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This week, insurance giant Liberty Mutual announced that, despite profits that doubled last year to $829 million, it would be scaling back retirement and health insurance benefits for its employees. (sadmafioso/Flickr)

It began with Raytheon and it won’t end with Liberty Mutual. Massachusetts in the last two decades has made capitulation to corporate extortion a tenet of public policy.

It was just a month ago that Liberty Mutual moved into its new skyscraper in the Back Bay, the one Massachusetts taxpayers subsidized to the tune of $47 million. That was time enough, apparently, for executives to forget the implied quid pro quo, a corporate commitment to those taxpayers who double as their employees.

It has long been conventional wisdom that public subsidies and tax credits are a necessary tool to lure big employers and to keep them… But there is precious little empirical evidence that the strategy works and lots of anecdotal evidence that it does not.

This week, the insurance giant announced that, despite profits that doubled last year to $829 million, it would be cutting retirement and health insurance benefits to the workers who toil in that limestone-clad office tower.

The $3.3 million annual pension former chief executive Edmund F. Kelly is said to be receiving from Liberty Mutual is reason enough for moral outrage on behalf of the rank and file. But there should be even more fury at the state’s willingness to hand out $2 billion a year in tax breaks to Liberty Mutual and other businesses in the blind hope that they will act in the public interest. It’s a policy that is all carrot and no stick.

It has long been conventional wisdom that public subsidies and tax credits are a necessary tool to lure big employers and to keep them. As a recent New York Times review of lucrative tax breaks and incentives across the country revealed, Massachusetts is hardly the only state, county or city to operate under that theory. But there is precious little empirical evidence that the strategy works and lots of anecdotal evidence that it does not.

Massachusetts has had plenty of negative experience. Raytheon Corporation wrested millions in tax incentives from the Commonwealth in 1995 by threatening to move its operations out of state. The defense contractor stayed, but fired thousands of workers. More recently, the state picked up the $58 million tab when a renewable energy firm built a factory in Devens, but it imposed no penalties two years later when Evergreen Solar shut its doors, throwing 800 people out of work. Fidelity Investments was able to act with similar impunity, continuing to receive generous tax breaks even after moving more than 1,000 jobs out of state.

State officials who respond so readily to corporate threats to take their business elsewhere rarely monitor whether those businesses live up to their promises or analyze whether the tax breaks actually spur economic development. State Auditor Suzanne Bump has been lobbying for systematic periodic reviews of these kinds of deals, ever since she discovered, upon taking office, just how few such agreements require companies to reimburse the state if they take the money and run.

Massachusetts in the last two decades has made capitulation to corporate extortion a tenet of public policy.

A year ago, an analysis by the Massachusetts Budget and Policy Center came to the same conclusion, arguing that the assumptions underlying tax incentives for businesses are “long overdue for a careful analysis of their costs and benefits.” As the report noted, “Ultimately the goal of state economic policy is to raise the living standards of the people of the state. This generally requires jobs that pay good wages and provide decent benefits. The crucial questions of economic policy are about how to create an environment in which businesses that create such jobs can prosper.”

Liberty Mutual and its executives have certainly prospered.

The Boston Globe reports that, for the first six months of 2013, the company had a net income of $766 million, up 28 percent from the same period last year. Chief executive David H. Long was paid $8.9 million last year, a 29 percent hike in compensation for the man who just signed off on a cut in benefits for employees a tad lower on the pay scale.

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  • Lawrence

    Where is the outrage? Where are the protests? Who’s calling their representatives?

  • Michele

    We need you as a journalist, but can we clone you and have you run for Governor?

  • fun bobby

    no no it will start trickling down on us in no time.

  • Tired of your BS

    More populist, leftist whining.

  • sjw81

    great column and very very depressing. liberty mutual is worst of the worst. greed run amok and they hide behind all the charity contributions , with our money basically, to gain tax breaks for themselves. what a scam and what an outrage

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