Friday, March 18, 2011

More Subsidies for Manufacturing

Two articles in the paper today about new manufacturing plants in the Phoenix area. In both cases, government subsidies were involved.
First we have First Solar's new manufacturing plant near Gateway Airport. They will spend $300 million and expect to create 600 new permament jobs. (That's very capital intensive - $500K per job.) For that they get 37.5 million in tax breaks over the next 10 years and $2 million for stuff businesses usually pay for themselves.
Second, we have Yulex using $15 million in financing to open a new manufacturing facility that will employ 60 people. Another 40 will be employed in agriculture to grow the raw material. (At $250K per job that's half as capital intensive as the solar jobs, but still way above the average for the overall economy.) In this case they're getting tax breaks because they are in an enterprise zone.
From an economic standpoint I find both of these subsidies to be inefficient. If you're going to give tax breaks to businesses (which may be a very good idea from a growth standpoint) then the most efficient way to do it would be to lower taxes on all businesses. That way, everyone can compete based on their comparative advantage rather than on their rent seeking abilities.
Also note that the solar manufacturing is fairly risky. If the federal, state and local utility subsidies for solar production go away, so does the industry.

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