COST-BENEFIT

Posted in Rants on May 7th, 2015 by Ed

Across the pond, the Italian government is paying Lamborghini (a subsidiary of the German Volkswagen-Audi group) 100 million Euros (approx. $112,000,000) to hire 300 new workers to begin production of a monstrously ugly SUV called the Urus. As Lamborghini's products are sold exclusively to young people who have incredible amounts of money and absolutely no taste, I'm sure this thing that looks like a Decepticon and sounds like a bladder disorder will do fine at the $250,000+ they plan to charge for each one.

On the surface this looks like the classic example of European Socialism and in fact I have seen a few commentaries that describe it as such. Another European socialist nightmare state clinging to the failed theories of the past and effectively nationalizing a company that can't survive in the Free Market. In practice, though, this type of policy has far more in common with the "cutting edge" (try saying it, it sounds so ridiculous) of right wing economics today: take public money, slop it in a trough, and invite private enterprise to waddle up and eat their fill. Lamborghini, like the Volkswagen Group as a whole, makes shitloads of money. This isn't British Leyland in the mid-70s desperately asking the government for enough cash to keep them alive. It's a company playing jurisdictions against one another to loot the public coffers and get concessions far beyond any that common sense or economic wisdom would dictate. In this case, Lamborghini's threat to manufacture elsewhere in the EU – no doubt the low-wage countries of Eastern Europe in which Volkswagen is increasingly shifting its labor – was enough to get Italian politicians to abandon even the pretense of making rational decisions.

The government is giving the company $112 million (US) to hire 300 people for a production run of one vehicle. In the auto industry a typical production run (the lifespan of one model with only minor changes from year to year) is usually six years. If you do the math, that equates to $55,000 per job per year, or $330,000 per job over the six year period. That is considerably more than Lamborghini will pay them in salary and benefits. How can anyone making a rational case for this investment believe that employing 300 people for six years is really worth $112 million to the state? Obviously not, but apparently enough influence has been bought to make such a financial non-starter happen. The decision has nothing to do with making a rational case; Italy has moved beyond the torpor of 1970s socialism and embraced the glories of 21st Century crony capitalism.

We see a lot of this in Southern states in the US, where state legislatures slop out billions in tax breaks, infrastructure improvements, and outright cash giveaways to lure in factories that will employ at best one or two thousand people (many of whom will end up being temp hires at or near minimum wage). Like cutting taxes for the wealthy has nothing to do with a sincere belief that it will increase tax revenues – that is merely a rationale for public consumption and the edification of gullible rubes – the real purpose of giving away money in this fashion is simply to those well connected players in the private sector who, having paid the piper, fully expect to call the tune.

Socialism? No, this is where neoliberalism got us. A socialist government would drive a harder bargain before pissing away this much money. Giving it away on the flimsiest of pretenses is more indicative of the urge to serve Big Business than of the urge to control it.