Business Subsidies in Alaska

August 27, 2010

Alaska’s Juneau Empire recently examined the state’s Manufacturing Extension Partnership and found that its claims of success aren’t backed by reality. MEPs are a nationwide network of centers that provide technical and managerial assistance to small and medium-sized firms. Federal funds from the Department of Commerce pay for one-third of the costs of MEP centers, with the balance of costs being paid by state and local governments and the private sector.

The Empire’s analysis found that Alaska’s manufacturing sector hasn’t received a boost from the state’s MEP “after several years in operation at a planned cost of $1.6 million a year, not to mention stretching the definition of manufacturing into housing, art and now farming.” 
It appears that MEP and state officials have been primarily concerned with generating favorable press releases:
[T]he nonprofit AMEP and the state have been claiming big successes from the grant program. Some of those triumphs were claimed before the businesses they were assisting came to fruition, while other manufacturing success stories either never went into business, or they did and went bankrupt.
AMEP Executive Director Chris Buchholdt said the partnership is helping companies lower costs and develop new markets, with many poised for national distribution and new hires. He said he hadn’t been in touch recently with several companies AMEP had assisted in the past and cited as some of its success stories.
Economic development agencies are better at “press release economics” than promoting policies that will result in real economic growth. They’re also susceptible to political manipulation and corruption. For example, taxpayers subsidized assistance for a toffee company that just happened to be owned by the Alaska MEP’s executive director.
A Cato essay on Commerce Department business subsidies argues that companies that find MEP services valuable should be willing to pay for such help from private consultancies:
Indeed, MEP’s description of its own activities sounds like a business consultancy: “MEP will serve as business and technology advisors for manufacturers. MEP will work with manufacturers on the formation of key business strategies, development of focused business plans, and the evolution of growth initiatives that allow manufacturers to aggressively compete.”
That does not sound like something that the government should be doing. It suggests that the government is unfairly arming certain companies in order to do battle with other companies in the marketplace. Rather than playing favorites, the federal government ought to create an attractive environment of low taxes and light regulation so that all American businesses can “aggressively compete” in national and international markets.




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