ABB illustrates another corporate-welfare story that TIME encountered repeatedly. After failing to keep a facility up to date, a company claims a plant is "archaic" and threatens to close it unless government officials come up with incentives to help pay for modernization. That is what happened in Louisville, Ky., where a much larger conglomerate, General Electric Co., said that to meet profit goals, its plant had to be modernized--with taxpayer dollars. This from a company that appears at the top of the lists of the "best managed" corporations in America, whose revenue last year reached $91 billion and whose earnings topped $8 billion.
GE, which over the years had failed to update a washing-machine factory in Louisville--described as an "obsolete facility" that is "just one step above archaic"-- threatened to close it unless state and local governments helped subsidize its modernization and 7,000 hourly employees agreed to cost-cutting work rules.
Faced with this threat, Kentucky officials hired Coopers & Lybrand, an accounting and consulting firm, to conduct a study--paid for by GE--on whether the company really intended to turn out the lights. The answer Coopers & Lybrand came up with: yes.
It is not clear why the state of Kentucky believed it was the responsibility of taxpayers to improve GE's profit margins. Nevertheless, in 1993, Kentucky granted $19 million in income tax breaks over 10 years to the washing-machine factory in GE's sprawling Appliance Park complex. The city of Louisville and Jefferson County kicked in an additional $1 million.
The tax break notwithstanding, employment in Appliance Park continues to fall. Last February, GE announced that over the next two years, 1,500 jobs would be eliminated as range and dryer production is phased out and moved to Georgia, where wages are lower, and Mexico, where wages are much lower. Today 6,200 people work in Appliance Park--down 72% from a high of 22,250 in 1973.
KENTUCKY: An Extra-Special Delivery for UPS
Among the variables that companies take into consideration in site selection is the labor pool. They are concerned not just with wage rates but also with the availability and quality of workers. So some states and municipalities, in partnership with business, have created industrial-education programs, mainly in community colleges. The schools' curriculums are often designed to train skilled workers for the area's most prominent industries.
The state of Kentucky took a different tack earlier this year when it agreed to create higher-education programs specifically designed to provide United Parcel Service of America Inc. with a steady flow of part-time workers to load and unload packages from airplanes and trucks.
Confronted with a need to build an international air-hub facility and with a shrinking supply of willing workers at existing pay rates, UPS advised Louisville and Kentucky officials that it would pull 15,000 jobs out of the state if it did not receive suitable aid.
Government officials complied. On top of the usual assortment of incentives, worth more than $80 million, they agreed to form a joint educational venture, a sort of UPS University, that will allow students to attend classes offered by the University of Louisville, Jefferson Community College and Kentucky Tech-Jefferson Campus. Students enrolled in what has been dubbed the Metropolitan Scholars Program will be able to earn technical certifications and two-year or four-year degrees.
Most important, college life will be designed to fit the needs of UPS. Student workers, the company says, "will experience a daily schedule that will essentially reverse their internal clocks. Class schedules, social activities and sleep patterns will evolve around the hours of the night shift at UPS." This means classes will be held between 5 p.m. and 10 p.m., allowing students to work through the night and sleep during the day. Classes cease between Thanksgiving and New Year's Day, the company's peak delivery period. Special dorms will be built to accommodate the night- working students. Tuition will be free, with the state and other sources picking up half the cost and UPS the other half if "the student completes his or her work obligation."
To Kentucky Governor Paul Patton, this is one for the win column. "We will ensure that UPS has the workers it needs," he said. To fiscal conservatives, there is something wrong with this picture. If UPS wants to assure itself an adequate supply of labor, it might try raising wages. But with well-paying jobs now plentiful in the area, the company was having difficulty attracting a sufficient number of workers for part-time work, much of which is on the night shift. College students--the traditional source of night-shift workers for UPS--were not responding to the $8.50 an hour wage it offered, even with benefits. So the state will, in effect, create more college students.
Local authorities defend the deal with a rosy economic forecast prepared for Greater Louisville Inc., the metropolitan area Chamber of Commerce. The chamber study predicts that 6,000 UPS jobs "will spawn nearly 8,000 additional jobs" throughout the region. It is estimated that all those jobs in turn "will generate more than $477 million annually in payroll growth." As is the case with many economic-impact statements, the numbers are fuzzy. But whatever the case, growth would have occurred somewhere in the U.S., perhaps even in Louisville, where UPS is already heavily invested. To remain competitive, UPS had no choice but to build an air-hub facility somewhere, with or without taxpayer dollars.