by Kenneth Thomas
Alabama’s Airbus Subsidy Eerily Reminiscent of Auto “Transplants”
The July 2 announcement that Airbus would begin assembly of its A-320 airliner in Mobile, Alabama, may be good for Alabama, but whether it’s good for the country as a whole is dubious. Indeed, it most reminds me of the subsidized arrival of foreign auto “transplants” that helped undermine Detroit’s Big 3 as well as the unionization of the auto industry.
The new $600 million facility is projected to create 1000 jobs. Initial reports put subsidies to the company as $158.5 million from the state and various local governments (thanks to @varnergreg for pointing out this article). Remember, though, that initial reports are more likely to underestimate subsidies than overestimate them, as in the case of Electrolux in Memphis. However, if this is remotely near accurate, Alabama got a much better deal for Airbus than did Washington state for the Boeing 787 Dreamliner, which was 220% of the investment and $1.65 million per job (according to my calculations for Investment Incentives and the Global Competition for Capital), more than 10 times the per job cost in Alabama.
Unfortunately, this development could repeat the example of the subsidization of foreign automakers that hastened the decline of Detroit’s Big Three. According to economic geographer James Rubenstein (1992, Table 1.1), from 1979 to 1991 there was a 1 to 1 correspondence in the opening and closing of new automobile and truck assembly plants in the U.S. and Canada: 20 new ones were built, 20 old ones were closed. Every one of the new facilities received subsidies from state and local (or federal and provincial, in Canada) governments. Given that the automobile industry was in a position of overcapacity for much of that period, it is no surprise that new production simply displaced older production.
Will the same thing now happen in the aircraft industry? Globally, Airbus has been putting market share above profits since the early 2000s. With its current move to Alabama, CEO Fabrice Brégier said the company hoped to grow its U.S. market share for single-aisle planes (the A-320 competes mainly with the Boeing 737) from 17% to 50% over the next 20 years. If Airbus is successful, it would be bad for the 80,000+ employees in Boeing’s Commercial Airplanes group.
Of course, there is growing global demand for airliners, especially in Asia. But China has already developed its own competitor in the single-aisle market and Airbus is building A-320s in Tianjin, China, making it unclear how much of the global growth can translate into increased U.S. employment.
As was the case with foreign automakers, this is a case where a market-seeking investment was clearly coming to the United States, but the competition for the facility allowed Airbus to extract rents through the site selection process. By repeating this process for projects large and small, state and local governments deprive themselves of as much as $70 billion per year in revenue, enough to hire all state and local employees laid off since the recession began in December 2007. At the same time, over the long haul, the process in the auto industry replaced well-paid unionized workers with less well-paid, non-union workers. The prospect that this evolution could be repeated in the aircraft industry is a pretty depressing one, when all is said and done.
crossposted with Middle Class Political Economist