The Bruising Battle Abroad

By William McWhirter/Detroit

Mitsubishi's Coilplus subsidiary, a manufacturer of precision steel products, didn't just plop down its new $16 million plant in Will County, ^ Ill., three years ago by chance. The county, 35 miles south of Chicago, prevailed in an intense 15-month bidding contest against 20 other sites in Illinois and neighboring Iowa, Indiana and Wisconsin. Will County won by building a $300,000 road, finding $150,000 in state funds for a training program, extending a railroad spur to the plant's back door, negotiating with the owner of the 37-acre site to drop its price, and even renaming its county highway for Coilplus.

Virtually every state is going after a piece of the $400 billion worth of foreign investment in the U.S., and the fight is getting ugly. Ruth Fitzgerald, Will County's take-no-prisoners development director, has brought 13,000 new jobs into the county (pop. 357,313) since 1985 and has no illusions about the painful struggles involved. "You have county against county, city against city and state against state," she says. "You have to wonder whether pitting states against each other is worth the return in the long term."

The number of state development offices abroad, which function almost like consulates, has doubled in the past five years, to 160. Illinois has more foreign offices than many small nations; it has outposts in Moscow, Shenyang, Brussels, Warsaw, Budapest, Toronto, Mexico City, Hong Kong and Osaka. No fewer than 38 states -- plus San Bernardino, Calif., and Houston -- maintain offices in Tokyo.

Has the competition grown too intense? It has resulted in incentives, tax concessions and other subsidies that end up costing an average of $50,000 for every new job created. Even those jobs may be something of an illusion. The eight new Japanese car plants built mainly in the South in the past decade, for example, have resulted in 26,800 new jobs, but 250,000 auto industry assembly-line jobs were lost during the same period. "That is not new investment," points out C.K. Prahalad, international management professor at the University of Michigan School of Business. "It is substitute investment."

Beyond that, the way many states market their availability raises discomfiting questions. Too often the fat, glossy brochures of Kentucky pastures, Minnesota lakes, South Dakota prairies, Houston skylines and Indiana sunsets convey not who Americans are but what foreign investors want to see -- mainly people who are white, rural, nonunion, eager to work hard and unlikely ever to make any trouble. Sometimes the pitch seems meek and submissive. Listen, for example, to Mike Doyle, international development director of the State of Iowa: "Iowa has a lot in common with Japan. We like to promote the homogeneous relationships within Iowa. We are a morally conservative state that appeals well to Asiatic society. Iowans also revere their elders and share the values of extended family life."

Proponents of states battling one another before the rest of the world say the competition not only builds business but also leads to better educational systems, infrastructures and governments. They are probably right. Further, even substitute investment like those Japanese car plants can be good for the economy. Because American resources are now used more efficiently in making cars, Americans in general are better off.

But warring states pose a problem that warring companies do not. The battle's enthusiasts could do worse than reread the discourse of Alexander Hamilton, James Madison and John Jay in The Federalist Papers on the core principles of the nation's founding two centuries ago. One of a central government's most constructive tasks, Hamilton argued, was to extinguish "that secret jealousy which disposes all states to aggrandize themselves at the expense of their neighbors." The danger is that in fighting for advantage, individual states may harm the U.S. as a whole.

With reporting by Barry Hillenbrand/Tokyo