Government Intervention

Government Incentives to Business Distort Free Market Forces

Policies like Virginia's new corporate welfare for a local brewery are three sheets to the wind.

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Are people drinking enough beer? Most people, quite sensibly, are likely to answer with some variation of "How the heck should I know?" But Virginia Gov. Terry McAuliffe (D) and state lawmakers think they know. In fact, they're sure of it.

The other day McAuliffe joined the founders of Hardywood Park Craft Brewery for a big announcement: Hardywood, which opened its Richmond brewery just four years ago, will commence a $28 million expansion in Goochland County. The project will include a brewery and distribution center, a beer garden, an amphitheater and more.

This is good news for Hardywood, for Goochland and for beer aficionados. But it's not so good news for other craft-beer companies — because Hardywood is getting a big financial boost courtesy of Virginia taxpayers. The $1.15 million package includes a $500,000 grant from the Commonwealth's Opportunity Fund (essentially, a slush fund the governor can use to grease the skids for new development); $250,000 from another state fund; $56,000 for job training; and more. Goochland has pledged an additional $1 million in tax incentives.

This is patently unfair to those craft brewers who don't get special treatment. The governor and members of the General Assembly — who recently dumped millions more into the Opportunity Fund — say this is good business. Hardywood, for example, was considering expansion in North Carolina, among other places. Besides, other states also offer incentives, and you can't expect Virginia to compete with one hand tied behind its back.

To put that another way, a level playing field for state governments requires an unlevel playing field for private enterprise. Since everyone else cheats, letting Virginia cheat too is only fair.

That was the argument when Virginia lured Stone Brewing to Richmond with a $5 million grant for its own brewery-and-beer-garden combo. And when the commonwealth arranged an $11 million incentive package to bring the Redskins training camp to Richmond. The city is paying one of the world's richest sports teams $500,000 a year — taken from the pockets of barbers, waitresses and other working stiffs. And when — OK, you get the drift.

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Business leaders often talk a good game about free enterprise. But they're frequently first in line when government starts handing out other people's money, or writing rules that restrict the competition, such as occupational-licensing regulations and import tariffs. They're also frequent champions of public education, but not necessarily because of a benevolent desire to see people flourish. Vocational instruction, including STEM programs, is a good way to socialize the business cost of workforce training.

That's worth bearing in mind the next time you hear business leaders complain about burdensome regulation. The objection often amounts to an argument of convenience. And those businesses that benefit from a governmental hand up lose any standing to complain when that hand starts to tie them down.

Considerations about competition and fairness aside, there's another reason to resent state-sponsored incentives to favored businesses. It is axiomatic, or ought to be, that nobody can know everything about something as complex as a market economy.

Nobody has as much information about what 47-year-old Reginald Jones of 321 Dock St. needs and wants than Jones himself, and the same holds true for every other individual in the country. So the most efficient and effective method for determining, say, how many cellphones should be sold is to let people decide for themselves whether to buy one.

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Government incentives to business interfere with that process. They take resources out of the economy and redirect them in ways they would not otherwise go. As a result of the state's interference, Hardywood will get more resources than it would on its own. In the process, consumers will have less money to buy things they actually want — because Virginia is forcing them to help produce beer they actually don't.

Businesses that would have been able to satisfy customers better than Hardywood and Stone Brewing can will have fewer resources with which to do so. Job applicants will be steered to jobs in the beer industry instead of other fields that could use them more.

A whole host of unintended consequences will ripple throughout the economy — but they will do so largely unseen. McAuliffe and Hardywood get all the buzz, but everyone else will have to live with the hangover.

This article originally appeared in the Richmond Times-Dispatch.

NEXT: Are Americans Eating Less Because of Government Intervention?

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  1. three sheets to the wind

    Just say “drunk”.

    1. Why use one word when five will do??

  2. It seems like most of our problems arise somewhere in the intersection of government putting unnecessary regulations on businesses, and government being in the pocket of businesses and unnecessarily allowing them to skirt the regulations and responsibilities that DO exist to do business in the US.

    But people who amass money and power are always going to find ways to throw their weight around with it. How do we prevent from getting into the situation where businesses buy politicians and politicians play favorites in the first place? Can we even get to a place where, say, large businesses actually pay their taxes and small businesses can just be small businesses without undue interference?

    1. How do we prevent from getting into the situation where businesses buy politicians and politicians play favorites in the first place?

      Corruption laws – enforced by citizens.
      Level one: No more public office of any kind for any corrupt politician – for life.
      Level two: Death penalty.

      1. Full disclosure coupled with conflict of interest laws. Automatic 5 year prison term for violating full disclosure, to be housed with prisoners at large from wherever the crime occurred. Conflict of interest means that you can give all you want, but you cannot contract with government if you do, or you must recuse yourself from voting on or administering contracts to donors.

  3. Sadly, they can pick and choose who they want to help. Politics or nepotism. Both leave a bad taste in my mouth!

  4. If you want to really fuck things up – get government.

    Not only does it hand money to businesses – it sends the bill to the taxpayers. Every million they piss away on businesses is a million that comes straight out of the taxpayers’ pockets.

  5. I’ve solved this problem by brewing my own. I’m on track to break the legal limit for personal consumption this year. Tastes like…freedom.

  6. Come on Hinkle, you are being overly cynical. Everyone knows that bureaucrats and politicians know whats best for everybody. Why can’t you just get with the program?

  7. Goog grief, Reason needs a copy editor. It seems to be getting worse (including this article).

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  9. Why is it only the new breweries in Virginia that are getting these subsidies, or the breweries from out of state like Stone? There are plenty of breweries in the state that have been in operation for way more than 4 years, and yet Virginia continues to give them the big ol middle finger by subsidizing their competition.

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