Other businesses (and people) have to pay these costs. That only increases the motivation to seek incentives from the city and state. In fact, it may make it necessary to receive subsidies in order to be competitive with those companies who have incentives.

    All this raises the cost of government. It’s a spiral that leads to ever-increasing control of economic activity by city hall. If all this produced results, that would be one thing. But Wichita has been lagging in economic growth for many years. The results of the first project undertaken under a new Wichita economic development policy holds clues as to why Wichita lags behind.

    Wichita needs to build a dynamic economy that is based on free enterprise and entrepreneurship rather than government planning and handouts. This is the way we can have organic and sustainable economic development that will increase jobs and prosperity for everyone.

  • Kansas editorial writers aren’t helping

    Recently it has become fashionable for newspapers to carry editorials bemoaning the current state of affairs in Kansas, contrasting the current regime to a tradition of moderation in Kansas governance. In particular, Governor Sam Brownback is singled out for criticism.

    Examples of such columns are Kansas 1861-2013 in the Hutchinson News, Kansas slipping away from its people in the Topeka Capital-Journal, and Which Kansas is that? in the Wichita Eagle.

    The common thread in these articles is willing ignorance of the facts. I say willing ignorance because these writers ought to know facts. If they don’t know facts about the Kansas economy and schools, we have to wonder why they are writing editorials that will be read by thousands of Kansans?

    Here’s a brief rundown of the state of Kansas:

    Kansas population has been growing at a slower rate than the country. A chart is here.

    Kansas has been growing jobs at a slower rate than many other states. Here’s a link to an interactive visualization of job growth in the states. You can compare Kansas to any other state or combination of states. Should we be satisfied with the performance of Kansas compared to other states over the past few decades? No, we shouldn’t be satisfied with our record during the period that these editorialists write about.

    Kansas has been growing its private-sector gross domestic product at a rate slower than most states. An interactive visualization is here.

    Kansas has lost ground in interstate migrants. Many more people leave Kansas for other states than move to Kansas, as can be seen here. In the 2012 United Van Lines migration study, Kansas is seen as “balanced.” But Atlas has more outbound shipments than inbound.

    While Kansas newspaper editorial writers like to boast of outstanding public schools, a proper examination of NAEP scores finds that Kansas can’t do better than Texas, a state that we often compare with ourselves in a negative way. Comparing Kansas to national averages, Kansas performs well compared to other states in math and reading in grades four and eight, scoring better than the national average in all these cases. But if we look at the data separated by racial/ethnic subgroups, something different becomes apparent: Kansas lags behind the national average in some of these areas. A table of these figures is here.

    Regarding Texas again: Editorial writers say that because Texas has no income tax, its property and sales taxes are higher. Perhaps. But overall, Texas collects less taxes from its citizens. In 2011 Kansas state government collected $2,378 in taxes for each person. Texas collected $1,682. Texas may have higher sales or property taxes than Kansas, but the total tax burden in Texas is lower.

    Spending follows the same pattern. In 2011 Kansas state government spent $5,115 per person in total, with $1,974 in general fund spending and $130 in bond spending. For Texas the total was $3,718 spent per person in total, with $1,654 in general fund spending and $50 in bond spending. The lower level of spending means Texas has a less burdensome state government, which allows more money to remain in the productive private sector. In Kansas, we spend more on government.

    The “sea of oil” and bountiful severance tax revenue that newspaper editorial writers say benefits Texas but not Kansas: In 2011 Kansas, which has a severance tax of its own, collected $42.54 in this form of tax for each person. Texas collected $104.29 per person in its severance tax. The difference between the two — $61.75 per person per year — is only a small portion of the difference between Kansas and Texas taxation.

    I could go on. But the more facts one states, the more criticism one receives.

    It’s not that what our governor is doing is perfect. It wasn’t the best course to single out certain forms of business organization to receive tax cuts. Everyone should have their taxes cut the same way.

    Governor Brownback still meddles in the economy, supporting harmful policies like the renewable portfolio standard for electricity generation. The Hutchinson News editorial wrote of how “Kansas proved to be a state teeming with inventiveness, ingenuity, determination and a savvy sense of business” and mentioned iconic Kansas-founded companies like Cessna, Beech, Stearman, Coleman, Pizza Hut, and White Castle. But today our state is strangling entrepreneurs, expanding control over economic development under the Brownback regime. Kansas has expanded the realm of public-private partnerships to the detriment of entrepreneurship. Cities like Wichita implement new regulations over industries like parking lot striping, taxicab driving, and haunted house attractions.

    Instead of moving to a modern pension system for state employees, we’re considering borrowing money to cover up the mistakes of the past, with no reform forthcoming and few lessons learned.

    Most inexplicably, Governor Brownback was absent in this year’s debate over important school reform measures like charter schools and school choice. These are initiatives that are working in other states, but not in Kansas.

    It isn’t supportive of our state (or county, city, or school district) to overlook facts in order to create a false impression of a prosperous state with successful schools. Yet that’s exactly what these newspaper editorials want us to do.

    If we don’t learn the facts and if we don’t accept the facts, we don’t have a common base of understanding and a common starting point for debate. Even if the facts are uncomfortable — especially then — we must recognize where we’ve been and what is the actual condition of our state.

    Hoping that Kansans won’t notice might be politically expedient. Both parties can be guilty of valuing political gain more than the health of Kansas. But it’s a severe loss to Kansas that these newspaper editorial writers will not recognize facts, and a shame that they prefer political attacks to reality.

  • Wichita Mayor Carl Brewer on role of government

    When President Barack Obama told business owners “You didn’t build that,” it set off a bit of a revolt. Those who worked hard to build businesses didn’t like to hear the president dismiss their efforts.

    Underlying this episode is a serious question: What should be the role of government in the economy? Should government’s role be strictly limited, according to the Constitution? Or should government take an activist role in managing, regulating, subsidizing, and penalizing in order to get the results politicians and bureaucrats desire?

    Historian Burton W. Folsom has concluded that it is the private sector — free people, not government — that drives innovation: “Time and again, experience has shown that while private enterprise, carried on in an environment of open competition, delivers the best products and services at the best price, government intervention stifles initiative, subsidizes inefficiency, and raises costs.”

    But some don’t agree. They promote government management and intervention into the economy. Whatever their motivation might be, however it was they formed their belief, they believe that without government oversight of the economy, things won’t happen.

    But in Wichita, it’s even worse. Without government, it is claimed that not only would we stop growing, economic progress would revert to a previous century.

    Mayor Carl Brewer made these claims in a 2008 meeting of the Wichita City Council.

    In his remarks (transcript and video below), Brewer said “if government had not played some kind of role in guiding and identifying how the city was going to grow, how any city was going to grow, I’d be afraid of what that would be. Because we would still be in covered wagons and horses. There would be no change.”

    When I heard him say that, I thought he’s just using rhetorical flair to emphasize a point. But later on he said this about those who advocate for economic freedom instead of government planning and control: “… then tomorrow we’ll be saying we don’t want more technology, and then the following day we’ll be saying we don’t want public safety, and it won’t take us very long to get back to where we were at back when the city first settled.”

    Brewer’s remarks are worse than “You didn’t build that.” The mayor of Wichita is telling us you can’t build that — not without government guidance and intervention, anyway.

    Many people in Wichita, including the mayor and most on the city council and county commission, believe that the public-private partnership is the way to drive innovation and get things done. It’s really a shame that this attitude is taking hold in Wichita, a city which has such a proud tradition of entrepreneurship. The names that Wichitans are rightly proud of — Lloyd Stearman, Walter Beech, Clyde Cessna, W.C. Coleman, Albert Alexander Hyde, Dan and Frank Carney, and Fred C. Koch — these people worked and built businesses without the benefit of public-private partnerships and government subsidy.

    This tradition of entrepreneurship is disappearing, replaced by the public-private partnership and programs like Visioneering Wichita, sustainable communities, Greater Wichita Economic Development Coalition, Regional Economic Area Partnership (REAP), and rampant cronyism. Although when given a chance, voters are rejecting cronyism.

    We don’t have long before the entrepreneurial spirit in Wichita is totally subservient to government. What can we do to return power to the people instead of surrendering it to government?

    Wichita Mayor Carl Brewer, August 12, 2008: You know, I think that a lot of individuals have a lot of views and opinions about philosophy as to, whether or not, what role the city government should play inside of a community or city. But it’s always interesting to hear various different individuals’ philosophy or their view as to what that role is, and whether or not government or policy makers should have any type of input whatsoever.

    I would be afraid, because I’ve had an opportunity to hear some of the views, and under the models of what individuals’ logic and thinking is, if government had not played some kind of role in guiding and identifying how the city was going to grow, how any city was going to grow, I’d be afraid of what that would be. Because we would still be in covered wagons and horses. There would be no change.

    Because the stance is let’s not do anything. Just don’t do anything. Hands off. Just let it happen. So if society, if technology, and everything just goes off and leaves you behind, that’s okay. Just don’t do anything. I just thank God we have individuals that have enough gumption to step forward and say I’m willing to make a change, I’m willing to make a difference, I’m willing to improve the community. Because they don’t want to acknowledge the fact that improving the quality of life, improving the various different things, improving bringing in businesses, cleaning up street, cleaning up neighborhoods, doing those things, helping individuals feel good about themselves: they don’t want to acknowledge that those types of things are important, and those types of things, there’s no way you can assess or put a a dollar amount to it.

    Not everyone has the luxury to live around a lake, or be able to walk out in their backyard or have someone come over and manicure their yard for them, not everyone has that opportunity. Most have to do that themselves.

    But they want an environment, sometimes you have to have individuals to come in and to help you, and I think that this is one of those things that going to provide that.

    This community was a healthy thriving community when I was a kid in high school. I used to go in and eat pizza after football games, and all the high school students would go and celebrate.

    But, just like anything else, things become old, individuals move on, they’re forgotten in time, maybe the city didn’t make the investments that they should have back then, and they walk off and leave it.

    But new we have someone whose interested in trying to revive it. In trying to do something a little different. In trying to instill pride in the neighborhood, trying to create an environment where it’s enticing for individuals to want to come back there, or enticing for individuals to want to live there.

    So I must commend those individuals for doing that. But if we say we start today and say that we don’t want to start taking care of communities, then tomorrow we’ll be saying we don’t want more technology, and then the following day we’ll be saying we don’t want public safety, and it won’t take us very long to get back to where we were at back when the city first settled.

    So I think this is something that’s a good venture, it’s a good thing for the community, we’ve heard from the community, we’ve seen the actions of the community, we saw it on the news what these communities are doing because they know there’s that light at the end of the tunnel. We’ve seen it on the news. They’ve been reporting it in the media, what this particular community has been doing, and what others around it.

    And you know what? The city partnered with them, to help them generate this kind of energy and this type of excitement and this type of pride.

    So I think this is something that’s good. And I know that there’s always going to be people who are naysayers, that they’re just not going to be happy. And I don’t want you to let let this to discourage you, and I don’t want the comments that have been heard today to discourage the citizens of those neighborhoods. And to continue to doing the great work that they’re doing, and to continue to have faith, and to continue that there is light at the end of the tunnel, and that there is a value that just can’t be measured of having pride in your community and pride in your neighborhood, and yes we do have a role to be able to help those individuals trying to help themselves.