The Carrier Deal: The Devil's in the Details
This is my second and final article with political commentary on the 2016 presidential election and subsequent events.
A few days ago, a friend confided to me that she was pleased with the way in which President-elect Donald Trump "bullied the CEO of United Technologies Corporation (Carrier's parent company), into keeping over 1,000 jobs in Indiana and not relocating them to Mexico. Two business titans coming head to head, and Trump won," she said. Because of my background in business, she asked for my opinion.
I'm hardly an expert on the types of business incentives that involved Carrier. But after researching a couple of details about the deal and giving the matter some thought, I came up with the following:
First of all, comparing The Trump Organization to UTC is like comparing a Toyota to a Ferrari. Moreover, it is doubtful that a CEO like Gregory Hayes could be intimidated by Donald Trump, regardless of his winning the election. Pushing the smoke and mirrors aside, in all likelihood it was the other way around.
Carrier was purchased by UTC in the late 70's in a hostile takeover. It is a wholly owned subsidiary. UTC is a global corporation, not privately held, and trades on a US stock exchange; meaning, stockholders want a healthy return on their investment. This American conglomerate enjoys substantial profits, and affords platinum parachutes and millions in salaries/bonuses to their executives. In light of the recent Carrier decision, we can't help but wonder if those with such vested interests are willing to take a few pennies less on every dollar out of the goodness of their hearts in order to keep 800 jobs north of the border. UTC still plans to relocate 1,300 other jobs from Indiana to Mexico, where the pay scale is infinitely lower. Will this move help defray the tens of millions in costs of keeping the 800 at the Carrier furnace plant? Will any of these remaining jobs be moved, after all, in the "not too distant future"? Unquestionably, their accountants have already crunched the numbers utilizing the various scenarios. And UTC execs would recognize in a nanosecond the positive PR bump by keeping jobs in Indy -- if only temporarily.
Here are a few points surrounding the alleged Carrier deal to consider:
The 7 Million Dollar Incentive Package
We understand Indiana's economic development agency has yet to actually approve the deal, which grants $7 million in taxpayer money to Carrier over a period of ten years. It appears Trump and Pence afforded "corporate welfare" to a corporation that doesn't need it. According to Tedd Man of the Wall Street Journal, "In exchange for the tax breaks, Carrier will invest $16 million in its facilities in the state." This is interesting since tax incentives often take the form of investments in technology/manufacturing equipment to automate the assembly process, as long as the organization isn't required to maintain a certain level of their work force. (It would be nice to see the details of this agreement in writing.) Whether we like it or not, advances in automation are the hallmarks of the 21st century in replacing human labor.
Trump's Campaign Promises
Did Trump/Pence guarantee the easement of environmental and other regulations which would boost UTC's bottom line? (In the past, UTC has come under scrutiny concerning the level of toxic emissions released into the atmosphere during production.) What about Trump's pledge of lowering the corporate tax rate as part of his pricey reform plan -- a proposal that will not pass through the Republican-controlled Congress without substantial modifications? In the final analysis, both of these questions are irrelevant. These highly touted, oft repeated campaign promises will either come to full fruition over the next few years, or not. They were scarcely intended, solely, for the benefit of UTC.
The Call for Tariffs
During his campaign, the President-elect promised the electorate that Carrier (UTC) and other exporters of American jobs would be hit with hefty tariffs. Barring an Act of Congress, Mr. Trump is somewhat handcuffed by certain laws already in place involving percentages, timeframes, industries, circumstances, etc. UTC could pass tariff costs down to consumers, and/or be "forced" to send even more jobs south of the border or to other LCC's (lower cost countries). Imposing tariffs on countries such as China, Mexico and the shredding NAFTA, would induce a trade war. Further, it would damage the net inflow of billions of dollars of foreign investments into the US.
This brings us to one of UTC's biggest customers: The Pentagon. Were billions of dollars in future defense contracts (either directly or implied), threatened or sweetened as part of the deal offered by someone who has yet to set foot in the Oval Office? Here is where the troubling, intrusive reality of the so-called "deal" truly comes into play. That is one powerful ace-in-the-hole for UTC to use should this be the case. And they can play it whenever they wish. Mr. Trump assures us the subject of military contracts never came up during his discussion with Hayes. In light of the facts and some of Trump's wildly disingenuous assertions in the past, I have my doubts.
All politicians lie; some, far more stridently than others. Vice President-elect Pence recently attended the Broadway theater production of "Hamilton" with his daughter and her cousins. Upon hearing some boos and cheers directed at him, he remarked to the kids, "That's what freedom sounds like." I could have hugged the man for his Lincolnesque comment. But freedom also demands facts. Unless we want the truth, demand it, and take the time to run it through the tires, we run the risk of losing sight of it altogether...and our freedom in the bargain.
Mann, T. (2016, December 2). Carrier Will Receive $7 Million in Tax Breaks to Keep Jobs in Indiana. The Wall Street Journal