Sunday, February 04, 2007

press musings: energy, tax incentives

For those who read Harold Miller's commentary in the business section of the role of coal in the local economy.. then you may also be interested in Slate's article on the underappreciated importance of the coal industry in their series on obscure economic indictors. I agree that there is an underappreciation of how much energy related industries have played in both the development of the Pittsburgh economy and it's likely future. Some may remember my comments in the past on Energy-Burgh. The dots connect pretty clearly between what we were, what we are and possibly what we will be.

Also for those who saw Bill Toland's piece on the role of incentives in business attraction. I would suggest he missed an important piece of history. Most will consider that the escalation of modern tax incentives at the state level to originate with Pennsylvania's package of incentives to successfully attract the Volkswagen Plant to Westmoreland County in the 1970's, not the Saturn plant that went to Tenn. in the 80's. On that subject some may remember my commentary on tax incentives pending the now decided case of Cuno v. DaimlerChrysler.
Not something I had time to get into in that piece... but the most important thing to look at when considering the role of the Volkswagen incentive package is that the site (which would become the Sony plant after VW left) was originally slated to be a Chrysler plant. Chrysler had decided to build a plant there and had begun major investment on the site only to pull out when its national business turned sour. But then in the 60's the major work of site selection was pushed not by the government, but by local utilities which are the ones that assembled the site and did a lot of the heavy lifting needed to persuade Chrysler to come to the Pittsburgh region.
Thus there is an interesting historical point that supposedly industrially uncompetitive Pittsburgh remains one of the few regions in the US to attract not just one, but two new auto factories since WWII. Think there is no auto industry here in the region. Anywhere north or west of Allegheny County you will see commuting and business impact of the Lordstown General Motors plant in Ohio just over the border.


Anonymous Anonymous said...

The Toland piece illustrates some key misperceptions about economic development practice, and these misperceptions have been problematic for the region.

One is that economic development investments for the most part have moved away from correcting market failure in distressed areas to a much broader and entrepreneurial strategy of promoting ecomomic competitiveness in a rapidly changing market environment. Some have interpreted this as meaning that all areas have in essence become "distressed", and that the practices used in overcoming real or, more commonly, perceived market risks or biases (i.e. subsidies) should indeed be used everywhere. Investing in economic value is very different from guaranteeing economic returns or protecting someone from risk. And heavily subsidized projects may only prove that projects cannot be done without subsidy.

The second issue is that when the game is innovation in response to changing economic circumstance, when creative destruction is making or breaking regional competitiveness, it's best to get as many people working on this and competing as possible. Pittsburgh chose a different route, preferring instead to consolidate economic development decision-making, and focusing its investments on the people, places, and industries it guessed would be winners. In an environment where it is hard to pick winners, a strategy of more investors and well as competitors seems to make more sense.

Even more difficult is that the investment decisions and choices have essentially been outside of the public process, something that didn't work for urban renewal, and it's difficult to assume that it will work here. There is an ethical piece here as well. Because these are public funds, there needs to be an accountability for public benefits.

The region needs more institutional competition and innovation to get this done. And rather than take a fatalist position that economic development investments are probably a rip off but that just might pay off big time (you never know), it would be far better for the news media to facilitate transparency in choices, risks, and trade-offs inherent in economic development investments, and on the back end an understanding of the public benefits actually acheived.

Tuesday, February 06, 2007 11:48:00 AM  
Blogger C. Briem said...

and thus the core of the issue, though it is rarely framed as such. All you ever get in public debate is banter between those who believe that market failure never exists and those who think it is ubiquitous.

Tuesday, February 06, 2007 12:54:00 PM  
Anonymous Anonymous said...

While the development of new "clean coal" technology in Pittsburgh looks good on paper, let us not forget that an increasingly large percentage of coal is extracted through a process called Mountaintop Removal. Not only is this extremely destructive to the natural environment, it also adversely affects the surrounding communities.

As Pittsburgh strives to become a center for technology and a green city, can these two things happen simultaneously with coal in the equation? I believe they are mutually exclusive. In order to be green, one must also factor in the origin of material and energy used. If the coal used to power these new "clean coal" technologies is mined in wanton disregard for the environment, namely through Mountaintop Removal, can Pittsburgh really consider itself green?

Please see:

Wednesday, February 07, 2007 2:49:00 PM  

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