We need infusion of 'new' money

MomSeattle · DadSeattle · SPI · MySeattlePix · My account

Local

US/World

Sports

Business

A&E

Life

Comics

Photos

Opinion

Blogs

Buy Ads

NWsource

Thursday, September 23, 2004

We need infusion of 'new' money

By BILL VIRGIN
SEATTLE POST-INTELLIGENCER COLUMNIST

Second of two parts

When the ground starts shaking with public rumblings about economic development programs, most often the debate splits along the big corporation/small business fault line.

Critics see such programs as corporate-welfare giveaways to big businesses that don't need the help, and that those programs ignore the contribution of small businesses that supposedly create the most jobs.

Some incentive programs do earn the derision they receive, but the big/small argument doesn't work well.

A lengthy career of business reporting has shown me all too clearly how fast those small businesses evaporate when a town's economic centerpiece -- which is often a big business such as a mine, a mill or a factory -- dries up.

The big/small debate also doesn't provide a good reason certain industry sectors are more deserving of economic development attention than others.

To understand why this issue matters so much as the state, counties, cities, port authorities and others decide how to allocate their resources, it's useful to think of a big business that doesn't get its own targeted economic development program: grocery stores.

In terms of revenues, employees and facilities, grocery-store chains such as Safeway and Albertsons are big businesses, among the biggest in this region.

But as big as they are, and as important as they are to daily life, we don't run incentive programs to encourage the construction of still more grocery stores. Instead it's left to the chains themselves to find the land, arrange the financing, find and train employees and all the rest.

How come? It's presumed that grocery stores naturally will evolve with the markets they serve and require no particular encouragement to appear.

But there's a deeper reason grocery stores don't get their own economic development program, although the officials involved may not have thought about it or articulated it this way. Grocery stores are not seen as the kind of business upon which a region's economy can be based.

Businesses can be broadly divided into three categories: those that export wealth or revenue or income or capital (or whatever term you want to use) from a region; those that basically move it around within a region; and those that import money into a region.

Grocery stores generally fall into the first category. Yes, they leave money here for employees, services (such as advertising) and whatever purchases are made from local food suppliers, but a lot of the money goes elsewhere, for merchandise, for corporate services, for shareholders.

This newspaper is an example of the second type of business: It takes in revenue from local advertisers and subscribers, and pays it out to employees, although there's some importation of money in the form of national advertising and some leakage from the local system for such expenses as newsprint and news-service purchases and payments to the corporate parent.

The biggest bang for the economic development dollar comes from the third category of business: those that locally produce a good or service that is largely consumed elsewhere, leading to the importation of wealth in exchange for that good or service.

Which is why Boeing is such a big deal -- not just that it occupies a lot of space and hires a lot of bodies, but because the planes that are built here are sold all over the world, bringing in enough money to support not just Boeing, but also an intricate web of suppliers, subcontractors, vendors and spinoffs. It's why the 7E7 deal, as expensive as it was, made sense, for its potential not just to preserve a major industry, but also to provide the foundation for all the other businesses that support and feed off it, and the potential for spinoffs to create still more activity here.

It's why there's so much fascination with biotech -- certainly not because of the number of jobs, but because of the potential for importing wealth not only for research and development, but also for drug manufacturing (as we've already seen occur with announcements of several production facilities).

It's why governments say yes to incentive programs for Boeing and biotech -- as tent poles for broad regionwide economic development. It's also why government should put very low on the list ideas such as a NASCAR track that at best will shuffle around the money already here and offer little prospect for spin-off jobs, companies and industries.

If government officials feel a little uncomfortable publicly explaining the philosophical basis for picking and choosing some but not others, too bad. They'd better get used to it.

The 6th U.S. Circuit Court of Appeals recently ruled as unconstitutional an Ohio tax credit program used by DaimlerChrysler to build a Jeep manufacturing plant in Toledo.

The case is being appealed, but if the decision stands it could be used to strike down economic development incentive plans elsewhere.

If government can't articulate a rationale for why some industries get help and others don't, they can expect many more cases of this sort, and they can expect to lose many of the tools relied upon for economic development, from industrial parks to university research partnerships -- exactly the sorts of tools places like Washington are counting on to somehow shape the region's economic future.

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com. His column appears Tuesdays and Thursdays.

Add P-I Business headlines to