Southern states team to lure business

Alabama Gov. Bob Riley and Mississippi Gov. Haley Barbour both understand how the game has been played. In the past, they've battled each other tooth and nail, using Fort Knox-size economic incentives to attract truck manufacturing and Internet server farms in a bid to help their own states climb out of America's economic basement.

Today, former rivals Riley and Barbour, both Republicans, as well as Florida Gov. Charlie Crist (R), are working together.

Their coalition, cobbled together by Governor Riley, hopes to lure a $2.9 billion German steel mill to Mobile, Ala. The plant, shopped around by German company ThyssenKrupp, would employ 2,700 people. Mississippi and Florida are helping Alabama because 30 percent of the jobs would go to Mississippians and Floridians.

Although the alliance serves a self-interest for the states involved, some experts predict it is part of a gradual tilt toward broader economic regionalism, especially in the South. Such partnerships could relax states' competition for corporate business, increase cooperation, and ease what some critics see as a lack of confidence that causes Southern states to overcompensate to win industry favor.

[Southern states] "have built incentive packages out the wazoo ... but they're insufficient," says Pete Whalley, an economic development expert at the University Research Center in Jackson, Miss. "Market forces don't care about state lines, so we don't need to think about boundaries anymore."

Economic regionalism was first touted in 1988 by then-Arkansas Gov. Bill Clinton and the governors of Louisiana and Mississippi, who shook hands on a barge in the middle of the Mississippi River to start the Delta Regional Authority. This multistate approach has slowly been taking hold in other parts of Dixie.

In Mississippi, 18 counties in the deepest Delta are laying aside their singular interests to pool resources together to attract businesses. To the chagrin of Marion, Ark., and Chattanooga, Tenn., the announcement last week in Tupelo that Mississippi had won the bid for a new Toyota plant may have hinged in part on quiet lobbying from the state of Alabama on behalf of its neighbor. After all, Huntsville, Ala., is within commuting distance of Tupelo.

Riley broached the topic of an alliance to win the steel plant at the recent winter meeting of the National Governors Association in Washington. Later he caught up with Governors Barbour and Crist again, this time with pen in hand. They drafted a letter in support of the plant and vowed to work as a team on behalf of ThyssenKrupp, both in the South and in Washington. A decision from the company is expected in the next two months.

"Partisanship brings it together, and shared self-interest makes it work," says David Lanoue, chair of the University of Alabama's political science department in Tuscaloosa.

It could spell bad news for Louisiana Gov. Kathleen Blanco (D), who is also vying to lure ThyssenKrupp. Her state is offering a $300 million incentive package.

Competition among states means that corporations can still call many of the shots. North and South Carolina fought hard for a secretive project, which turned out to be a 210-employee Google server station. North Carolina won in January by offering tax breaks that amounted to a record $1 million per job gained.

"Southern states have stirred themselves into a sense of desperation when they shouldn't be desperate," argues Chad Adams of the libertarian John Locke Foundation in Raleigh, N.C.

"It's tricky for poor states," says William Stewart, professor emeritus of political science at the University of Alabama in Tuscaloosa. "[Incentives] involve a sense that we're not smart enough or we don't have enough infrastructure to get this industry otherwise, so we give away as many freebies as we can come up with. On the other hand, most people feel [such incentives have] been a plus."

The problem for critics of incentives is that they seem to work. Alabama, for example, paid $166,000 per job in 1993 to land a Mercedes Benz plant outside Birmingham. At least partly as a result, Alabama's economy sprinted forward. It now has the 15th-fastest growing GDP among the states, up from No. 30 in 2004. To land a plant in 2000, Mississippi gave Nissan a $700 million incentives package. Mississippi's GDP has gone from $68 billion in 2002 to $81 billion in 2005.

"What's happening now ... is we're replacing $30,000 a year jobs with $60,000 a year jobs, and that's how you change not just quality of life, but the culture of life, where people can buy a bass boat where they couldn't before," says Alabama state Sen. Roger Bedford (D).

More broadly, Mr. Whalley says, the state-eat-state model is becoming outdated as Americans face increasing competition from countries such as China.

"I think we're going to see a lot more of these [regional agreements] as we go forward," he says.