Wednesday, June 28, 2006

The new AMD plant in upstate New York is a victory for the state:

Over the last couple of days I’ve become a bit peeved by those in the media like Bill Hammond in the Daily News and some in our Republican ranks (I’ll not mention any names but they know who they are) who have attacked Gov. Pataki for winning a new AMD plant for the state. The attacks are based on the assumption by some that Gov. Pataki has recklessly given away $1 billion dollars of your hard earned money to AMD to convince them to build its new plant in the state. The problem with this assumption is that those who profess it have failed to research what Gov. Pataki already knows. Getting private enterprise to open up shop in your state with incentives will payback that state a hundred times over in the future.

First lets set it straight. The plant is going to cost AMD $3.2 billion to build. So that means for the $1 billion New York is going to invest it will get an initial $2.2 billion back that will be going to much needed construction jobs and everything else needed to build a high tech plant. This doesn’t included the billions of dollars that will go into the factory over its lifetime to help keep with its expansion and upkeep. Lets also remember that part of the roughly $1 billion going to AMD will be spent to improve roads and utilities in the area to make transportation to and from the plant easier. Of course the Governors attackers don’t want to recognize the importance local infrastructure adds in enticing business to open up shop in any particular area. Nor do they want to mention how the improved infrastructure, will not just be used by AMD but any other company that follows.

Yes I said any other company that follows, another point that the Governors attackers failed to mention. The beauty about capitalism is when something is built other businesses follow to take advantage of that company’s needs. These are benefits that don’t show up initially but occur over time and is known in economics as external economies of scale. This means once a nucleus is created in a certain location other business whether competitors or suppliers move in and concentrate to lower the cost of doing business for everyone. The result is economic expansion and the thousands of jobs that go with it, which in the end leads to higher tax revenue. For the Governor’s liberal attackers they can look to their beloved Hollywood as an example of the benefits of external economies of scale. They can also look at Mayor Bloomberg’s decision to put tax breaks in the budget for film studios that film their movies in New York. You can argue they don’t need the money either but the Mayor understands that those tax incentives bring more money to the city in return.

The Governors attackers mock him when he claims that AMD can start what can become the new Silicon Valley but they should be careful because history favors the Governor not his critics. In 1989 Ireland was at the bottom of the ladder when it came to economic activity. The country needed to do something and knew attracting a big name company to build a plant and be the nucleus was the answer. The country bid hard and finally convinced Intel to build a factory in the country. They convinced them by offering an extremely low corporate tax rate. Since that “bribe” (as the Governors critics put it) Intel has invested over $6 billion dollars in the surrounding area. The Economist Intelligence Unit (no offense to people who get their business information from the Daily News) has stated:

“Ireland’s telecoms and technology sectors expanded rapidly in the late 1990s as a result of telecoms liberalization and the country’s success in attracting overseas investment, particularly from the US.”

That expansion all started with Intel and accounts for 12% of Irelands GDP, double the average of the European Union. That “bribe” not only saw Ireland take in 12% of all inward technology investment in the last couple of years to Europe but also 42% of all inward software investment to Europe. Software an industry unrelated to Ireland’s initial “bribe” came and located because it wanted to take advantage of the external economies of scale that were created.

The Governors critics don’t need to look overseas for proof, they can just look down south. Though you would never know listening to the liberal media but the U.S. auto industry is as strong as ever. It’s not in Michigan with Ford and GM though, it’s down south in North Carolina, South Carolina, Georgia and other surrounding states. Those states years ago did what Governor Pataki is doing now with AMD giving cash and incentives to foreign automakers to build plants in America. While Detroit was sleeping southern states were quietly moving the auto industry south. Since then every company from BMW to Toyota have built multibillion-dollar plants down south. Toyota alone employs over 360,000 Americans directly thanks to those “bribes” not to mention the thousands of jobs created externally by supporting industry. The trend continues with just today Honda announcing that it will open a $400 million dollar plant in Indiana after they “bribed” the company with tax incentives. It’s worth noting that other states including Michigan who has finally woke up to what it takes to keep your state going bid for the plant.

Well there you have it. I could go on and on with examples but I think you get my point. So next time you hear some journalist cry about incentives being given to big business just remember it takes money to make money.

Links to this post:

Create a Link

<< Home