Dow Kokam and Industrial Policy
3:19 PM MDT | June 21, 2010 | By VINCENT VALK
In an op-ed on reviving manufacturing for USA Today, Dow CEO Andrew Liveris expressed support for R&D tax credits, among other things, pointing out that the U.S.'s R&D credits rank a meager 23rd among OECD nations. A new Dow project is the recipient of such governmental largesse – $180 million in tax credits from the state of Michigan, and a $161 million grant from the federal Department of Energy.
Industry, of course, loves this stuff, and who could blame it – if the government wants to give me a few hundred million, I'm game. The justification for the handouts, of course, is that they create jobs. Liveris's USA Today op-ed argues for doing more to incentivize manufacturing the U.S., and, surely, stemming the decline of manufacturing jobs is a worthy goal, and one in which both the government and business have a crucial role.
All incentives are not created equal, however. The grant plus the tax incentives for the Dow Kokam lithium-ion battery joint venture amount to $341 million in public funding or tax relief. According to Dow's own figures, when complete, the facility will create between 720 and 800 permanent jobs. Let's assume the high end, and say that 800 new jobs will be created.
So, a total public investment of $341 million yields 800 permanent, full-time jobs. Each job, then, will cost the public $426,250. That is more than the annual salary of the President of the United States. Put another way, Liveris's op-ed notes that 3 million manufacturing jobs have been lost in the U.S. since 1990. At $426,250 per job, restoring those jobs through public investment would cost $1.279 trillion dollars, nearly $500 billion more than the entire stimulus package.
Yes, I realize these are extremely crude calculations. New industries and innovation can spur additional job growth and economic activity beyond those estimates. I'm also not counting the temporary construction jobs the plant will create. Still, I can't help but be reminded of publicly-financed sports stadiums: economic analysis has proven, time and again, that these massive investments do not come close to matching the grand economic claims of their boosters.
Is the Dow Kokam plant a good use of public funds? I honestly don't know and, frankly, only time will tell. I do know, however, that 800 jobs will not save Michigan or make the economically embattled state a center of green technology. At nearly half a million dollars per job, the money does not exist in cash-strapped federal, state, and local governments to revive U.S. manufacturing.
The government needs to do something to help our beleaguered manufacturing base. It should encourage R&D and investment in clean technologies. But these are vague, ill-defined goals, and the specifics of our national industrial policy ought to be vigorously and publicly discussed among political, academic and business leaders. Right now, I don't see it.