Throwing Money at Foreign Companies

September 8, 2008

“It may sound like a joke but it can be cheaper than you imagine to manufacture there.” This quote from a German corporate executive that just


in the

Financial Times

was not referring to China, India, Vietnam or Mexico, but rather that new low-cost haven known as the United States of America. U.S. attractiveness, according to this article, is not a function of exchange rates: “The reason is less the level of the dollar…but rather the huge level of incentives some U.S. states are offering companies to set up factories in their region.”

Apparently, European executives are amazed at the willingness of state governments to shower cash on foreign manufacturers who are inclined to invest in the U.S. anyway these days. A senior executive at Italian conglomerate Fiat told the FT: “With the amount of money U.S. states are willing to throw at you, you would be stupid to turn them down at the moment.”

Deals such as the half a billion dollars that Tennessee is giving Volkswagen for a new auto assembly plant and the even larger package that ThyssenKrupp is receiving from Alabama in connection with a new steel mill are far beyond what European multinationals can expect at home. “States are willing to pay for new roads, re-train workers and offer huge tax breaks—that is a competitive package that not many parts of the world can match when you look at how productive U.S. workers are and where the dollar is,” the chairman of a large Swiss group told the newspaper.

The FT quotes a Tennessee official who is not at all embarrassed at the giveaways. Instead, he enthusiastically refers to the U.S. as “a shopper’s paradise” for foreign investors. With rising unemployment rates, the U.S. can certainly use the manufacturing jobs these European firms are offering, but state officials do not have to act like drunken sailors with taxpayer money to get them.