‘Battlestar Galactica” is a television show that enjoys both a substantial audience and a phalanx of influential critics who call it the “best program on television.”
In an early episode, a baby is born, a boy. When news of this reaches the president, she smiles, and takes obvious pleasure updating the population tally board in her office. With her marker pen she adds one to the total number of human beings left after cataclysmic and relentless attacks by rebellious and still-evolving humanoids. It is not a big number. There are just 47,973 remaining now, including the new arrival. And with survival at stake everyone is needed; every new baby improves the odds.
It isn’t quite the same situation in Vermont Gov. Jim Douglas’ office. There is no tally board to note each individual birth and death in the state. Still, survival is very much on the governor’s mind.
The population numbers are bigger than Galactica’s – there are still about 620,000 people living in Vermont – but the statistics provide little comfort. The birth rate is the lowest of all fifty states. Worse, young people, instead of providing the energy, vitality and economic propulsion for the state are leaving – destination: elsewhere.
Vermont is facing the problem that many smaller communities across the U.S. would recognize as all too familiar: If you don’t have job opportunities for your young people, you don’t have a viable community.
The solutions being proposed by Douglas are particularly interesting because they raise economic and legal questions that go far beyond the borders of the tiny Green Mountain state.
There are two key features of the governor’s plan. The first would provide scholarships for college students who would have to repay the money if they don’t remain in Vermont for at least three years after graduation. The second would attempt to attract environmental technology firms to Vermont so that there will be jobs for young, well-educated people in the state.
The scholarship plan makes sense only if there are real jobs in the state for the graduates. And since those jobs don’t exist now, they are going to have to come from the new firms being lured to the area.
As far as attracting businesses goes, Vermont is a bit late to the table. Luring has become almost an industry in its own right, characterized by fierce competition as states and communities dangle tax breaks, regulatory relief and other incentives for firms to relocate. Although it has the usual tax breaks available to it, Vermont has not been a major player in the luring game and has no record of being good at it.
This may be one of those situations, though, where it’s better to be lucky than good. There are unpredictable elements in economics, and the luring industry game itself may be facing some big changes.
The U.S. Supreme Court is now considering a case, DaimlerChrysler Corp. vs. Cuno, that threatens to shut down virtually all of the tax breaks that state and local governments use to attract employers to locate or relocate within their borders. Essentially, the argument is that these incentives impede interstate trade and therefore violate the commerce clause of the U.S. Constitution.
Tax breaks and other economic incentives – including the use of eminent domain – are often controversial. In Washington, for example, the most recent dust-up over tax breaks involved the package of incentives offered to Boeing in order to secure the 787 Dreamliner production and its jobs for our state.
Although there are people who handicap U.S. Supreme Court cases – you can bet on anything in Vegas – it is difficult to predict what the ruling might be. And commerce clause cases can be particularly nettlesome to sort out from a legal standpoint.
From an economics standpoint, though, what is interesting about the case for Vermont, Washington and practically all fifty states, is the potential reshaping of the competitive environment.
What has happened to this environment is a classic example of what economists call the “fallacy of composition.” When one state first got the bright idea to offer tax breaks, it obtained an advantage over the others. When every state offers similar tax breaks, though, no one has an advantage and the system devolves into a simple corporate tax subsidy.
If the Supreme Court declares this type of tax subsidy unconstitutional, the results will be an interesting plunge back to basics. States will have to compete not through payola but by the old rules of attraction. Things like education and work force quality, transportation, environment and real taxes (the kind you actually have to pay) will again dominate business location and relocation decisions. From the sound of it, it wouldn’t be so bad, really.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101” monthly for the Snohomish County Business Journal.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
