Public Policy, Economics and Entrepreneurship: June 2008 Archives

In the wake of the Kelo decision of the US Supreme Court, which greatly diminished property rights in the US, many states moved to restrict the use of eminent domain.  Now lawyers and politicians are finding loop holes in these laws.

A case in point can be found in the story of a Nashville business owner.  From the Tennessean:

The city has begun legal proceedings to seize the property of a Music Row landowner who has refused to sell to a Houston developer, setting up a fight that has already prompted the involvement of a national advocacy group.

The Metropolitan Development and Housing Agency filed papers in a Nashville court Friday to start a process that would take the offices of Country International Records at 23 Music Circle East.

The action, the city's first test of eminent domain since the state legislature tightened condemnation laws two years ago, was taken after the agency determined that negotiations with building owner Joy Ford would not work, said Joe Cain, the agency's development director....

MDHA has argued that Ford's property can be considered blighted because it lies within the Arts Center Redevelopment District.

Dictionary.com defines blight as it relates to property as "the state or result of being blighted or deteriorated; dilapidation; decay: urban blight."  It makes no mention that the property does not fit into politicians grand plan for their city.  And yet, that is how the city of Nashville has redefined the word blight.

Joy Ford owns a thriving business.  She does not want to sell it.  As you can see from the photo below it is not what anyone could define as blighted property.  Anyone except city officials eager to pander to developers.

Am I against development?  No!  But, I am against is the erosion of property rights in the US in this post-Kelo era.

One of my fears when the Kelo decision came down is that the same folks who were abusing eminent domain were the same ones supposedly fixing it.  However, even with the passage of state and local laws to place restrictions on eminent domain, small business and home owners are at the whim of politicians and their army of attorneys who seek to increase their tax base through forced re-development.

According to a recent survey, 42% of NFIB members ranked the cost of natural gas, propane, gasoline, diesel and fuel oil as a "critical" problem. The issue has climbed from being the #10 ranked issue concern to the #2 concern in this year's survey.

Inflation is real and will become an even bigger concern over the coming months. 

Here are two stories that the NFIB is sharing as examples of this growing problem.

Jim Buchy
Buchy Food Service
Greenville, Ohio
Buchy Food Service is a fifth-generation, family-owned business that began as a manufacturer of meat and sausage products in 1878 and is now a full-line food distributor with a 100-mile service territory. The company prides itself on service and has long claimed, "We have no minimum shipment requirements or drop-ship charges." Yet, as energy prices continue to rise, the cost of delivering goods -- a staple of the service that Buchy's provides to its customers - has risen dramatically. The rising delivery costs are having a big impact on the 139-year-old business, causing Buchy's to examine ways in which it can consolidate services -- something they are reluctant to do.
 
Douglass Henry
Henry Molded Products Inc.
Lebanon, Penn.
For over 40 years Henry Molded Products, Inc. has been providing customers with high quality molded fiber/pulp products. They produce recyclable products that are environmentally friendly using 100% pre- and post-consumer newsprint, kraft paper and other waste papers, and are a nationally recognized manufacturer of green products. Henry Molded Products relies on natural gas to create its products and now pays more than $100K per month on its natural gas bill for his factory. Over the last few years, his energy costs have more than doubled.

The NFIB is taking the right stand on this issue, pushing for more freedom within the energy industry.  From a letter that Dan Danner of the NFIB sent to Congress:

Small business owners need immediate relief from high energy costs, and drilling offshore is a critical step towards increasing the domestic supply of oil and natural gas and reducing prices at the pump.  Unlike some of their larger competitors, escalating fuel prices hit small businesses particularly hard because they often must absorb these cost increases instead of passing them on to their customers. 

In order for our economy to regain its footing, we must be able to meet the energy needs of small businesses, and I urge your strong support of this important energy policy.  

The Commission on Growth & Development recently issued their report on global economic development: "The Growth Report: Strategies for Sustained Growth and Inclusive Development".  The report concluded that there is no fast and easy answer.  It takes long-term commitment and patience to create sustainable growth in an economy.    

Key conclusions of the report include: 

--  Growth is a crucial part of poverty reduction and the improvement of people's lives. It is impossible for poor countries to lift large populations out of poverty without growth. Equality of opportunity and a focus on individuals and families, gender inequalities, and economic security, however, is critical to maintaining the support for growth oriented policies. Open access to free markets is key.

-- That growth is a long-term challenge that requires leadership, persistence, stamina, pragmatism, transparency and the support of the population.  In an age of quick fixes and sound bites this will be a challenge.

-- That growth requires engagement with the global economy to import knowledge and technology, to access markets, and to generate a strong export sector - critical in the early stages of growth.  The global nature of our economy is unavoidable.

-- That resources, especially labor, must be mobile. The Report also recommends a bridging of the divide between the formal and informal labor sectors by allowing export-oriented industries to recruit workers on easier terms than prevail in the formal sector but with the same essential worker protection in the areas of health and safety, working hours and child labor. It highlights the need to better manage the migration challenge and the results of changing demographics.

-- Access to capital is fundamentally important. 

Tax Foundation President Scott Hodge recently published an article (can be found here) on the opportunity he sees for federal tax reform during the next administration -- regardless of who wins.  He puts it this way, "For the first time since 1986, the stars may be aligning for a grand bipartisan compromise on fundamental federal tax reform."

Tax reform and lower tax rates are critical steps to help keep our entrepreneurial economy expanding over the coming decades.

The article outlines what Hodge believes are the five basic steps for politically realistic tax reform:

Step 1: Eliminate tax exemptions and deductions.
Step 2: Make any tax reform a tax cut and tax simplification.
Step 3: Continue to shield low-income earners with a super-deduction.
Step 4: Make everyone a stakeholder.
Step 5: Fend off the special interests.

My take -- unfortunately any progress on simplification will inevitably get undone because politicians do not want to fend off special interests.  Politicians live off of special interests -- the money from K Street is what makes Washington tick.

The National Dialogue on Entrepreneurship reports on the findings of a long-term study to spur entrepreneurial growth in Appalachia.

A new study sponsored by the Appalachian Regional Commission (ARC) assesses the impact of the ARC's Entrepreneurship Initiative. This effort, which operated between 1997 and 2004, was the first Federal program that explicitly sought to invest in and support local entrepreneurship development efforts. Overall, the program invested $47 million into various projects, and these investments had a positive impact in terms of creating new jobs, attracting other new investments, and stimulating new business creation.

Here are the overall findings from the study:

Jobs created and/or retained 12,178
New businesses created 1,787
Students and teachers trained 11,634
Clients served by incubators 475
Actual private $ leveraged $72,802,868
Public cost / job created or retained $579 - $3,994
Public cost / business created or expanded $2,988 - $7,818:

What a wonderful story of how entrepreneurship is helping to turn around one of the poorest regions in America.  What should be the next step to help these entrepreneurs?  As we know from around the world, the best policy is to cut taxes and get government out of their way.  But this is not the message we are hearing from the campaign trail, is it? 

Sadly, Americans have not been educated in what sustains an entrepreneurial economy.  Instead, we have created almost a knee jerk reaction in this country that assumes that once someone creates success and wealth through free enterprise, it should be taxed and shared with everyone else.. 

The positive impact of programs like this one will soon be overwhelmed by our steady drift toward socialism in the US.

Rather than celebrate the successful entrepreneur, we envy the fruits of their efforts.

As Winston Churchill warned, "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."