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OPINION

Dell closing exposes the folly of incentives

Tuesday, October 13, 2009
(Updated 3:00 am)

“No regrets” is how Bob Leak Jr., president of Winston-Salem Business Inc., sums his feelings in wake of the Dell closing (“Dell to close its Winston-Salem plant,” Oct. 8).

Why should he feel any regrets? After all, Mr. Leak still has his job.

Not so for the 905 employees whose lives will be devastated by their job loss. Ditto for the local restaurant, retail, day care and other workers who will either lose their jobs or see their hours cut because business will slow due to Dell’s closing.

Leak and other central planners distort the economy’s allocation of resources through targeted incentives and tax breaks awarded to businesses with the most effective lobbyists. Even in light of the continued failure of such policies, the planners will “do it again, given the chance” because they themselves have nothing at stake.

As a result of the Dell incentives game, Forsyth County now includes hundreds of families distraught by job losses, a massive, 750,000-square-foot facility that will sit idle, and millions worth of squandered equipment and resources that were diverted from other, potentially profitable, uses.

Will the central planners ever admit to the economic chaos they cause?

Brian Balfour
Raleigh

The writer is a tax policy analyst with the Civitas Institute.

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Yvonne

October 13, 2009 - 4:39 am EDT

In a word, No. They will seek to destroy any evidence that proves they were wrong and set about trying to convince the public they are the ones who are wrong. It has worked well for many, including Bush and those who voted for him the second time.

Mick

October 13, 2009 - 8:00 am EDT

Yesterday it was"faux christians". Today somehow working Bush and his supporters into a thread about Dell and incentives. You are on somekind of roll.

J D R

October 13, 2009 - 8:55 am EDT

"Yesterday it was"faux christians". Today somehow working Bush and his supporters .. "

Yea .. too bad they are like cockroaches: Targets that need to be targeted ... and they keep on coming. Maybe Yvonne should switch to Boric Acid ... hmmm

danagain

October 13, 2009 - 6:17 pm EDT

Dell plant closing = bash Bush. A true sign of BDS. Even I wouldn't bring Obama into this thread, it has nothing to do with a president much less a former president.

Yvonne

October 13, 2009 - 7:57 pm EDT

As one with a severe case of ODS Dan, you are mighty lofty in your comment. And not entirely accurate.

danagain

October 13, 2009 - 9:26 pm EDT

Sorry Yvonne, as mentioned I wouldn't bring Obama into a thread about the Dell plant as you did Bush. Point proven.

J D R

October 13, 2009 - 5:38 am EDT

I think it's a tough call .. the problem is other counties and states "bid" for the business .. its a game that business' almost always win for no reason other than they can afford better lawyers. On the other hand, those 905 (and many others) might have been unemployed for the past 5-ish years had Dell not come.

If I were King, I'd stop the "bid for my business" game nationwide - but as long as a least two counties or states are willing to play, we're going to repeatedly see shananigans like this.

Interested

October 13, 2009 - 7:27 am EDT

I had the same thoughts concerning employment for the past five years. Mr. Balfour's comments, as written, are to some degree, somewhat inaccurate, though I understand his intent. The incentives are not the cause of the distress these families are suffering - the economy is. True, the building will sit idle, but clearly Dell did not build such a monstrous facility thinking it would only be there for a few short years. To say they wasted their resources is Monday-morning quarterbacking, a nice job to have if you can find it. The only resource waste that could have been prevented, and should have been foreseen, is the massive package our state leaders lured Dell with. Of course they now claim we will recoup that loss, but as we all know, "you can't get blood from a stone."

Andrew Brod

October 13, 2009 - 2:30 pm EDT

Balfour isn't interested in sensible discussions like the ones both JDR and Interested are providing here. First of all, talk of "central planners" is kinda dumb. Bob Leak and Allen Joines didn't say hey, we need to get a computer make like Dell here. Instead, as is generally the case with incentives, the company initiated the conversation. No central planner located Dell in southeast Forsyth County; Dell did it.

But did Dell manipulate the process? Oh yes.

Balfour sees no shades of gray, but the reality is that incentives are indeed, as JDR notes, a tough call. The context for incentives is strategic and hence more complex than Balfour admits. And it's important to distinguish, as Interested does, between the local and state incentives. The state incentives included some up-front grants, but we're told that the local incentives were structured with "clawbacks" that will require Dell to pay everything back.

If W-S/Forsyth gets its money back, then it's not obvious that this was a failure. And I say that as no particular fan of incentives. But four years of decent-paying jobs combined with a capital investment that could attract another advanced manufacturer? It would seem that the glass is at least half-empty. To guys like Balfour, there's no water in the glass at all.

J D R

October 13, 2009 - 5:46 am EDT

... of course the real question is what compensation did the big-wigs at Dell pay themselves (probably in untaxable form) for the brilliant decision to open a big assembly line for a short lived product.

"The value of the compensation granted to Dell Inc. Chief Executive Officer Michael Dell rose 5.7 percent in fiscal 2009 ... entirely in the form of retirement matches and security costs. In fiscal 2009, he received $11,500 in company matches to his retirement plans and $1.16 million for personal and home security. In 2008, the CEO received $9,000 in retirement plans matching contributions and $1.03 million for security. Dell spokesman Jess Blackburn would not say how security funds are spent."

... but I'll tell you how the security funds were spent - in an untaxable form.

Meanwhile - "Dell .. reported its profit fell 63 percent in the 2009 fiscal year ... [as] HP's computer shipments edged up 3 percent while Dell's plunged 17 percent, and HP pushed ahead of Dell in U.S. PC shipments."

http://seattletimes.nwsource.com/html/businesstechnology/2009286914_apus...

See also

http://news.cnet.com/8301-1001_3-10289378-92.html

Yvonne

October 13, 2009 - 6:32 am EDT

This is basically the same thing I posted a couple of days ago about the pharmaceutical distributing company a friend works for. Only the CEO of that company raked in a $1.6 million raise to bring his annual salary to almost $30 million, despite the fact the company's stock fell and the real producers had to scale back (no wage increases, no educational allotments, no expenses reimbursements and higher health care premiums). Yet there are many who post here that think high CEO salaries are warranted, even when the company is losing money and the employees are being shafted. Go figure. The only thing free in the "free market" is what the top management can grab for themselves.

J D R

October 13, 2009 - 6:54 am EDT

Actually I don't care what an executive is paid .. even for crap performance ... IF ...

IF he is paid in actual wages as the rest of us are (stock being between 1/3 the tax to zero tax) ... AND ...
AND those wages are progressively taxed as implemented by John F. Kennedy (whom even the Con-men don't disparage).

Beachwalk

October 13, 2009 - 11:21 am EDT

Only the CEO of that company raked in a $1.6 million raise to bring his annual salary to almost $30 million, despite the fact the company's stock fell

Kinda like winning a Noble Peace Prize for doing nothing and others who actuallly worked for peace got shafted.

J D R

October 13, 2009 - 12:05 pm EDT

"Only the CEO of that company raked in a $1.6 million raise to bring his annual salary to almost $30 million, despite the fact the company's stock fell "

In my opinion the Board needs to deal with that, Beach Walk. If the Board had to pay tax monies on the Executive real salary (fully taxable wages) ... and if the Board members were paid for their "services" in real salary (fully taxable wages) ... then to "Compensate the Executives Equally" after this goes into effect would make the "paulty" $30 million dollar CEO Salary skyrocket to at least twice or three times that amount ... still "chump change" for a billion dollar company - but it's the best I got!

Said another way - if these people had to play by the same rules the rest of us do, there would (hopefully!) be such sticker shock ever the most calloused would begin to question the costs. AND .. if these people had to shell out taxes like we do, they would join in and work to curb the hungry g-men. Currently they have no incentive because the costs of government are not borne by them.

truth

October 13, 2009 - 1:07 pm EDT

What do you expect when you have a "peace" price created by a man who insisted the best way to end war was to create a weapon so vicious as to make war unthinkable.

oh good grief

October 13, 2009 - 11:30 pm EDT

I read on a blog (not here) that the only thing missing from the Nobel Peace Prize announcement was Jimmie "JJ" Walker jumping up in the middle of the collective "gasp" from the audience and yelling "DY NO MITE!!!

Doug Johnson

October 13, 2009 - 6:57 am EDT

If people got paid or performance, how much would we pay those liberals in Raleigh?

ghost from white oak

October 13, 2009 - 9:06 am EDT

I would just like to inject a sobering thought to all this carping about CEO's salaries.
The ain't all republicans you know. Some of the supreme leaders closest friends fit this to a tee.

Yvonne

October 13, 2009 - 10:15 am EDT

Personally, ghost, I don't care what or who they are. My point is there are two sets of rules/standards based on class and position. A CEO can wreck havoc on a company and get rewarded while the real producers have to give up compensation so the CEO can get that big, fat, mostly tax-free bonus/raise. Perhaps James does not care that a CEO gets millions while his employees have to bear the brunt of that reward, but I do. I think it morally reprehensible to treat people unfairly simply because they do not hold the position of CEO.

It reminds me of the article James posted the other day about Simmons Mattress. The rapers and pillagers walk away with their wallets intact while the employees end up with nothing but a memory. I don't care who slices it, dices it, spins it or slings it, in other words dems, repubs or indep, it is wrong for the rich to keep getting richer by climbing up the backs of the poor to middle class or screwing them for the love of money.

truth

October 13, 2009 - 11:43 am EDT

"It is wrong for the rich to keep getting richer by climbing up the backs of the poor to middle class or screwing them for the love of money"

I don't disagree. However, when has this not been the case since the beginning of wealth and poverty? Many in the world probably think it is unfair that the majority of Americans live as kings compared to their life of barely surviving.

Personally, I support limiting executive pay. I think there should be a formula by which a CEO cannot receive pay beyond a certain multiplier of the lowest paid employee. On top of that, CEO's should not receive raises of a higher percentage than the average wage increases of the entire staff. I think it should be a law in all publicly traded companies, at the very least.

J D R

October 13, 2009 - 11:52 am EDT

" ... when has this not been the case since the beginning of wealth and poverty?"

Never.

"Many in the world probably think it is unfair that the majority of Americans live as kings compared to their life of barely surviving."

And they would be correct .. it is also the reason we have an immigration problem as well as a coule religous wars going on.

.. but I disagree about limiting executive pay - here's an example: Michael Dell receives well over a million a year in "Security Pay". This is Double-Speak for "Pay Me In Monies that We Don't Have To Declare As Wages and therefore both the Company and Moi are saved huge taxes -- after all, that's why we have lower paid employees."

JGALT

October 13, 2009 - 1:23 pm EDT

That's what boards of directors are for-- some are worse than others-- some don't do their jobs at all. It is better than having Barney or other congressional idiots involved. Have you got a formula for actors, atheletes, musicians, composers, entertainers, investors, successful authors you don't like, inventors with patents, entrepreneurs. I'm not so concerned about what other people make as I am about the reduction in purchasing power that all paychecks are undergoing. As Obama monetizes his huge deficits and as the dollar declines, he is silently and hugely taxing the middle class and everyone else. He is just getting started.

J D R

October 13, 2009 - 6:00 pm EDT

"Have you got a formula for actors, atheletes, musicians, composers, entertainers, investors, successful authors you don't like, inventors with patents, entrepreneurs."

I do indeed!

J D R

October 13, 2009 - 6:02 pm EDT

"As [insert politician here] monetizes his huge deficits and as the dollar declines, he is silently and hugely taxing the middle class and everyone else."

Been going on for quite a while, Galt .. arguably one and a half centuries . but glad you're starting to notice!

Yvonne

October 13, 2009 - 1:23 pm EDT

truth,

My issue is not necessarily the amount of money a CEO makes (although I do find $30 million+/year for one person obscene), it is more about employees having to give up earned benefits and salary in order for the CEO to receive all the perks, especially when the company is losing value. It's the same principle as Congress having a cadallic health care plan while voting against the poor being able to have any insurance. They have not suffered any ill effects of our recession but still expect us to furnish them with what they have always had.

And just because that is the way it's always been does not mean that is the way it's always going to be or should be. I know, from first hand experience, change can be influenced by one person. Think how much change could happen if folks worked together rather than letting their politics get in the way of common sense.

danagain

October 13, 2009 - 6:40 pm EDT

What say you about Jgalt's post Yvonne? Should Julius Peppers earn $1 million per game with the Panthers while their record sucks and the guy walking the stands selling soft drinks earns min. wage?

Yvonne

October 13, 2009 - 7:52 pm EDT

Are the two people employed by the same firm? Is the firm going down the toilet? Remember I am not the one who brought up incentives. What I clearly stated is, I think it is wrong for CEO's to get raises/bonuses when the company is losing value and the employees are having to sacrifice so the CEO's can be rewarded simply because they are CEO's. If the stock of a company is going up and the wealth is increasing, the employees are not having to give up raises, being reimbursed for out of pocket expenses directly related to their job or pay more for health insurance, the picture changes entirely. Bonuses/raises/perks are not appropriate when a company's employees are force to scale back so CEO's can receive them. All my opinion of course.

danagain

October 13, 2009 - 9:30 pm EDT

Nice yada yada, but answer the question, should Julius Peppers earn $1 million per game, which he does, when the Panthers just eeked out their first win last Sunday and are now 1-3?

Yvonne

October 13, 2009 - 11:23 pm EDT

You can really be obnoxious sometimes, Dan. Who died and left you in charge of making the rules for the blog? I have given you all the answer I intend to regarding Peppers. First off, I really do not care about Peppers and secondly he has nothing to do with CEO's, unless he owns the team. Did you stomp your foot when you demanded I answer your question?

J D R

October 14, 2009 - 2:24 am EDT

I'll reply, Dan.

Peppers can earn all he wants as long as it's paid in wages as are the rest of us. He knows that one bad hit and he's outta there..

Ditto Coach John Fox ... who also knows that couple of too losing seasons and he is also outta there.

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