Our Views: Steel mill’s new twist

Five years ago, Louisiana’s state economic development officials tried unsuccessfully to lure a $5 billion ThyssenKrupp steel mill to locate in the state. In spite of a lucrative package of tax incentives and other inducements, the company located its plant in Alabama instead.

The plant once coveted as a grand prize in a fierce rivalry between Louisiana and Alabama is now up for sale. ThyssenKrupp officials said that high production and transportation costs, a weakening market and intense competition have made the Alabama plant sale necessary. Industry analysts have predicted that Nucor Corporation, which has plans to built a steel plant in St. James Parish, might try to buy the ThyssenKrupp plant. Nucor officials have said their plans to build a plant in St. James Parish remain unchanged.

ThyssenKrupp’s decision to sell its Alabama plant is a reminder that in commerce as in most of life, there are no sure things. Industrial projects touted as the economic saviors of a region or state don’t always meet their promise. That’s why many state-funded economic development incentive packages for big industrial projects require that companies meet certain benchmarks in generating jobs before the incentives are activated.

ThyssenKrupp’s disappointing experience with its Alabama operation doesn’t mean the Alabama plant is doomed. Perhaps another company can buy the plant and make it profitable.

But ThyssenKrupp’s move to sell its Alabama plant is a development few could have predicted five years ago. Such news reminds us that things can change quickly in a global economy. That reality doesn’t mean that economic development officials shouldn’t take risks in luring industry. However, when public resources are involved in efforts to attract industry, the public does need a clear view of what stands to be gained — and lost — in large development deals.

This kind of clear-eyed scrutiny can be difficult amid all the initial hype that typically surrounds the courtship of prospective industries. Assessing the potential of such projects becomes even more difficult when state officials refuse to disclose details about the projects in a timely manner.

We hope that state officials and the public keep these things in mind when the next industrial project is announced with breathless enthusiasm.

Comments

1) Comment by rph - 10/16/2012

Regarding working for a living versus welfare, you cannot just compare wages versus government benefits. Many welfare recipients augment their official handouts with unreported income derived from crime. The one asset they have in abundance that workers do not is time on their hands. This element explains why people go through all the trouble of stealing copper from homes and utility poles, reaping only pennies from every dollar of damage caused, because they have no initial financial outlay - just their time.

2) Comment by agagent - 10/16/2012

I recall when Louisiana had the larger population and a better economy than Alabama. The Advocate editors failed journalism 101 and missed an opportunity to provided more useful information when it focused on one failed plant instead of contrasting how Alabama has surpassed Louisiana. My guess is that Alabama’s economic development efforts have paid off in a big way. Louisiana must continue to compete for high paying jobs in the economic development race. Maybe the editors reported on one steel plant because it fit their pre-conceived narrative.

3) Comment by InPVille - 10/15/2012

@Tea_Slayer: "paying for people who can work but won't try to work because the government pays more to keep them from trying" Now THAT is a bald face lie. --[**]-- Perhaps it could have been better stated. -[**]- "Welfare" programs today include AFDC, Food Stamps, Medicaid, Housing Assistance, Utilities Assistance, Commodity Programs, and WIC. My experience after 35+ years of working in several of the above programs at the local level and above tells me that the following information dated though it is back to 1995 contains valid points. It is possible that FOR SOME long term assistance recipients who have little education, neither work skills nor habits, and no work history; the difference between possible earnings and welfare assistance can be insufficient to make someone wish to risk losing what they now have and know based on the hope of possibly doing better later. If the person knows someone similarly situated who has tried to leave assistance and succeeded, it can be an incentive to try. A disincentive is just as possible in the opposite case. As the article at the link states, for some in the beginning at least, the value of assistance benefits can be greater than initial earnings. ---[**]--- http://www.cato.org/pubs/pas/pa-240.html "Despite the stereotypes, there is no evidence that people receiving welfare are "lazy." Indeed, surveys of recipients consistently show that they express a desire to work. The choice of welfare over work is often a rational decision based on the economic incentives presented. Most welfare recipients, particularly long-term recipients, lack the skills necessary to obtain the types of jobs that pay top or even average wages. The individuals who do leave welfare for work most often start employment in service or retail trade industries, generally as clerks, secretaries, cleaning persons, sales help, and waitresses. . . Although the evidence shows that, in the long term, an individual is better off in the labor force than on welfare, moving from welfare to work is likely to lead to at least a short-term decline in income and, for some, perhaps a permanent reduction of income. That may be why 68.6 percent of welfare recipients report that they are not actively seeking work. Other studies show that, as welfare benefits increase, women are more likely to leave the labor force and enroll in welfare programs instead

4) Comment by bourbon-soda - 10/15/2012

They probably don't pay for that purpose but that does not exclude an unintended consequence that coming off the dole is expensive.

5) Comment by Tea_Slayer - 10/15/2012

"paying for people who can work but won't try to work because the government pays more to keep them from trying" Now THAT is a bald face lie.

6) Comment by gary - 10/15/2012

@Chem, let them go - you use logic and good sense, something the right wing nuts don't understand. All a person has to do is read the comments to this editoral to see why the state of Louisana is ranked about dead last in everything except giving tax breaks to corporations that want a free ride.

7) Comment by Whatnow - 10/15/2012

@chem, " the right wants to stop programs that help the poor and elderly." What a bunch of malarkey! We don't want them stopped. That is a bald faced lie perpetrated by the left. We just want the abuse to stop. Most of these programs are open to fraud, corruption, and incompetency. Too many of these programs do the same thing. The waste is outrageous! No one in the government is held accountable for their incompetency and waste. We just don't want to keep paying for people who can work but won't try to work because the government pays more to keep them from trying. Obama would let Medicare just dry up, but at least Romney and Ryan are giving a solution. What is Obama's plan? If he has one, we sure haven't heard it. You need to shut up lying about how the right doesn't care about the truly poor and the elderly. It's just another lie and spin that the left uses to scare people and blame Republicans. Obama has used that tactic before and it backfired on him. http://www.cbsnews.com/8301-503544_162-20078789-503544/obama-says-he-cannot-guarantee-social-security-checks-will-go-out-on-august-3/

8) Comment by ScotB - 10/15/2012

Look up "prisoner's dilemma". No hypocrisy here at all, incentives are part of the competitive environment.

9) Comment by bourbon-soda - 10/15/2012

If there are government subsidies of an industry, any firm in the industry, has to take them or its competition will, and use it to run it out of business.

10) Comment by Whatnow - 10/15/2012

bourbon-soda, you are right on, especially the point on Solyndra and other government backed industries that have gone bankrupt using taxpayer money.

11) Comment by chem - 10/15/2012

The hypocrisy in all this is that corporations bemoan "big government" and the right wants to stop programs that help the poor and elderly because of their anti-big government mantra. Yet corporations are demand a handout in order to do business in a particular state or country. All these pull-yourself-up-by-your- bootstraps types should demand no more corporate handouts. Otherwise, shut up about programs for the poor and elderly.

12) Comment by bourbon-soda - 10/15/2012

Thanks, tradewinns. It's not like thiessenkrupp went in with idea of losing money. It is likely that someone in theissenkrupp lost his job over this, but probably not in Alabama or any other government. Besides that, It is not appear easy to discern the amount supposedly lost by the State of Alabama. According to http://articles.boston.com/2012-10- 08/opinion/34294985_1_alabama-plant-steel-plant-steel-prices (found by googling [alabama thiessenkrupp deal] the incentive package included "tax benefits, training subsidies, site preparation, and expedited permitting," so it is not clear how much of this is gone versus how much of the tax subsidy, for example, is not money that Alabama had in the first place. The state is left with a major asset, the steel plant, that someone else might buy and run. How much of a human capital asset the training might be, is uncertain. Without some rigorous accounting, it is not a given that Alabama actually lost money on this deal.

13) Comment by tradewinns - 10/15/2012

chem, your statement "........ I think that companies would be more careful themselves" begs a comment. while alabama may have lost some money, the investors lost a bundle of cash. if the investors had known they were going to fail, they would not have gone forward. they did their research and found at the time an opportunity to make money. you plan your work and work your plan. and hope fate likes your plan.

14) Comment by [e-mail] - 10/15/2012

Obama killed the steel market for offshore service boats along with that steel mill, but "Them's the breaks." is apropos here. Free enterprise ventures sometimes fail, and that's why taxpayer dollars have to be in the form of tax breaks after performance, not before.

15) Comment by bourbon-soda - 10/15/2012

Such penalties would merely tack a donkey-tail disincentive onto the incentive, lowering the value of the incentive. This would have the same effect as lowering the incentive and conceding to Alabama or anyone else who offered a greater incentive. The editorial is past-posting, or betting in retrospect, and counseling government to do the same thing, as if it were possible. I would love to bet on either horse races or the stock market knowing the results. Or you could offer incentives only to failure-proof government-backed companies like Solyndra (?sp).

16) Comment by chem - 10/15/2012

I for one would like to see no tax breaks or other incentives offered to companies for their business, but that is not the way the system works. If all countries and states worked from the same philosophy of no incentives, I think that companies would be more careful themselves when building new projects because the loss would be completely on the company, rather than the taxpayer. But since that is a pipe-dream, we have to work within an inherently corrupt system. Any incentive offered should be tied to distinct milestones, with penalties to the company for missing them. At all times, the taxpayer should be protected from the poor planning and execution by business.

17) Comment by lovemykids - 10/15/2012

Hey, chem, at least you got it.

18) Comment by bourbon-soda - 10/15/2012

If you cannot offer incentives to a private business that might fail, you cannot offer incentives to private business. Just turn the whole state over to government and let it pay itself.

19) Comment by chem - 10/15/2012

The previous two commenters seem to have missed the point of the editorial. It is merely stating that states, such as Louisiana, should be careful doling out largesse for corporations that promise the world. While clearly there has to be an incentive to draw such projects as the steel mill, the state should nevertheless proceed cautiously. Any incentive should always keep in mind what happened in Alabama, lest the citizens of the state lose millions of dollars.

20) Comment by bourbon-soda - 10/15/2012

Alabama doesn't know all you have to do is subsidize the plant with government bailout or stimulus money? Maybe convert it to an Obamaphone factory.

21) Comment by ScotB - 10/15/2012

This has to rank up there as one of the dumbest editorials I have yet seen! Of course economic development officials know that some new projects they locate here may fail. The investors/companies that put up the private money for those ventures know that, too. They have a lot more to lose than the incentives that LED puts on the table, so you can be sure that there has been plenty of "scutiny" beforehand. Good grief!!! You'd think The Advocate would be proud of Louisiana's newly robust reputation for being business friendly and successful in economic development. This editorial was completely unnecessary and doesn't sound business friendly at all.