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Mercedes Benz And The State Of Alabama

1313 words - 5 pages

Mercedes-Benz was looking to build their first auto manufacturing plant in the United States in 1993. The company was intent on locating in North Carolina because of their experience with their large truck division plant that was located in that state. The company’s officials did not intend on visiting Alabama and was not considering the state when Governor Jim Folsom, Jr. and other officials signaled their intent to bid on the new plant. This “give-away” was viewed negatively in a state that has a poor education system and under-funded pension system and caused Folsom to lose re-election in the next election to Fob James. The “corporate welfare” was a major issue and the expectations from the project have never been realized. In fact, William Gunther, an economist at the University of Alabama stated that the job calculations are wishful thinking and “we are suffering from winner’s curse” (Myerson, 1996).

The State of Alabama gave Mercedes-Benz $300 million in tax related benefits to bring 1,500 highly skilled technological jobs to Tuscaloosa, Alabama. The minimum social benefit for the Alabama taxpayer to view this “corporate welfare” sellout is that same $300 million, or $200,000 per job. From an economic viewpoint, attracting the Mercedes-Benz plant to Tuscaloosa is attractive to the extent that a large net marginal social benefit is derived. This, from a benefit-cost viewpoint, at least $300 million, or $200,000 per job, in local and state benefits would need to be created to have this be a justifiable expenditure of Alabama taxpayer dollars. Both numbers would have to be changed to figure in the time of money and risk. When the state of Alabama views risk-adjusted present value of marginal social benefits the current value of marginal social costs are a net marginal social benefit seen for the taxpayers to view this as a reasonable expenditure for the taxpayer’s of Alabama. The state of Alabama overbid for the Mercedes-Benz plant in Tuscaloosa. In fact, “Alabama economic development officials argued that the Mercedes project was worth more to Alabama that it was worth to any other state” (Hirschey, 2010).
The data that was used by the state for the tax award to Mercedes assumed that Mercedes would bring in a lot of additional job for auto suppliers, much the way American auto manufacturing is done in Michigan. However, Mercedes sends about “35 percent of the vehicle’s content from Germany” (Myerson, 1996). This was one of the fatal giveaways to the plant project, they have given tens of millions of to suppliers and only 10 have moved to Alabama. “The real winner in the Mercedes plant deal was not Alabama, the Mercedes choice confirmed Tennessee as the new base of the auto industry” (Myerson, 1996).
The bidding process had major repercussions for the entire state of Alabama. When the state could not make payments for plant constructions, they took money from the retirement/pension plan. The state had to cut funding to elementary...

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