Dell Computer has gone on a cost-cutting binge during the
current recession, which has included the subsidized relocation of its
manufacturing operation from Ireland to Poland, announced in January 2009, and
the closure of a 4-year old plant in Winston-Salem, NC, announced in October
2009.
At the time of the closure, Dell employed about 4500 people in Ireland, and was
the largest employer in Limerick, where the plant closed. Since 1990, Ireland
has given the company 53.5 million euros in grants. Dell's Irish closure put
1900 people out of work. The work was transferred to Lodz, Poland, and Poland
gave Dell 54.5 million euros for the expansion of the plant there. Amazingly,
the European Commission approved this blatant job poaching under its state aid
rules. In its decision following an 8-month investigation, the Commission
argued that the Polish subsidy did not cause the loss of jobs in Ireland
because Dell would have built the plant anyway in Nitra, Slovakia, without a
subsidy.
This is unpersuasive on several levels. Unemployment in
Limerick is higher than in Lodz, though obviously GDP per capita is higher in
Ireland. Second, subsidized relocations, in my book, should always be banned. If
a company wants to relocate on its own dime, that is its right, but governments
shouldn't be encouraging it. Finally, even by the Commission's own logic, that
the development of the EU as a whole would be maximized by putting the plant in
the region with the lower income, the argument fails. It's not like Nitra was
much richer than Lodz. Large firms investing in Nitra are eligible to receive
subsidies of up to 40% of the investment, whereas in Lodz the limit is 50%. I
would argue that, at most, the incentive given in the poorer region should be
no more than 10 percentage points higher than in the richer region. Instead,
the Commission allowed Poland to give a subsidy equal to the cost difference at
the two locations (in other words, it was more efficient to produce in
Slovakia) of 27.81% of the value of the investment (versus 0 at Nitra). Thus,
the decision was inefficient with respect to developing the new Member States,
and unfair to the Irish workers.
EU state aid rules are generally fair, efficient, and a lot
better than unregulated competition for investment like we see in the U.S., but
subsidized relocations are still a glaring hole in their rules, as I argue in Investment Incentives and the Global
Competition for Capital (see https://www.palgrave.com/products/title.aspx?pid=358902).
North Carolina state and local governments gave Dell at least
$242 million in incentives in 2005, but the plant only employed 1400 at its
height and had already dwindled to 905 at the time of the closure announcement.
Note that this is a whole lot more than Ireland gave over the life of all Dell
Ireland facilities (about $72 million at $1.35 to the euro) and a whole, whole
lot more on a per-job basis ($172,000+ in NC based on maximum employment vs.
$16,000 in Ireland based on employment at the time of the closure, which is
being generous to NC), underscoring my point that the EU rules are generally
much better. Fortunately, like the EU, North Carolina has clawback rules for
its subsidies, so Dell will have to repay most if not all of the money it had
already received because it had not kept the plant open 5 years. Clawback
provisions are spreading in the U.S., but are hardly universal as in the EU.
