Friday, August 26, 2005

Let's Get Serious

In the August 22, 2005 edition of the Herald-Sun, Ray Gronberg reported that the Lenovo Group, which recently purchased IBM’s personal computer division, is asking Durham County and the state of North Carolina to pull together nearly $14 million in incentives to keep the Chinese-owned company from relocating. Lenovo currently employs 1,800 workers in the Research Triangle Park. The incentives grants to pay for infrastructure, $1 million from Durham to underwrite the hiring of additional employees and the state’s promotion of Lenovo as a research partner with local universities.

One of the most telling features of this request for incentives is that, when Durham suggested Lenovo might consider moving their facility into downtown – where they would actually be near the universities – Lenovo responded that “they don’t think that workable because much of the company’s workforce is coming from elsewhere in the region.” (Gronberg)

So, Lenovo expects a tax break, which will affect Durham. It also expects economic grants. Yet, Lenovo admits that much of its workforce comes from somewhere other than Durham.

If Lenovo gets what it wants and stays in North Carolina, the state will be able to boast that it has managed to keep jobs in the state. But at what cost to Durham? Many of the people employed by Lenovo don’t live in Durham and so they would be unlikely to contribute much to the economy of the city or county by way of property or sales taxes.

The Lenovo case illustrates two things: one is that the current business climate does not encourage companies to invest in the communities where they locate and the other is that companies expect to extract quite a lot from local governing bodies by way of tax incentives, grants and subsidies. Threatening to withdraw jobs, or offering to bring jobs to areas of severe unemployment, unless these financial conditions are met, is a form of extortion.

The Lenovo case is a snapshot of globalization and its impact on local economies. The promise of employment, no matter where in the world that promise is made, is a powerful one. The threat of withdrawing employment is, likewise, powerful. Both can be used by companies to improve profits at the expense of workers, local economies and natural environment. It often seems that the only way to keep the jobs where they are is to continue to keep employment costs low (either by maintaining low wages or by cutting personnel) or to provide further economic incentives.

Otherwise, the corporate partner will simply move along and feed elsewhere.

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