Perspective: Critiques of capitalism all about state and local policies

Anti-capitalist feelings in the United States are enjoying a brief moment in the sun these days. Surveys of young people report that support for socialism is on the rise, and we can even hear some apparently wistful musings about communism from the shallow end of the public debate pool. Given that the only coherent national spokesman for socialism is a millionaire with three homes, it’s pretty clear this is not yet serious stuff. However, we would still be wise to take seriously the economic worries of young people. I for one think there is reason to share some of their concerns about the workings of our market economy, and I believe much of the problem is at the state and local level. Let me explain.

Today’s labor markets offer jobs for everyone who wants one, and even the grimmest local economies have abundant employment options for young people. Still, the Hoosier economy has not created a single net new job for folks with a high school diploma since 1998, and wages in many occupations are stagnant. To make a life, young people need education, yet funding and focus on that is surprisingly challenging. Our economy offers support and opportunity for the quarter of kids graduating from a four-year college, but what about everyone else?

Indiana’s community college system continues to struggle with little more than one in ten Ivy Tech attendees ever receiving a degree. Young people turning to our workforce development system will find it focused wholly on supplying workers to businesses rather than offering a resource for career-minded adults.

Once in the workplace, new employees will find their labor heavily taxed by payroll and income taxes, which exceed 20 percent on even low-wage workers. We tax labor heavily, but what about capital? Buyers of business capital in Indiana can fully depreciate the value of that capital in eight years, removing more than 2/3rds from the property tax rolls. However, paying any business property taxes is apparently only for dupes. Local businesses offer tax abatements of nearly $1 billion of new investment each year, and no Hoosier business big enough to hire a law firm will ever pay more than a 1.0 percent tax on their investment. If you are too small to hire an attorney, you will likely pay closer to 3.0 percent. Young people, especially entrepreneurs, notice this.

Indiana, especially at the local level, has turned into a huge capital subsidy machine. Nearly all the lost revenue has been absorbed by local income taxes levied on work. Since the Great Recession ended, Indiana has provided more than $6 billion in capital subsidies. Almost all of this was designed to bring ‘jobs’ to communities that already have more jobs than workers. This phenomenon is even worse than it seems. Among a short list of places that have spent the most to attract jobs; Marion, Muncie, Terre Haute, are all places that must import workers every day to fill the jobs they already have. The pursuit of job attraction strategies in these places is one of the grossest policy mistakes of the emerging century.

Even as most communities abandoned business attraction spending, the hangover remains. Money wasted on business attraction left a decade-old deficit in schools, roadways and amenities. Young families see this, and vote with their feet. Only a dozen Indiana counties have enjoyed population growth in the 15- to 44-year-old age group in this century. Young people are looking for good schools, nice neighborhoods and public investments they value like parks and trails. In the better places, there are arts venues and attractive downtowns. These things all matter, and their absence is devastating to a community’s future.

In the end, I think much of the anti-capitalist anxiety is really a rejection of the broken status quo that merits capital investment over people in some of the most egregious and costly ways. That approach to state and local spending and economic development policy contributes to the economic unease felt across the country.

I’d like to end with something glib and funny, like “if you think your community needs to attract more jobs, the ’70s are calling and want their economic policies back.” But, the problem is too serious for that. So, I’ll be much more directly prescriptive. Worker training must support careers and communities must attract people. We need an Ivy Tech that graduates more Hoosiers, or at least leaves fewer in debt. We should be funding our schools to prepare kids for lifelong learning, not just their first job. Neglect of these fundamentals endangers Indiana’s economy, just as it has already crippled many places.

In my mind, the worst part of failing these straightforward policy issues isn’t the inevitable economic decline they precipitate. A few more ghost towns hardly matter. My concern is that these failings so clearly cause young people to look elsewhere for economic inspiration, and move elsewhere to make a life.

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Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.