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Hey Ohio, Suing Companies Isn't Good for the State's Economy

Litigation strategy reflects poverty of Ohio economic development policy

Samuel Staley
July 10, 2008

Few events show the poverty of Ohio's approach to economic development policy more than the state's official response to DHL's decision to phase out its airborne freight operations in Ohio. The short-term stakes are big-6,000 jobs in the central Ohio town of Wilmington alone. The long-term stakes, however, may be even bigger and cost the state even more jobs down the line.

Faced with a money losing operation with contractor ABX, DHL decided it needed to cut costs. Moving its airborne freight business to UPS and its Louisville hub was the solution. The decision, DHL executives said, was strictly financial.

State and local officials were completely blindsided.

Wilmington's mayor was even on a courtesy visit to the company's headquarters in Germany when he heard the news. Clearly, this was a poor public relations move on the part of the company.

Enter Lieutenant Governor Lee Fisher, current director of the Ohio Department of Development and former Attorney General. Faced with impending job cuts by Continental Airlines in Cleveland and the closure of yet another auto plant in Dayton, Fisher decided to take a strong, visible stand.

Plan A? Sue DHL. That's right. Bog down DHL's attempt to cut costs and remain competitive by swamping the company in litigation and claiming its decision to move business to UPS violates the nation's antitrust laws.

Fisher assured the Dayton Daily News editorial board that he was working on a Plan B. Plan B is to come up with a way to reuse the airport facilities in Wilmington for some other use. In other words, it's not a plan at all. In fact, it's what anyone would do with an unused, yet economically valuable asset.

Fisher's approach says much more about current economic development policy than the bizarre specifics of this problem suggest. By making litigation a central part of economic development policy, the state is putting all businesses on notice. There's a new economic sheriff in town, and Ohio businesses better tow the state's economic line-or else. If Ohio businesses don't play according to the state government's rule book, real or perceived, they can expect the government's attorneys and public officials to play hard ball.

On the one hand, this shouldn't be a surprise. The Strickland administration has been transparent in its belief the state needs to take charge of the Ohio economy. That's one reason they dubbed the $1.57 billion hodgepodge of economic development programs in HB 554 an "economic stimulus" package.

The bill includes traditional New Deal-style public works programs such as the issuance of $148 million in bonds for the Public Works Commission for local infrastructure and state capital improvements. The legislation also includes lots of money to pump up new industries, part of Gov. Ted Strickland's agenda to remake the Ohio economy by subsidizing alternative energy companies, biomedical products and other "new economy" industries.

Perhaps Ohio's new economic managers will be successful where virtually every predecessor has failed. But it's hard to see how.

On the one hand, the governor and his advisors are seeing the rise of new companies such as the Cleveland Clinic and Cardinal Health services as a sign of the times. The simplistic approach is to pump taxpayer money into the growing companies and direct money out of the declining industries.

But many of these companies didn't need government subsidies to grow in the first place. Health care and biomedical companies have been booming for more than a decade. State subsidies are not more likely than private capital to pick the right winners in these dynamic fields.

The state-directed approach also ignores other important details. Honda Motor Company, a "traditional" manufacturer, has seen its Ohio based employment soar from 10,600 in 1995 in 16,000 in 2006. Wal-Mart has boosted its employment from 15,100 to 50,000, making it Ohio's largest employer. These companies are unlikely to tap into the special programs and subsidies that Ohio's new managers have established for the favored industries that they have anointed through legislation.

The DHL precedent has far bigger implications for the future of Ohio's economy than many think. Few companies will want to locate in Ohio if they believe state officials will be second guessing strategic business decisions, or examining the details of their bottom line to ensure investments are justified. In a state where the lack of job creation is the primary driver of economic stagnation, putting the government in charge is unlikely to create the kind of investment climate that encourages the private investment necessary to expand Ohio's employment base.


Samuel Staley is Research Fellow


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