The Mississippi Economic Council (MEC) recently released a study touting all the jobs and money produced for Mississippi by the Nissan plant in Canton.
The study claims the plant annually produces $2.9 billion in state gross domestic product, $2.6 billion in disposable income and $300 million in local and state taxes. That seems like a good return for the billion or so in local and state tax subsidies Nissan received.
To back up its claims, the MEC states: “The economic contributions of the Nissan Canton plant were estimated using a well established econometric model, Regional Economic Models Inc. (REMI), version 1.6.8. The REMI model has been used in similar studies on the impact of automotive manufacturing on state economies (CAR 2013). REMI operates as an input/output model by incorporating current and historical labor force data from diverse local, state, and national governmental and private entities to estimate the impact of targeted changes on the economy of a state or local area.”
This seems all very scientific, but unfortunately, it’s the old “garbage in, garbage out” scenario. Punching some numbers into REMI is not going to cut it. If Mississippi doesn’t want to lose its shirt in the industrial recruiting bidding wars, it’s going to have to up its game by a huge factor.
This is finance and the primary concept of finance is opportunity costs. Any financial analysis that doesn’t factor in opportunity costs is worthless from the get go. Mississippi is spending billions without any real clue as to whether the expenditures are actually benefiting the state.
The question is not whether the billion or so spent on Nissan produced positive results. That’s a no-brainer. The question is whether that billion spent elsewhere could have produced even better results.
If the state had given $10 million in subsidies to each of the 100 fastest growing companies in Mississippi instead of Nissan, would the results have been even better? That’s the real analysis, but it’s not being done.
Where did the new 6,500 Nissan jobs come from? There are only four sources of jobs: existing Mississippi employees, out-of-state employees, young people entering the workforce and the unemployed. The first step of any legitimate analysis is to attribute to each of these four categories the percent of new employees.
Any manufacturer or large employer will tell you their biggest challenge is finding affordable skilled labor. What percent of the 6,500 Nissan employees were transfers from existing jobs? A real analysis needs to factor in the economic downside to the existing employers who have to recruit and train thousands of new workers.
What percent of the employees come from out of state? These new residents will be using the roads, schools and infrastructure. All of this costs state money. A real analysis will factor this in.
What percent of the employees come from the roles of the unemployed and young people entering the workforce? This is the ideal, but this has to be confirmed by data, not guesstimates.
The REMI model is a simple multiplier model. But if you use a multiplier for the money the state puts in, you must logically use a multiplier for the money taken away from cities and state from the huge tax breaks. Other businessness will have to make up the difference. A downside REMI multiplier must be applied as well.
The worst was the Continental Tire plant when Gov. Phil Bryant waved a piece of paper with four columns on it claiming that the state would make money from day one.
I spent hours studying those numbers and discussing them with the state economist who derived them. They were superficial, at best.
I don’t have a problem with aggressively recruiting new business. I have a problem with flying blind. If we are going to engage in billion-dollar bidding wars we need to create a special task force of true experts to crunch the numbers thoroughly.
Ultimately, the real measure of industrial recruitment is growth. The latest Census Bureau stats list Mississippi as 41st in population growth from 2010 to 2015. Mississippi has grown less than one percent over five years, the worst performance since the 1950s when farming mechanized. It is the worst result in the entire South.
During this time Arkansas has now passed Mississippi in population, having grown more than two percent in five years, almost three times faster growth. Mississippi has recently had $1.8 billion in megadeal state subsidies. Arkansas has had half a billion in megadeal subsidies.
So neighboring Arkansas has grown three times faster than Mississippi while doing one third the number of megadeals. What does that say about the benefits of these megadeals?
