Dell's Plant Closure Raises Anger Over Incentives

Posted by: Nanette Byrnes on October 9, 2009

Do government incentives aimed at luring businesses to a state or city work?

There’s already a body of evidence that they often do not. And news out of North Carolina this week shows just how quickly these headline-grabbing deals can go awry. While the business press on Dell Computers this week focused on its new smart phones and $3.9 billion bid for tech services provider Perot Systems, in North Carolina the news on Dell was all about the closure this coming January of its plant in Forsyth county. The move will put 900 people out of work. And it’s doing collateral damage to the local incentives system that offered the Texas-based computer maker $280 million in potential tax breaks and grants to locate the plant in the state four years ago.

North Carolina’s offer was eventually shown to have been much more generous than other states’.

Dell will repay much of what it’s received so far, including $15.6 million from the city of Winston-Salem and most of the $8.5 million it’s received from the state.

But the closure has become a political embarrassment for local politicians who had been urging the state to go further with incentive packages aimed at luring businesses, including a controversial $200 million plus package used to entice Google to build a location in the Blue Ridge Mountains two years ago. The day after the Dell closure was announced, Governor Bev Perdue, who was not in office when the incentives were offered, said the company would be repaying every “red cent” it owed the state.

Opponents to these kinds of deals, hope the Dell experience would cause politicians to think twice before they put together their next deal. “No matter how big the incentive package, operational decisions by businesses headquartered out-of-state will be driven by corporate financial considerations and not by any sense of loyalty to the community being left behind,” argued Robert F. Orr, Executive Director of the N.C. Institute for Constitutional Law, which had sued the state over the Dell package. If government is going to use these kinds of deals, Orr said “those investments should be in smaller, local businesses and not in multi-billion dollar interstate and international businesses.”

With state budgets $350 billion in the red over the next two years, it will be interesting to see whether the incentives contests that have pitted state against state in order to woo major corporations slow at all. And whether the Dell story plays any cautionary role.

Reader Comments

The Real Deal

October 9, 2009 2:13 PM

So-called state incentives are just bribes. It buys nothing. Bribing big multinational corporations are just dumb. They operate around the world dedicated to only one thing - profits. Everything else, except executive compensation, is dispensable.

It is smarter to use tax breaks and tax money to help build better workforce and infrastructure. You will know your workforce is better when they are able to start their own self-sustaining businesses.

Marc Fleischmann

October 9, 2009 2:22 PM

Many of the trade shows that I've attended over the last three years or so have had representatives from states and cities looking for companies willing to set up operations in them, just as was the case here. It seems as if the economy has gotten to the point where even sweetheart deals like these aren't enough to keep the operations viable for long.
This is very frightening, as we're running out of options quickly.
If people have no work our economy will continue its backward slide.

Squeezebox

October 9, 2009 2:56 PM

Serves 'em right for enabling the corporate welfare queens!

Phil

October 9, 2009 5:35 PM

While I am not a fan of incentives, I don't understand why so much anger toward Dell. The state lured them in, Dell built the plant, the economy turned south, the plant closed and now Dell has agreed to refund the money. The state will get back their money and eventually someone will occupy that facilty. Sounds like a win-win for the state to me.

Neil

October 9, 2009 6:01 PM

According to Dell, they are closing the desktop computer manufacturing plant in North Carolina because people now prefer laptop over desktop computers. As far as the incentives are concerned, I don't see the problem if Dell pays North Carolina and Winston-Salem back, which Dell has promised to do. The state and city were only trying to supply employment for the people who have lost their jobs in furniture and textile. There is a big push in technology and medical industries in that area and at the time Dell made perfect sense. And I would say to Mr. Orr, other companies started up to support the Dell plant and those job would not have been created if the incentives were only for small local businesses.

LesBaer45

October 10, 2009 9:48 AM

The damage done to the local psyche will take years to heal, even if they do get "their money back". This area has been hit hard by textile,tobacco,furniture plant closings. This will wind up being another vast empty facility sitting empty (just like politician's promises) waiting for the "next big company" that never comes.

All of those "other" companies that started up to support the Dell plant? Just exactly how long do you think they will be around when their reason to exist is gone?

Orr is actually on target. The funding should go to local start ups and small NC based businesses trying to grow. I'd rather take my chances with a small local company trying to get off the ground than yet another face less international corporation just looking for a handout.

MikeL

October 10, 2009 10:49 AM

Dylan Ratigan of MSNBC has been using a term that has a lot of meaning in situations like this. He calls it "Corporate Communism" and it really fits.

It's when a government takes money from the many - the taxpayer - and gives it to the few - a corporation.

The best example of corporate communism is the trillion dollars given to the banks without any strings whatsoever. And who in the government is giving out the money? Why, it's the bankers themselves who have gone from banking to politics and back again.

Yep....that's as good a definition of communism that I've ever heard.

Craig

October 10, 2009 10:50 AM

It makes sense to offer incentives some times, just as long as a contract for the plant to stay open for x amount of time is in place. It sounds like they got what they wanted, but then Dell had to start cutting back, and they probably seen that plant as a way to save a lot of cash.

Good luck to the employee's finding new work.

DamaskinosWasRight

October 10, 2009 12:21 PM

The real question is why would anybody hire an American.

Americans cannot compete against low wage, low environmental rule countries that control the exchange rates of their currencies. The only way to prevent the complete annihilation of manufacturing in the USA is to implement levelist policies which use tariffs to remove the advantage -> http://corporatestatesmen.com/images/LEVELISM.pdf. It will never happen though.

Even worse Americans are insufferably superior even though they are lazy and expensive and have the highest incarceration rate on the planet. Americans pretend to be morally superior but in fact they allow gang stalker groups to openly and notoriously stalk, harass, poison and irradiate people - crimes against humanity. Woud you site a plant in a place where the people might poison the managers? No.

No wonder the world wants to get away from the filthy dollar.

Joel

October 10, 2009 4:43 PM

Corporate Communism? That's a cute propagandistic way of deflecting the real term that fits like a glove. Namely (Fascism). For obvious reasons I might add since Fascism in actuality is well beloved in Amerika. Particularly in the south ;-)

I find it extremely hilarious that second world Dixie serves only as a way station to third world countries.

Paul

October 12, 2009 3:01 AM

Perfect illustration of the clueless attitude of state governments when compared to the commercial world.
Dell has no more control over the ups and downs of it's primary market than the government of South Carlina does, yet when Dell has to react to REALITY and cut overhead, it's portrayed as some huge conspiracy.
If the local government has to deal with REALITY and cut overhead it doesn't make the needed cuts and instead just goes further into debt making wilder bets trying to lure big companies to increase it's tax revenue base.
Who's the irresponsible administration in this scenario?

anonymous

October 12, 2009 5:03 PM

So long as Dell upheld their contractual obligation, I don't see any harm in their decision. If the plant was adding value, I'm sure Dell would have kept it.

Mikey_Dell

October 13, 2009 2:42 AM

I work for Dell. The work from the plant is being moved to plants in Mexico run by Foxconn. It's being outsourced, it has not been lost due to the current economic situation. WS1 is the last large scale desktop Dell plant in the US. The work is being sold to an ODM.

Mikey Dell

October 13, 2009 2:44 AM

I work for Dell. The work from the plant is being moved to plants in Mexico run by Foxconn. It's being outsourced, it has not been lost due to the current economic situation. WS1 is the last large scale desktop Dell plant in the US. The work is being sold to an ODM.

Thomas Huynh

October 19, 2009 11:28 PM

Incentives did lure Dell (I have personal experience in watching Southern states luring companies to move to their communities because of jobs) but Dell's closure is based on financial analysis too. One reason for such generous incentives is the company's commitment to stay but unfortunately Dell proceeded to break that promise of commitment. To me this speaks volumes of Dell's disrespect for American workers. It would be a different thing if the company made decent products but having experience 2 harddrive crashes in 5 years, I soon saw their priority is clearly to install components as cheaply as possible even at the expense of quality -- and in this case, American people's livelihoods.

Thomas Huynh, founder
Sonshi.com

OXYGEN

March 27, 2010 5:02 PM

Serves 'em right for enabling the corporate welfare queens!

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