Health Care and Government

EYE ON THE PIE: Should we save ailing manufacturers?

November 21, 2005

Today, Delphi in Kokomo is the leading economic issue in Indiana. The resolution of its difficulties may foreshadow where we go as a state.

Delphi is a major manufacturer of electronics for automobiles. As a former component of General Motors Corp., Delphi still depends on that struggling company for a large portion of its revenue. In addition, Delphi has pension and health care costs inherited from GM's relationship with the United Auto Workers.

Despite the fact that Delphi has been at the leading edge of some technologies, it is now in bankruptcy and a cost-cutting mode. Among those costs are the wages of hourly workers and the benefits paid to current and retired employees.

Gov. Mitch Daniels wants to retain the jobs at Delphi and minimize the damage of lower revenue for the state and its citizens if Delphi were to move or reduce its presence in Indiana.

Business retention is a high priority for the economic-development agencies of states and communities throughout the nation. Attracting new firms is costly as well as difficult. It takes a combination of remarkably complex hard work and sheer luck. Business retention also has its difficulties, but the economic developers are dealing with known entities and often are able to work from a base of established personal relationships.

It is easy to see why business retention is desirable. Nearby suppliers to Delphi could be endangered if Delphi were to leave or reduce its activities in Indiana. Businesses in the communities where Delphi workers live and spend their money would also suffer from cutbacks at Delphi. Governments would see revenue decline when a major plant closes and thousands of workers are suddenly unemployed. Charitable agencies might have to step up their assistance at a time when their own revenue is falling. Everything from Little League to language classes in the schools might be endangered.

It's easy to find communities across the nation where this scenario has been played out. Youngstown, Akron and Dayton in Ohio, plus Flint, Mich., are examples. Gary, Evansville, Bloomington, South Bend and Fort Wayne in our own state have experienced such economic traumas to some extent.

But if the failing company is truly dying, should we attempt to delay its demise? Does it make sense to give tax breaks or public money in any form to Delphi to keep it alive in Indiana?

The answer is yes, in two cases. First, if Delphi has a temporary problem that can be alleviated by temporary relief, it makes sense to give the company some help to keep businesses and workers from being harmed in the short term.

Second, if Delphi (or any other company) would leave because some other locale is offering a better package, we would want to examine what it takes to keep the firm in Indiana and the benefits of doing so. That's part of the geo-economic warfare of our times.

However, most often the problems of companies like Delphi are not short-term, but deeply rooted. They are in trouble now and are likely to be in trouble in the future because they are in an industry where there is excess capacity and severe cost competition. There is no amount of money we could feed into such firms to keep them healthy.

As to keeping a firm in Indiana, we must ask if it represents the long-term developmental goals of the state. Delphi at Kokomo has a large, professional staff that we might be interested in retaining. The production staff is equally valuable to us as citizens and individuals. Keeping their current jobs, however, beyond a transition period, may not be in our (or their) best interests. Our efforts might be applied best to bringing new jobs to Kokomo, where these skilled and experienced workers would be more secure and better rewarded than at a weakened Delphi.

That is not an easy task, but it is at the heart of an economic policy that seeks to sustain good communities.



Marcus taught economics more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.
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