History is a tapestry. If you look closely enough, you can see the threads running through seemingly unrelated events. One of them ties together Virginia's scandal-plagued governor, the two men who would succeed him, the decline and fall of Detroit and the president's economic speech on Wednesday.
Last week Gov. Bob McDonnell repaid "loans" made by Jonnie Williams Sr., the CEO of dietary supplement maker Star Scientific. Those loans are just part of the munificence Williams has showered on the McDonnell clan, along with a Rolex watch, a $13,000 Oscar de la Renta jacket and more.
Many have wondered why McDonnell, otherwise a paragon of rectitude, would take such swag. But nobody has asked why Williams would give it — because the answer is obvious. Star Scientific has not made a profit in a decade. But it might, if the governor were to place the weight of the state on the economic scales.
As the Mercatus Center's Matthew Mitchell noted in an insightful op/ed column, Virginia's governor has a lot of quo to give whether or not he takes a fistful of quid. The Governor's Opportunity Fund — just one of numerous economic-incentive programs operated by the state — is something like a slush fund the governor can use to "secure a business location or expansion project." Star Scientific never got any of that money, but it did get free promotion at theExecutive Mansion and by Virginia's first lady, Maureen McDonnell.
Now suppose Virginia politicians swore an oath never to intervene in the marketplace. Suppose they behaved as though there were a great wall of separation, like that between church and state, separating state and economics. In that case, what reason would anyone have to lavish such largesse upon state politicians? Precious little beyond the bonds of personal affection. And it seems reasonable to surmise affection alone would not add up to anywhere near the princely sums that have moved from Williams' hands to McDonnell's. The political allocation of economic goods creates a powerful incentive for private interests to allocate economic goods to politicians.
Williams also has given — though considerably less — to Virginia Attorney General Ken Cuccinelli, who is running to succeed McDonnell. Cuccinelli's principal opponent, Democratic trencherman Terry McAuliffe, has hounded Cuccinelli for that. But McAuliffe has his own albatross: the eco-car company GreenTech Automotive.
McAuliffe also has hammered Cuccinelli for his strident social views, and warned that Cuccinelli's rigid dogmatism on abortion and homosexuality would chase business away from the commonwealth. Yet back when he was still with the company, McAuliffe infamously chose to put GreenTech's operations in Mississippi — rather than the more socially tolerant Virginia — because Mississippi offered GreenTech a more generous package of economic incentives.
McAuliffe is friends with Mississippi's Republican former governor, Haley Barbour. "I have to go where, obviously, they're going to put incentives," McAuliffe said. Obviously? Without the lure of incentives, perhaps McAuliffe could have paid more attention to the commands of his conscience.
The smoldering GreenTech story flared again last week when news broke that federal authorities are investigating one of the company's sources of funding. President Obama has nominated Alex Mayorkas, currently director of the U.S. Citizenship and Immigration Services agency, to the No. 2 spot in the Department of Homeland Security. There are questions as to whether Mayorkas inappropriately helped Gulf Coast Funds Management obtain an EB-5 visa for a Chinese executive. (The EB-5 program offers green cards in exchange for foreign investment in the U.S.)
GreenTech has relied on Gulf Coast, which is headed by Anthony Rodham, for help in securing foreign investment. Rodham is the brother of Hillary Clinton. McAuliffe is a close friend of theClintons.
Virginia officials were leery of GreenTech's potential involvement with EB-5 financing, and one went so far as to raise national security concerns. But you don't have to go that far to find the whole affair noxiously incestuous. It also is emblematic of how McAuliffe always has operated — mingling business and politics. (In 2010 he even wrote to Homeland Security Secretary Janet Napolitano regarding "GreenTech Automotive and EB-5: USCIS Should Help, Not Hurt, Job Creation for U.S. Workers.")
Would that all suddenly change if he were elected governor — or would he, like McDonnell, be seduced by those who would like him to ladle out the sort of incentives GreenTech took advantage of? How could a Governor McAuliffe, having chosen to locate GreenTech on the basis of incentives, ever argue that a prospective company ever ought to site a plant in Virginia simply because it has a good business climate and a fairly level playing field?
Five days before the GreenTech story flared up again, Detroit filed for bankruptcy protection. Numerous factors contributed to the fall of Motor City. One of them, as several commentators noted last week, is statist intervention. Writing on the legal blog The VolokhConspiracy, Ilya Somin noted that "for many years Detroitaggressively used eminent domain to promote 'economic development' and 'urban renewal.'" The principal winners were "politically influential private interests." The principal losers were poor, often minority, communities:
"The most notorious example was the 1981 Poletown case, in which some 4,000 people lost their homes, and numerous businesses were forced to move in order to make way for a General Motors factory. . . . [T]hePoletown takings — like many other similar condemnations — ended up destroying far more development than they ever created. In his prescient dissent in Poletown, Michigan Supreme Court Justice James Ryan warned that there was no real reason to expect that the project would produce the growth promised by GM and noted that Detroit and the court had 'subordinated a constitutional right to private corporate interests.'"
Urban renewal contributed to Detroit's decline in other ways as well. In a follow-up post Somin cites economist David Henderson, who noted that one of the few poor black neighborhoods that managed to avoid the infamous rioting that took place in 1967 was also one of the few that dodged the bullet of renewal through eminent domain. Hence, the close-knit community remained close-knit.
The premise behind the use of eminent domain for economic development purposes — a rationale legitimized by the Supreme Court in the infamous Kelo case — is fairly straightforward. Government officials have superior wisdom, and given sufficient power over other people they can produce economic outcomes superior to those that result from free choices by economic participants. The vacant streets of Detroitand the empty wasteland where Suzette Kelo's neighborhood inConnecticut once stood expose the fallacy of that premise.
On Wednesday, President Obama ignored those object lessons and reiterated his call for more, always more, political allocation of economic goods. The job of creating a solid middle class, he argued, belongs to government, which can do so through "new rules." And "long-term strategies." And "new initiatives." And "executive authority," which is his favorite kind. And a "new push to rebuild run-down neighborhoods" (look out, Detroit). And "plans that I willlay out" — because nothing makes an economy hum like central planning.
Nothing invites the vulpine corruption of civic virtue by monied interests like central planning, either. Just ask Virginia's political class for proof of that.
This article originally appeared in the Richmond Times-Dispatch.
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