Actually, GE's lights are still on

From Robert Whitcomb’s “Digital Diary,’’ in GoLocal24.com

Lights Out: Pride, Delusion, and the Fall of General Electric, by Thomas Gryta and Ted Mann, memorably describes how one of America’s  oldest, biggest and most celebrated companies started taking wrong turns under its charismatic (and probably over-rated) CEO Jack Welch and his successor, Jeff Immelt, and ended up much less profitable, smaller and weaker.

This is superb corporate history, with the right mix of historical context and big picture stuff and anecdotes that add spice to the tale of very smart, but sometimes very wrongheaded  and arrogant, execs making disastrous mistakes as well as, to be fair, achieving some surprising successes.  Overpriced acquisitions and mountains of debt played a big role in the burgeoning woes of the conglomerate, along with dubious creative accounting, which some have alleged verged on fraud.

It’s  a  sort of a mystery  story: How could such a huge and diversified company get into such trouble?

By the way, from all the negative news about GE in the investment community in the past couple of years you might not remember that it remains a very big company. Last year,  GE was ranked among the Fortune 500 as America’s 21st-largest firm as measured by gross revenue.

New Englanders in particular will want to read about the very human reasons that the company moved its headquarters to Boston after many years in Fairfield, Conn.

COVID-19 update from New England Council

From The New England Council (newenglandcouncil.com):

“As our region and our nation continue to grapple with the COVID-19 pandemic, The New England Council is using our blog as a platform to highlight some of the incredible work our members have undertaken to respond to the outbreak.  Each day, we’ll post a round-up of updates on some of the initiatives underway among Council members throughout the region.  We are also sharing these updates via our social media, and encourage our members to share with us any information on their efforts so that we can be sure to include them in these daily round-ups.

“You can also check our COVID-19 Virtual Events Calendar for information on upcoming COVID-19 related programming – including Congressional town halls and webinars presented by NEC members.

“Here is a roundup:

Medical Response

* Southern New Hampshire University Opens State’s First Hospital Overflow Space– A gym at Southern New Hampshire University’s campus in Manchester, NH, became the first “clinical flex area” in the state, holding as many as 250 beds as hospitalizations due to COVID-19 increase. The gym will be used by Catholic Medical Center and other area hospitals to accommodate patients who have improved or are not facing complications as a result of infection. The Union Leader has more.

• Dartmouth-Hitchcock Develops COVID-19 Test – Dartmouth-Hitchcock has developed and prepared for use its own test to screen for COVID-19 that can produce results in as few as six hours. At present, the team at Dartmouth-Hitchcock can run about 100 tests per day; the number is expected to increase to over 1,000 by next week. Read more in the Union Leader.

Economic/Business Continuity Response

• National Fire Protection Association Issues Reminder on Building Safety – As businesses around the world shutter to mitigate the spread of COVID-19, the National Fire Protection Association (NFPA) has issued new guidance to officials on the importance of building and fire safety regardless of occupancy. The NFPA stresses that essential safety measures should not be ignored as to avoid adding to the existing strain on emergency services. NFPA also included a list of recommendations to ensure safety even as buildings empty. Read the guidance here.

• General Electric Partners with Ford, 3M to Produce Protective Equipment for Healthcare Workers – General Electric (GE) is collaborating with Ford and 3M to speed up production of face masks, face shields, and other personal protective equipment (PPE) for workers directly working in fields affected by the novel coronavirus. In addition to this commitment to new PPE, General Electric has partnered with Ventech to increase production of ventilators. Investors

Community Response

• Blue Cross Blue Shield of Massachusetts Commits Funds, Resources to Massachusetts Resiliency and Nonprofit Organizations –Blue Cross Blue Shield of Massachusetts (Blue Cross) has committed to aiding its community through $300,000 in donations to local non-profits and charities. . Ranging from donations to the Boston Resiliency Fund to online giving platforms for Pine Street Inn, the resources from Blue Cross will be deployed across Massachusetts to provide relief efforts to those in need. Read the press release here.

• AT&T Supports First Responders and Crisis Response – FirstNet, AT&T’s network designed specifically for emergency management and first responder personnel, has utilized its systems to optimize networks, support quarantine zones, and strengthen public safety’s command of connectivity as they communicate vital information. Read more.

“Stay tuned for more updates each day, and follow us on Twitter for more frequent updates on how Council members are contributing to the response to this global health crisis.’’

The mixed legacy of the late GE czar Jack Welch

Jack Welch in 2012

From Robert Whitcomb’s “Digital Diary,’’ in GoLocal24.com

Jack Welch, a brilliant son of Salem, Mass., who never let anything get between him and a camera, has died at 84. He helped amplify the myth of the superman, imperialist CEO as he built up the vast conglomerate through acquisitions and divestitures (including of throngs of employees). His focus on “shareholder value’’ above all else, and enriching himself beyond all the dreams of avarice, was impressive, as was his charismatic showmanship. He made a lot of money for shareholders during his reign and they naturally loved him for it.=

But some of his big bets, especially in making GE more of a finance company than anything else, turned out very bad for the company in the long run, after he retired, in 2001. Indeed, more than a few of his decisions look in retrospect to have been dangerously unsustainable. But while he reigned, he reveled in a cult of personality, which gave him a monarchial lifestyle, including in retirement – paid for, of course, by his beloved shareholders, many of whom were unaware of his extreme compensation and privileges.

Some of the things he did were financially necessary, such as closing some not very profitable Rust Belt factories and moving the operations to cheap-labor countries. More problematic was that he cut funding for research and development in order to maximize short-term profits – bad for GE’s very long-term health and so bad for America. He also pushed back against public pressures to make the company clean up some of the horrific industrial pollution it caused.

“Neutron Jack” (so named because of his enthusiasm for firing people) could be amusingly hypocritical. For instance, in 2009, long after his retirement, he called “shareholder value” (above all else) a “dumb idea’’ and said that corporate executives’ “main constituencies are your employees, your customers and your product.’’ But during his 20-year reign at GE, its stock price took precedence above all else.

Still, I’ll miss his TV and other performances.=

A sentence in a New York Times editorial in 2001 summed up Welch’s work well:

“His legacy is not only a changed G.E., but a changed American corporate ethos, one that prizes nimbleness, speed and regeneration over older ideals like stability, loyalty and permanence.”

Jeff Spross, a writer for The Week, opined: “Focusing on shareholder value and stock market capitalization ultimately turns a company into an abstraction, its life sustained by financial flows that are less and less connected to the underlying fundamentals of the company — its workers, its resources, its infrastructure, the real needs it provides to the people it serves. When the good times end and the money dries up, what's left of the company may not be able to stand on its own.’’

Maybe, but in any case, now-Boston-based General Electric seems back on the road to long-term prosperity again.

Under new management, now-Boston-based GE is trying to recharge its finances.

Photo by Raysonho @ Open Grid Scheduler / Grid Engine

GE looking better, but Boeing....

Carmen Miranda in a 1945 advertisement for a General Electric FM radio in The Saturday Evening Post

From Robert Whitcomb’s “Digital Diary,’’ in GoLocal24.com

After many cheers when giant General Electric company decided to move its headquarters to Boston from Fairfield, Conn., the noise turned to boos as its stock price tanked. But last year, the stock of the venerable company surged 53 percent from 2018, its biggest jump since the 1980s, and much better than the nearly 30 percent increase in the Standard & Poor’s 500 index, notes The Boston Globe’s estimable Jon Chesto.

Much of the turnaround has been attributed to new CEO Larry Culp’s rigorous and decisive management.

Still, there might be a big problem this year as GE waits to see if engine orders pick up for Boeing’s 737 Max jetliners, grounded last year after two crashes that killed hundreds of people. The engines were not a factor in the crashes.

In any event, the Boston area should still be happy that a company with such engineering expertise as General Electric is based in Boston – a world-renowned center for science and engineering. Synergy! And investors should always keep in mind how fast things can change even for the biggest companies.

A week is an eternity in business….

Meanwhile, haggling continues on what sort of building should go on the site of what was to have been GE’s headquarters in Boston’s Seaport District. The company had planned to put up a sort of sci-fi 12-story headquarters building but decided to settle for two rehabbed older buildings next door – a touch of New England conservatism.

To read Mr. Chesto’s piece, please hit this link.

Sam Pizzigati: Other than making mountains of money for themselves, what do America's CEOs make these days?

Via OtherWords.org

Jeff Immelt, the CEO of General Electric since 2001, is retiring. The 61-year-old will be making a well-compensated exit.

Fortune magazine estimates that Immelt will walk off with nearly $211 million, on top of his regular annual pay. Immelt’s annual pay hasn’t been too shabby either. He pulled down $21.3 million last year, after $37.25 million in 2014.

But Immelt’s millions don’t come close to matching the haul that his  immediate predecessor, Jack Welch, collected. Welch’s annual compensation topped $144 million in 2000. He stepped down the next year with a retirement package valued at $417 million.

What did Immelt and Welch actually do to merit their super-sized rewards? What did they add to a GE hall of fame that already included such breakthroughs as the first high-altitude jet engine (1949) and the first laser lights (1962)?

In simple truth, not much at all.

“We bring good things to life,” the GE ad slogan used to proudly pronounce. Not lately.

And not surprisingly either. Mature business enterprises, we’ve learned over recent decades, either make breakthroughs for consumers or grand fortunes for their top execs. They don’t do both.

Why not? Making breakthroughs, for starters, takes time. Enterprises have to invest in research, training, and nurturing high-performance teams.

Years can go by before any of these investments bear fruit. By that time, the executives who made the original investments might not even be around.

Grand fortunes, by contrast, can come quick. CEOs can downsize here, cut a merger there, then sit back and watch short-term quarterly earnings — and the value of their stock options — soar.

If those don’t do the trick, CEOs can always just slash worker pensions or R&D and put the resulting “savings” into dividends and “buybacks,” two slick corporate maneuvers that jack up company share prices and inflate executive paychecks.

On any CEO slickness scale, Jack Welch would have to rank right near the top. In 1981, his first year as the GE chief, Welch quickly realized he was never going to get fabulously rich making toasters and irons.

So Welch started selling off GE’s manufacturing assets. In his first two years, analyst Jeff Madrick notes, Welch “gutted or sold” businesses that employed 20 percent of GE’s workforce.

By 2000, Welch himself was making about 3,500 times the income of a typical American family.

By contrast, in 1975, Welch’s predecessor, Reginald Jones, took home merely 36 times that year’s typical American family.

As Welch’s successor, Jeffrey Immelt would give an apology of sorts in a 2009 address at West Point. Corporate America, he told the corps of cadets, had wrongfully “tilted toward the quicker profits of financial services” at the expense of manufacturing and R&D, leaving America’s poorest 25 percent “poorer than they were 25 years ago.”

“Rewards became perverted,” Immelt went on. “The richest people made the most mistakes with the least accountability.”

Unfortunately, and sadly, Immelt never took his own analysis to heart. As a rich CEO in his own right, he continued to make mistakes and suffer no particular consequences.

One example: After the Great Recession, Immelt froze the GE worker pension system and offered workers a riskier, less generous 401(k). Within five years, notes the Institute for Policy Studies, the GE pension deficit widened from $18 billion to $23 billion — even as Immelt’s personal GE retirement assets were nearly doubling to $92 million.

“If we want to slow — or better yet, reverse — accelerating income inequality,” the Harvard business historian Nancy Koehn noted a few years ago, “the most powerful lever we have to pull is that of outrageous executive compensation.”

How many more outrageously compensated executives will retire off into lush sunsets, the Jeff Immelt story virtually begs us to ask, before we start yanking that lever?

Sam Pizzigati, an Institute for Policy Studies associate fellow, co-edits Inequality.org. His latest book is The Rich Don’t Always Win. 

Will these deals raise economic 'animal spirits'

“The Proposition,’’ by William-Adolphe Bougureau (1825-1905).

From Robert Whitcomb's Dec. 22 "Digital Diary'' column in GoLocal24.com.

I admire the very hard and patient labor of Rhode Island Gov. Gina Raimondo and her colleagues (presumably working with Providence Mayor Jorge Elorza’s administration) to bring some highly respected companies and quite a few jobs to Rhode Island.

The biggest recent employee hauls, all slated for Providence, will be hundreds of jobs (to start) coming to Wexford Science & Technology’s project in the 195 relocation area; 300 at Virgin Pulse (maybe in the Providence Journal Building); 100 at General Electric, and 75  at Johnson & Johnson. The hope is that those well-paid employees will be just the beginning of thousands of well-paying ones arriving over the next couple of years. (City and state official are apparently still working to bring in some Pay Pal operations, too.

We’ll see.

It was gratifying that J&J cited the presence of Brown and RISD as a reason for the project. The state hasn’t gotten nearly enough leverage from its higher-education establishments, or from its proximity to(and lower costs than) the brainiac center of Greater Boston.

A lovely change from  the 38 Studios approach.

Of course, the new arrivals will each get millions of dollars in “tax incentives’’ to come to Rhode Island -- incentives that everyone else must pay for. Such incentives are the rule in every state to varying degrees. Two big recent examples – Indiana (pressed by Donald Trump) bribing the Carrier Corp. to not send 800 jobs to Mexico and Massachusetts giving many millions of dollars in goodies to General Electric to move its headquarters to Boston’s waterfront.

Companies that have loyally stayed in their states and paid taxes there without special favors must be irritated. But life is indeed unfair – and probably getting more so. The rich get richer and the poor get…. Get used to it, especially over the next four years.

The idea behind the legal bribery is that not only will these big, rich companies bring in new jobs in themselves but they’ll give many  local vendors a lot of work and thus incentives to hire more people. That means not only vendors already in the area but also new ones coming in to serve the big shots.  The old “multiplier effect’’.

And just by having such prestigious enterprises in Rhode Island as the ones lured by the Raimondo administration, it is argued, will boost the “animal spirits’’ of  local and other business people and investors about Rhode Island.  The hope is that such optimism/local pride will then help create, or lead to the  import of, more enterprises, in a virtuous circle.

Will this work enough in all too cynical and negative Rhode Island to turn around the state for the long term? Who knows for sure, but I give a lot of credit to Ms. Raimondo and her staff for their labors while being denounced from all sides by those who provide few if any practical alternatives.

Don Pesci: Mother Aetna's unhappy children

VERNON, Conn.

In Mario Puzo’s novel The Godfather, Michael Corleone, plotting to kill a crooked cop, says to his brother Sonny, “It's not personal, Sonny. It's strictly business.”

Ya’ gotta do what ya’gotta do.

If Aetna CEO Mark Bertolini does move Mother Aetna’s home office from Hartford, Conn., to Louisville, Kentucky’s largest city, he can also plead it’s only business. General Electric (GE) recently announced it was moving from Fairfield, Conn., to Boston – just business, nothing personal… please try to understand.

"We've done the analysis," Mr. Bertolini said five years ago, "and, quite frankly, Connecticut falls very, very low on the list as an environment to locate employees …in large part because of the tax structure, the cost of living, which is now approaching, all in, the cost of locating an employee in New York City.”

Such “hits,” to borrow the Mafia term, are not generally shouted from the rooftops. The possibility of dramatic uprootings are conveyed by subtle body language, a frown here, a warning word there, and threats so understated it would take a raw-nerved politician weeks to decode them.

GE CEO Jeff Immelt turned all this on its head. He was shouting from the rooftops just before he shook the dust of Connecticut from his feet and headed to Massachusetts, formerly “Taxachusetts.” Mr. Immelt’s message to Gov.  Dannel Malloy and Connecticut’s Democratic-dominated General Assembly was an iron-fisted, unambiguous BANG: Get control of spending, particularly pension obligations; stop taxing the engines of prosperity; and repeal your new Unitary Tax, which will drive large multi-state businesses from Connecticut. When political decision-makers in Connecticut showed themselves hostile to such pleadings, GE decided to leave town – nothing personal.

After GE’s “hit,” Mr. Malloy sniffed, “You win some, you lose some.” Speaker of the House Brendan Sharkey and President Pro Tem of the Senate Martin Looney, having taunted Mr. Immelt as a tax-scofflaw, were not convinced the company had pulled up stakes in Connecticut for reasons given by Mr. Immelt.

It was left to Red Jahncke, president and CEO of The Townsend Group, to point out what ought to have been obvious all along: that the reasons GE decided to leave Connecticut, lucidly stated by Mr. Immelt in his many public rooftop proclamations, and the reasons that GE chose Boston  {for its strengths as a high-technology and education center} as its future nesting place were, necessarily, not the same.

How many CEOs of companies in Connecticut and elsewhere were watching Connecticut’s instructive-destructive melodrama from the wings? Was Mr. Bertolini, perhaps, among them? We are back to subtlety. Does the the Kentucky-Bertolini romance portend yet another Immelt-like rupture in Connecticut?

Maybe, thought Senate leader Len Fasano, a Republican Savonarola indelicately bringing up the matter of papal immorality: “Aetna, I believe, is under the same impression that Connecticut is not going to fix its problems. They clearly said, 'We are clearly committed to Louisville, Kentucky.' Then when politics came into play, they said, 'Well, for now, we're in Hartford.' Clearly, they're leaving the state. I would suggest they've already done some clearing out of the state already. This just speaks to a Democratic majority who wants to put blinders on, who doesn't want to see the facts because it doesn't fit their narrative, and want to continue with the status quo. We are in deep trouble in this state. ... We've gotta fix this.”

The possibility  of further business flight was dangling like a Damoclean sword over the head of Governor Malloy as he mounted the rostrum to deliver his second State of the State address before Connecticut’s General Assembly. The ladies and gents in the audience were all ears, and when Mr. Malloy proposed that the short session should be devoted strictly to budgetary matters – eschewing the pet projects that legislators often tuck into end-of-session implementer bills to enhance their re-election possibilities – he received the most raucous applause of the afternoon.

It was a fine and timely suggestion. Serious reforms that return any of the three branches of government to their pristine purposes as define in constitutions and statutes will hasten the state’s renewal and give tax-whipped Connecticut citizens fresh reason to believe that politicians generally stand for something more solid and lasting than their re-election campaigns.

Don Pesci (donpesci@att.net) is a writer who lives in Vernon, Conn.

Don Pesci: GE games Conn. system and leaves

The news was leaked in advance of the formal announcement. Capitol Report, Tom Dudchik’s popular Connecticut aggregation site, announced in a bold red headline -- BOSTON GLOBE: GE MOVING TO BOSTON, BOMBSHELL: GE EXEC CALL BAKER, WALSH. And several sub stories were listed:

FLASHBACK: Looney: 'I think they doth protest too much'...FLASHBACK: Sharkey accuses GE of 'fear-mongering'...FLASHBACK: Aresimowicz tells GE suits 'take a weekend off from the yacht'...

President Pro Tem of the  Connecticut state Senate Brendan Sharkey several weeks ago announced that General Electric's much publicized tax complaints were needless whining because “GE pays no taxes.” His complement in the House, Speaker Martin Looney, had added that GE’s CEO Jeff Immelt, like Lady Macbeth “doth protest too much.”

Gov. Dannel Malloy claimed to have had conversations with Mr. Immelt, but he had no comment on GE’s possible move from its large campus in Fairfield. Pressed by reporters just before the newly appointed Chairman of the Democratic Governors Association was due to arrive in Washington, there to receive plaudits from fellow progressive President barrack Obama, Mr. Malloy whined, with a shrug, “GE will do what GE will do.” Upon his return home from his Washington, D.C., petting, Mr. Malloy was told that GE was moving to Boston.

Early tremors had been signaling that earth quake for months; even much dazzled Connecticut reporters were not surprised by the announcement.  Mr. Malloy noted, phlegmatically, “You win some, you lose some.”

But of course – If GE pays no taxes, how could Mr. Malloy induce GE to remain in the state by slathering the company with tax abatements?

Days before the leak, it was rumored that Mr. Immelt, perhaps stung by Mr. Looney’s Lady Macbeth reference, was considering deeding the Fairfield campus to Sacred Heart University and so removing the property from Connecticut tax rolls.

No taxes, eh?

The GE move -- along with major Connecticut insurance company consolidations with other major out-of-state companies, the sale of Sikorsky, the out-migration of some United Technology operations, the out-migration of the state’s most promising entrepreneurial talent to other states,  Connecticut’s seemingly endless budget deficits and rescissions, and the drip, drip, drip of Connecticut’s prospectivetax revenue to other low tax, low regulatory states – long ago should have convinced Connecticut’s progressive governor and progressives within the  Democrat dominated General Assembly that progressivism itself contains the seeds of its own destruction.

The progressive president pro tem of the state Senate admitted as much when he was asked by Dennis House of WFSB’s Face the State whether recurring deficits would be a permanent feature of Connecticut’s budget making.  Connecticut’s economy is volatile, Mr. Looney answered “but one other trend that we do have to recognize is that, while unemployment in our state is down and actual employment is up, we are to some extent victimized by the progressivity of our own tax structure.  Because of an array of credits and deductions that we have, most people earning under $40,000 a year or so wind up not having income tax liability.

A lot of the jobs that have been created are in the service economy. So, while we are seeing an increase in employment, we are not seeing an increase in tax revenues. But I think that’s why both the governor and the General Assembly are committed to advance the interest of high tech businesses and others that will, in fact, pay high wages, so that people will then be able to support the state.”

The volatility in Connecticut’s economy may be traced to the inability on the part of Mr. Looney’s Democratic cohort in the General Assembly to make meaningful cuts in spending, a hard political road to travel. The easy road is to boost revenue through tax increases and then sooth preferred impacted companies by awarding credits and deductions, a process that shifts the tax load from large to small businesses. Companies play the game, reap temporary benefits and then move on to less punishing quarters elsewhere. GE will not be the last in-state company to game the political system before shaking the dust of Connecticut from its feet.

Fortunately for  Connecticut, progressivism is a self-limiting disease. At some point short of bankruptcy, thoughtful governments begin to regulate government rather than the governed. We can only imagine what Connecticut might look like if it had as governor a chief-executive intent on regulating governmental greed and a modest General Assembly pledged to return the state to normalcy.   

Don Pesci is a political writer based in Vernon, Conn.

Chris Powell: GE's exit from Conn. might be good for the state

MANCHESTER, Conn. Now that nearly a dozen other states are bidding for General Electric to move its headquarters out of Fairfield, Connecticut probably will lose the 800 jobs there. Merely to keep something it already has, Connecticut is far less able to pay and to justify paying GE's extortion than other states will be able to pay and justify paying GE to get something new.

Paying GE to stay would incur a financial loss for Connecticut. But a state that used cash grants and tax breaks to pay GE to relocate and promise to stick around for a while would gain jobs, personal-income and property-tax revenue from GE employees, and general commerce to offset the expense.

Connecticut might be able to justify paying GE to expand here. But GE isn't planning expansion. Rather, the corporation is upset about the "unitary tax" just enacted by the General Assembly and Gov. Dan Malloy, under which a corporation's worldwide income is subjected to state taxation. Many states have unitary taxation, but while it may be fair, Connecticut's avoidance of it had been an advantage in attracting and keeping businesses, just as the state's avoidance of an income tax was a draw until 1991.

Presumably Connecticut could mollify GE only by repealing unitary taxation or subsidizing GE in some way that in effect would reimburse the tax. But repealing the tax would require the governor and legislature to raise other taxes or cut spending, while reimbursing GE its new tax would invite all big corporations in the state to demand the same treatment even if they had to threaten to move out as GE has done.

If keeping GE induces Connecticut to repeal unitary taxation and start making policy changes to save money and start putting the public interest over the special interest, the corporation will have done the state a service. But the corporation also may do the state a service if it leaves, for then the state may start to realize that paying extortion to businesses is no substitute for ordinary good and efficient government in pursuit of the public interest.

With a little luck GE's departure from Connecticut would end state government's policy of pretending that mere political patronage is economic development.

xxx

New London's is the latest municipal government to "ban the box" -- that is, to remove from city job application forms the box asking if an applicant has a criminal record. State government already has done the same thing. It is said that the question discourages otherwise qualified applicants who are trying to rebuild their lives and that, if an applicant is considered seriously, a criminal records check will be done on him anyway.

This is politically correct but not persuasive. For the application forms with the "box" don't say that anyone with a criminal record will be disqualified automatically. Instead the forms with the "box" signify that a criminal record may be relevant to job qualifications, which is why applicants are supposedly to be subject to a criminal records check at some point before hiring.

That is, forms with the "box" tell the whole truth while forms without the "box" mislead.

Further, forms with the "box" deprive personnel departments of an excuse to forget to do criminal records checks. Forms with the "box" remind personnel departments to be conscientious.

That such reminders may be needed was demonstrated by the massacre in June at the church in Charleston, S.C. The perpetrator should have been disqualified from purchasing his guns because he recently had admitted a narcotics offense, but that admission was not properly recorded in federal, state, and local law-enforcement databases.

Since government databases can be mistaken and since personnel departments can be negligent, job applicants themselves should continue to be asked at the outset if they have criminal records. While it's politically incorrect, it's a lot safer.

Chris Powell is managing editor of the Journal Inquirer, in Manchester, Conn.

Chris Powell: Well-run states shouldn't need to bribe to keep firms

  Back in June the leaders of the Democratic majority in the Connecticut General Assembly, having just passed another huge tax increase, including substantial business taxes, scoffed at complaints by major businesses, including General Electric, whose headquarters is in Fairfield. GE threatened to leave the state.

Senate President Martin Looney, D-New Haven, said GE was just using the tax increases as an excuse for layoffs it already planned. House Speaker Brendan Sharkey, D-Hamden, agreed, adding that GE was "fear mongering" and that tax policy couldn't be inducing the company to move. They noted that GE probably wasn't paying much in state corporation income taxes at the moment, but that was misleading. For GE's resentment seems to have been triggered by the state's change to a system of "unitary taxation," by which corporation earnings attributed to transactions out of state would be taxed here too.

Governor Malloy didn't scoff as his party's legislative leaders did. The governor took the business complaints seriously and persuaded the legislature to reconvene in special session to reduce and delay the tax increases. While this wasn't much, the governor long has been offering tax breaks and grants to induce businesses to locate or stay in the state, so he knew intimately that other states are doing the same thing and that most big businesses today have little loyalty to anything beyond money.

The other businesses that complained about the tax increases may have been mollified but not GE. There lately have been reports that the company is negotiating its relocation with Georgia and New York and that the Malloy administration is assembling a counter-offer. If GE pays little in state taxes now, it soon may pay even less.

GE most benefits the state economically not through corporate income taxes but through its huge employment, about 5,700 people here, and through the income, property, and sales taxes they pay. That would be a lot of jobs to lose.

But paying GE to stay would have its own costs. State government would be seen to have yielded to a major extortion and the other big companies that complained about "unitary taxation" and an ill-conceived tax on data processing would be tempted to try their own. Indeed, GE's extortion likely was encouraged by the extortion paid by state government last year to United Technologies Corp. for little more than the company's promise to keep its employment here steady while it expands elsewhere.

Smaller businesses, which don't have the same leverage, would be further demoralized by the unfairness of paying GE to stay, since, in effect, everybody else in Connecticut would be having his taxes increased just to keep GE and its employees happy.

This really isn't "economic development." Since it just shifts burdens from one set of businesses to another set, it's more like political patronage and corporate welfare, and it should stop.

For if Connecticut cannot attract and sustain business by virtue of its basic characteristics -- labor force skills, transportation and technological infrastructure, favorable taxation, efficiency of government, and general living conditions -- the state should work on those characteristics before it pays extortion. Surely those characteristics need much improvement.

For starters, if state government ever could regain control over government employee costs and stop its welfare system from perpetuating poverty through child neglect and abuse, it could easily forgo all revenue from big companies that might try extortion.

Imagine being able to tell GE and the world that Connecticut is so well-managed and attractive that it doesn't need to pay extortion. Of course,  that would require alienating the government employee unions and welfare recipients, child abusers and their coddlers. But there may be a reason why no states are bidding for them.

Chris Powell is managing editor of the Journal Inquirer, in Manchester, Conn.