By Joseph Haslag

Bombardier Aerospace has announced that it will produce its new jets in Canada rather than in Missouri. For Bombardier’s shareholders, this location decision rests on where the directors believe its share prices will be highest. In announcing its decision, Bombardier indicated that it received repayable investments from Canada and the Province of Quebec, as well as Northern Ireland and the British government. With Bombardier’s announcement, an appropriate post mortem would ask: What lessons should we take away from Missouri’s efforts to attract Bombardier?

First, it is important to distinguish between what is in Bombardier’s best interest and what is most beneficial to Missouri’s citizens. Some will be frustrated because Bombardier played Missouri against Canada. No one can blame Bombardier’s directors for seeking the best deal. They want as many governments offering tax incentives as possible. Suppose we are talking about two suppliers negotiating with Bombardier to supply their rivets. If the rivets are identical, we would expect Bombardier to choose the lower cost. Similarly, tax payments are a significant expense. When governments offer to lower taxes, Bombardier’s shareholders want their directors to listen. So, the lesson here — which is hardly surprising to anyone — is that companies can lower their expenses through competitive negotiations. In each case, one supplier wins. From Bombardier’s or any company’s perspective, they want to encourage this type of competition because
their shareholders are the direct beneficiaries. Read more…

Joe Haslag is a professor and the Kenneth Lay Chair in economics at the University of Missouri–Columbia. An expert in monetary policy, Professor Halsag has done research at the Federal Reserve Banks of Saint Louis, Dallas, and Atlanta. He serves on the Federal Reserve Bank of Kansas City’s Economic Roundtable and the Federal Reserve Bank of Saint Louis’ Business Economic Regional Group. He has taught at Southern Methodist University, Erasmus University in Rotterdam, and Michigan State University. Haslag has published his research in the Journal of Monetary Economics, the Journal of Money, Credit and Banking, and the International Economic Review. His research has been cited in more than 100 academic papers. In his role as director of EPARC, Haslag is a standing member of the Consensus Revenue Forecasting Group that forecasts state revenues for state legislators and the governor.  joseph.haslag@showmeinstitute.org

Comments

comments