The arrival of another company in the Chattanooga area is news that gladdens the soul of chambers of commerce executives and cheers the eye of the man on the street.
Chattanooga’s Enterprise South industrial park is home to Volkswagen, a plant producing many or all of the 416 Passats a day VW builds, and bringing prosperity to the German company’s shareholders. The plant is a magnet for suppliers of all kinds.
Last week Clark-Cutler-McDermott Co. announced it is building a plant in Walker County, in North Georgia. Clark-Cutler is a maker of insulation and insulators in auto manufacturing. It is a privately held company founded in 1911 by three Northern entrepreneurs, Thomas S. McDermott, Walter Clark and William Cutler. The company facilities are in Franklin, Mass.
Clark-Cutler exemplifies many virtues of the American economy and Yankee ingenuity. “We value our customers and strive to meet or exceed their expectations,” the company says on its website. “We do this by continuously seeking ways to improve our quality, service, and the value we bring to every customer.”
As a supporter of the local economy of the Massachusetts town, Clark-Cutler reinvests profits there and understands its duties as a corporate person. It is a financially strong company “with a long history of reinvesting” its earnings. “We are dedicated to being an active corporate citizen in our community, providing leadership and resources for the public benefit.”
Chattanooga helps local economy in Franklin, Mass.
The arrival of Clark-Cutler in the area is good news in that the company will be spending $3 million and eventually hire 50 people. Volkswagen in an Aug. 5 press release cites a UT study that says the carmaker’s presence in Chattanooga has created 12,400 full-time jobs in the region, is responsible for $643.1 million in annual income and has increased state and local tax revenue by $53.5 million annually. “Building a brand new car in a new facility with all new employees was a challenge, but the Chattanooga plant is a success story and we’ve only written the first chapter,” CEO Frank Fischer said.
An important footnote in this first chapter of VW’s arrival in Chattanooga is the export of profit by many of its suppliers to their towns of origin.
Clark-Cutler, as long as it operates in Chattanooga, will be exporting profit from the area to Franklin, supporting that town’s growth, tax base and cultural delights. Franklin was settled in 1676 and for 100 years was part of the town Wrentham. Franklin was incorporated in 1778 and became the first town to name itself after Ben Franklin. (When it did so, Franklin gave residents 116 books from his library, which residents agreed to keep in public circulation.)
Wages paid by companies such as Clark-Cutler are not enough to support a city or county. They are not the basis upon which a city is sustained. Think of wages this way. Wages are a cost to a business. Wages are always equal to what the laborers and employees are worth, for, after all, the wages are the price voluntarily agreed to by employer and employee. Wages are not profit, though it is possible for a company such as Manpower to earn a profit from other people’s wages.
Wages are not the lifeblood of a city. Profit is. Profits flow solely to owners, are what remains after depreciation, rent, electricity, licenses and wages are paid for. Profits are the savings of a business, its capitalization. Profits are the funds by which the owners can look ahead in time and in expanded geographical presence in their city. With profit, owners seek to expand their service to others, see to expand market and become more profitable first to clients, then to themselves as they improve their service or product. With gain, owners buy a neighboring lot upon which to expand their plants.
Is Chattanooga losing ground in terms of local ownership, or gaining?
The arrival of Clark-Cutler is good news. But it is a strike against a tally of local ownership. If our hometown and the county into which it is nestled loses local ownership, it loses the profit, which flows away into the far and yon. Think of this loss in terms of what’s called the multiplier effect.
Draining local economy
Here is how multiplier effect works in general. The creation of capital in Chattanooga and spending it into circulation in the Chattanooga economy has a positive multiplier effect. A 2002 study suggests a Borders chain bookstore creates $13 local economic return for each $100 in spending. Two locally owned Austin, Texas, book stores, BookPeople and Waterloo, create a multiplier or premium of $45 per $100 spent. Chip Ireland, owner of COS Business Products and Interiors in Chattanooga, cites the similar Andersonville study to note, “For every profit dollar a locally owned business generates, virtually all (98 percent) remains in our local economy. While virtually all of the chain store profits are distributed nationally to their shareholders.”
The outflow of profit and capital from Chattanooga has a negative multiplier effect. Alien ownership, whether by an individual, a corporation or a government using tax authority, drains a local economy and enriches that distant owner. It is a negative for local economy.
Clark-Cutler, an honorable operation
We have no aught against Clark-Cutler. The men in charge of that company have a positive duty to expand into Chattanooga. That obligation is honorable, true, just and done in hope of service and profit.
At the same time, in terms of local economy, that company’s arrival in nearby Walker County serves the same purpose as the demands made by a colonial power upon distant subjects. In colonial relationships, the colonized area exists to serve the mother country and its private interests. Its duty is to export profit as well as raw materials.
Sticking colored pins to a Chattanooga-area map maybe an enjoyable past-time suggests how wonderful it is to live in Chattanooga, an enlightened, growing city. It wins corporate entities from afar. It wins casual passers-through, people such as Russ Bigham, an Edward Jones financial adviser I interviewed Friday who four years ago was spending a night in town with his wife and decided to move to Chattanooga.
But its loveliness is made hollow if we think how little local economy we have, and how much national economy is in evidence in Chattanooga. Just drive down a major thoroughfare and see how many chain stores and restaurants sparkle and wink at you. Without local private ownership of wealth-creating assets and properties, we are hearing a sucking sound. Wealth that otherwise would be saved and spent in Chattanooga for arts, culture, schools, charity, new business, is being drawn away beneath the surface of the map to towns in Massachusetts and other states. At work is a negative multiplier effect, and it’s making quite a roar.
(David Tulis hosts Nooganomics.com, a talk show at Copperhead 1240 AM 1 to 3 p.m. weekdays that explores local economy and free markets in Chattanooga and beyond.)
* * *
The Chamber of Commerce corporate welfare club that receives $1.1 million annually of our local property taxes is absurd. Why do we have to pay a club of rich corporations $1.1 million to work against the taxpayer in a tiered property tax structure to create Payments in Lieu of Taxes (PILOT) for their members? Why does a local small to medium sized business have to pay property taxes, and members of the corporate welfare club at the Chamber are exempt. At least 50 of these property tax exemptions exist through the Chamber, including the River City Company movie theatre lease property. This is a fun deal, River City Company issuing property tax exemptions to themselves for income generation. No conflict of interest there.
These corporations promote the notion that giving our local tax dollars to these rich corporation is somehow good for us and the local economy. This is pure hogwash, unless of course, you believe that trickle-down economics works. Trickledown fails miserably. Chattanooga has never been more impoverished. The Chattanooga Chamber’s greatest talent is controlling our elected officials to give our tax dollars to these rotten corporations. What if we spent local funds on local problems, such as education, infrastructure, and programs to help lift up the 30 percent of our local population that lives in absolute poverty.
Stop exempting these corporations from paying property taxes, and tell the Chamber to pay their own way like all other unions do.