Yesterday, we received news – most of it uncritical, even breathless in its celebration – over the decision by Nestlé USA to move its U.S. headquarters to Rosslyn (Arlington), Virginia. For instance, the Arlington news release stated that the county was “thrilled” to welcome Nestlé “to its community as a new leader in the business market.” For his part, Gov. McAuliffe called the move “a huge win for our commonwealth…a clear sign that our efforts to build a new Virginia economy are paying off.”
The problem is that the “devil’s in the details,” as the saying goes. Here are a few details that explain why I believe unmitigated celebrations over Nestlé’s move to Arlington are misguided. To the contrary, I’d argue that on balance, these types of deals are bad ones for states and localities. Also, before we get too excited about Nestle, we might want to look at this company’s track record.
First off, let’s look at one key detail of this move: the amount of taxpayer-funded corporate welfare Virginia and Arlington County had to throw at this $240-billion (!!!) multinational corporation to bribe…er, persuade it to move its headquarters. According to the Washington Post, “Nestlé was lured to the area, executives say, by its proximity to lawmakers, regulators and lobbyists — and more than $16 million in state and county subsidies.” That’s $16 million in subsidies not to create any new jobs, but simply to move 750 jobs from California — where, the Post article notes, Nestlé “has come under fire in recent years for bottling water during the state’s record multi-year drought…remov[ing] 36 million gallons of water from a natural forest in California to bottle and sell, prompting public criticism and at least one lawsuit.” Hmmmm.
Second, the model of throwing money and tax incentives at corporations to move from one city to another, one county to another, one state to another, is ruinous and absolutely NOT an economic growth model we want to be pursuing. As CNBC explains in this article:
…For now, it seems the subsidies—and the businesses that receive them—are winning.
“This is the dark side of the war among the states,” said Good Jobs First Executive Director Greg LeRoy, who has been tracking the subsidies for more than 30 years. And he added that things are not getting any brighter.
While the number of deals sought by businesses began declining before the Great Recession and remains depressed, the assistance being offered by states is going up. The result, LeRoy said, is that a relatively small number of companies have increasing leverage, and “they’re taking it to the bank.”
Which is exactly what Nestlé just did. More broadly, as MSNBC reports, “States are routinely engaged in a race to the bottom, lavishing corporations with excessive tax breaks to either attract new businesses, or entice existing ones to stay, all at taxpayers’ expense.”
“I think we have to think about this almost as a situation of hostage-taking,” said Salon’s Alex Seitz-Wald on Wednesday’s NOW with Alex Wagner. “It’s one thing for a state to attract a new business to come in with a tax break, but it’s an entirely different thing when you have a company like Sears or a company like Boeing which have been based in the state for a long time suddenly saying, ‘you know what, Texas is looking pretty good, we might go down to Texas unless you give us another tax break.’”
At the same time that corporations are making record profits, corporations’ income taxes as a share of all federal taxes have declined precipitously over the past six decades.
So, yeah, this is not a smart economic model for cities, counties and states to be engaged in, bidding against each other to try and attract wealthy corporations — corporations that hold all the cards, basically.
Third, I’d note that when Virginia has done this type of thing before, it has sometimes been sorely disappointed. For instance, see $14 Million in Corporate Welfare to Northrop-Grumman to Cut Virginia Jobs?, Northrop Grumman Giveth, Northrop Grumman Taketh Away (“Did we gain 300 jobs only to lose 330?”) and Lies, damned lies and job statistics. Or how about this one, which explains how “Virginia and its Governor’s Opportunity Fund bet $1.4 million on a failed business deal near Lynchburg that exposed the state’s weak control over industrial incentives and the application process for companies seeking grant money.”
Fourth, do we really want to be celebrating a company like Nestlé, with its long list of such as:
- “Nestlé and other corporations persuad[ing] the World Water Council to change its statement so as to reduce access to drinking water from a ‘right’ to a ‘need.’ Also see “The Privatization of Water: Nestle Denies that Water is a Fundamental Human Right.”
- “In 2005, after the cocoa industry had not met the Harkin–Engel Protocol deadline for certifying the worst forms of child labour (according to the International Labour Organization‘s Convention 182) had been eliminated from cocoa production, the International Labor Rights Fund filed a lawsuit in 2005 under the Alien Tort Claims Act against Nestlé and others on behalf of three Malian children. The suit alleged the children were trafficked to Ivory Coast, forced into slavery, and experienced frequent beatings on a cocoa plantation.”
- Or this: “Evironmental groups sued the U.S. Forest Service on Tuesday, alleging that the agency has allowed Nestle Waters to draw water from a creek in the San Bernardino Mountains under a permit that expired more than 25 years ago.”
- Also see this article from October 2015: “This week, the Center for Biological Diversity and two other organizations filed a lawsuit against the U.S. Forest Service, claiming it allowed the company to use an expired permit to draw water from the San Bernardino National Forest. The permit, the lawsuit alleges, expired 27 years ago, but Nestlé drew about 28 million gallons of water from a creek in the national forest in 2014 alone. That’s not acceptable in the midst of a drought, the groups say.”
- Oh, and check this one out from November 2016: “Nestle Waters North America’s plans to increase its Michigan groundwater withdrawal by more than 2 1/2 times would unravel an accord reached with environmentalists seven years ago that was aimed at protecting the water table and wildlife.”
I could go on and on all day, but the bottom line is that Nestlé isn’t exactly a model corporate citizen. Let me just conclude with one slightly positive point about this move, which is that it will help fill “the region’s tallest building, which has remained vacant since it was completed in late 2013.” But again, that’s costing “more than $16 million in state and county subsidies” to accomplish. Is that a good deal for Virginia, one that should be unequivocally celebrated? Given everything noted above, I’d have to say “no” if not “hell no.”