The Business Subsidy Industry In Ohio

Abstract

This paper critically examines Ohio Governor Kasich’s signature economic development program, the JobsOhio corporation, in light of the intellectual foundations for constitutional government and a market economy. In 2011, at Gov. Kasich’s behest, the Ohio General Assembly created the JobsOhio corporation. JobsOhio is, in essence, a quasi-private entity with a public fund that it uses to provide government subsidies for business. In some ways JobsOhio is an Enron scheme for government; “off-balance sheet” diversion of public funds to private businesses. JobsOhio operates outside the purview of public records laws, open meetings laws, ethics laws, and, after a 2014 Ohio Supreme Court decision, without regard for constitutional fiscal constraint under the Ohio Constitution. Governor Kasich promotes the non-transparent JobsOhio corporation as necessary to attract and create jobs with a development agency that “moves at the speed of business.” But the joinder of the public and private spheres is cause for concern. The character of government is at stake when the sphere of politicizable activity is unlimited and government may invest in private enterprise without limitation. Politicians promoting government subsidies for business may be rewarded with campaign contributions or worse, bribes. Businesses too may look at their bottom line and find it more profitable to invest in socially wasteful political conflict rather than the research and development that fosters economic growth and drives the economy. By chronicling the history of the Ohio Constitution, this paper provides context for Nobel Laureate in Economics James Buchanan’s “constitutional generality principle,” as an institutional safeguard to promote stability in government and foster innovation. The 1851 Ohio Constitution contains a package of at least a dozen constitutional constraints that are designed to promote generality, or fairness, in government; a balanced budget provision, debt limits, appropriation limits, constraints on public-private partnerships, and others. Ohioans adopted these provisions after a broadly reaching administrative state in 19th Century became wildly corrupt while constructing the Ohio Canal System. Not unlike JobsOhio, 19th Century legislators simply delegated decisions regarding public investment in private enterprise to administrative agencies as political cronyism grew out of hand. This paper details the ideas, persons, and events that shaped the deterioration of the package of constitutional fiscal constraints in the 1851 Ohio Constitution. The story is still unfolding on Gov. Kasich’s watch. In 2014, after a series of JobsOhio-related scandals including “sham” litigation, the Ohio Supreme Court ruled that challengers to the JobsOhio subsidy program did not have “standing” to argue that JobsOhio violates the Ohio Constitution. The Court did not identify anyone who did have standing though. Further, the Court so held despite provisions in the Ohio Constitution that forbid the lending of aid or credit from governmental entities to private businesses. Ironically, JobsOhio itself is now in charge of the constitutional revision process, as a State-created commission created to study the Ohio Constitution has a finance and taxation committee headed up by JobsOhio’s outside legal counsel. Today, the deterioration of the Ohio Constitution has given rise to a widely reaching “business subsidy industry” of, well, just about everyone: politicians, interest groups, the media, lawyers, lobbyists, accountants, bureaucrats, private industry, and, yes, voters. The situation provides context to present the roles of the players in the business subsidy industry, and to study constitutional fiscal constraint, law, economics, and politics.This paper was finished in early 2015, so it is slightly out-of-date as of its posting through the Social Science Research Network in March 2016. But the paper does provide timely context for Gov. Kasich’s time as Ohio Governor, as he finds himself on the national stage in a race for the White House.