The Myth of Public/Private "Cooperative Enterprises" B. Hunter

"aid," "investment," "joint effort," ~'financial incentives," "partnership," to name a few. Not surprisingly,both the beneficiary and the local pressare likelyto portraythisgivingonlyin terms ofthemarvelousbenefitsthe communitywillenjoy as a resultof the influxof funds,withoutreferring to the takingthat madethe givingpossible. Someofthe fallaciesofthe notionofpublic/pri vatecooperationmaybe seenin a recentexample. A Long Island, New York, company, long knownfor itshigh-technologycontributionsto the nation'sdefense,discoveredit wasno longerdoing wellin the competitivequestforcontracts.A thor oughexaminationofitsoperationsrevealedsever al problems:(1) its physicalplant, originallycon ceivedas necessaryfor a growingcompany(which it no longerwas),was too large,and consolidation Barbara Hunter is an educational consultant in office automation living on Long Island. was neededif it was everto bringits costsintoline with its competitors;(2) much of its equipment, and someof its majorfacilities,wereobsoleteand simplycouldn'tbe usedfor today'smore demand ing technologies; and (3) a shortage of capital made it appear difficult,perhaps impossible,to remedythese problems.Interestingly,the compa ny has a parent corporation,but the parent obvi ously didn't consider it worthwhile to plow the needed funds into the company; otherwise, it would have decided the investment was a good one, and the moneywouldhave been provided.

But even though one's own parent company determinesthat suchan investmentwon'tbe ben eficial,such technicalities don't stop those who hope the government (that is, the taxpayer) will take a differentview of the meritsof the case. In the absenceof the necessarymoney,the company decidedto look for what it called"an innovative approachto funding."Just how innovativeit was becameevidentfollowinga meetingbetweencom pany representatives and the New York State Department of Economic Development. The Department'srationalefor supportingthe compa ny's funding plan was that the state wanted the companyto "continuecontributingits impact on the state and localeconomies." Ironically,the companyneversaidit plannedto stop contributingthat impact,and it never hinted it mighttakesomeotherapproach,suchas moving out ofstate or closingitsdoors.Nevertheless,over a six-monthperiod,the companymanagedto get both the Department of EconomicDevelopment and SuffolkCounty officialsto approve the plan and to commitmoneyto the project.And thiswas no smallsum:The state'ssharewillbe $2.1 million in grants and loans, the county's $2.5 million in "industrial development bonds," in addition to real estate tax abatements on the projects and sales tax abatements on the capital purchases asso ciated with the projects (neither of which is avail able to the company's competitors).

Two factors need to be considered if the plaque presented by the county executive to the company president, inscribed "New York State-Suffolk County-(company name)-'A Partnership for Progress'" is to be identified for what it is. First, every dollar flowing from the state or county coffers to the company has to come from somewhere. In New York State, where both indi vidual and corporate taxes are among the highest in the nation, these dollars can be traced back to numerous disadvantages that will accrue to those who are not the recipients of this largess: money out of the individual taxpayer's pocket, money that this company's competitors will not have for their own development or other purposes because they 425 have been forced to hand it over to the various lev els of government to benefit the favored company. If one doesn't bother thinking through the full implications of a decision that takes money from one person or company and gives it to another, it might seem that some form of wealth or other val ue has been created in the process. The failure to look at the full picture is a likely reason why this action has been proudly announced by the compa ny and hailed by the press.

Second, perhaps the ultimate irony of the scheme is that this is the year in which both New York State and Suffolk County are awash in red ink, the year in which Suffolk County taxpayers are facing real property tax increases of as much as 30 percent, and in which the governor has been searching for new ways to raise state taxes. One could easily ask just how many of the already beleaguered taxpayers would have agreed of their own volition to tum over as much as $4.6 million of their already imperiled incomes. D Back in print! LudWigvon Mises LIBERALISM: IN THE CLASSICAL TRADITION LIBERALISM: In The Classical Tradition by Ludwig von Mises is a book-length essay that sums up the ideas and principles of classical liberalism as they apply to the twenti eth century. First published in Germany in 1927, it was pub lished in the United States under the title The Free and Prosperous Commonwealth in 1962 and reissued in the mid seventies by The Institute for Humane Studies. It was repub lished by The Foundation for Economic Education in asso ciation with the Cobden Press in 1985, and has recently been reprinted.

230 pages •$12.95 paperback Order from: The Foundation for Economic Education 426 Sweden: No Model for Eastern Europe by Eric Brodin T he Eastern and Central European coun tries that have abandoned (or at least re named) their governments are scouting aroundfor a new form of government.Theywant a··system that will provide.the relative freedom foundin a market economyyet, at the same time, satisfypeople accustomedto socialwelfarebene fits. Delegations from East Germany, Poland, Czechoslovakia,Hungary,and the Soviet Union recently visited the Scandinavian countries to learnmore about their apparentlysuccessfulwed dingofsocialismand democracy. Most of these delegations went to Sweden, whichfor decadeshas beentouted as a modelwel fare state. The SocialDemocraticgovernmentof PrimeMinisterIngvarCarlssonhas shownits for eignvisitorsaroundandpointedout whata "social democracy" has brought. Would the "mixed"