South Carolina’s latest crony capitalist coup comes with a big footprint

In the past few months, I have written extensively on the need for South Carolina’s political and business leaders to fundamentally reimagine their approach to economic development in the state of Palmetto.

Why? Two reasons.

First (and most importantly), the current approach – which is to rob individual taxpayers and small businesses to subsidize corporate welfare – is not working. And frankly, never worked.

It can benefit politicians looking for ribbon cutting ceremonies and media outlets looking for flashy headlines (and future advertisers) … but it is terrible for the underlying economy.

Second, while our nation is navigating a “new normal” after the coronavirus pandemic, South Carolina has a chance to reform its tax code to target people earning income eager to escape urban centers.

Last fall, economist at the University of South Carolina Joseph Von Nessen said at a conference of business leaders that “South Carolina will have to start rethinking its approach to economic development” – focusing less on corporate recruitment and more on “persuading workers to live in South Carolina”.

Meanwhile, economist Rebecca Gunnlaugsson it has done an excellent job of highlighting the extent to which anti-competitive tax climates are slowing economic expansion at the municipal level – burdening existing individuals and businesses with exorbitant tax burdens.

The solution is not complicated: South Carolina needs to stop subsidizing corporate welfare and start enacting broad tax cuts that directly benefit individual taxpayers and small business owners..

But are the leaders of the state of Palmetto listening?

Unfortunately not …

Led by the “republican” governor Henry McMaster – whose signature “achievement” since taking office is a crony capitalist alms for a liberal billionaire – state and local economic development officials are currently negotiating with California-based Modesto E&J Gallo Winery since it contemplates the construction of a glorified distribution center on the east coast.

Gallo is the largest winery in the world – making an estimate $ 5 billion in annual sales and capturing approximately 22 percent of the country’s wine market.

The proposed industrial facility would be located in Chester County, on the Interstate 77 corridor between Columbia, SC and Charlotte, NC

According to a Jessica Holdman in The (Charleston, SC) Post and Courier earlier this month, this distribution center – which Gallo is conveniently calling a “winery” – would employ 500 people and invest up $ 400 million (assuming you believe the numbers that come out of the SC Department of Commerce, anyway).

Should you believe these numbers? Hum no … you should not.

Not only has Commerce been caught lying about job creation and investment estimates in the past, but the agency has also failed to hold companies accountable when they break their promises. In fact, reporter Andrew Brown in The Post and Courier has an excellent story this week detailing some of these issues – including a company that has been authorized to “maintain state funding even after (it) has not met all agreed work and investment requirements.”

State incentives are also only part of the problem. In addition to these subsidies, selected companies receive huge tax incentives from local governments – concessions that are invariably passed on to neighboring small businesses in the form of higher property taxes.

The whole thing is a scam … a first-rate theft.

It is clear that the “Great Gallo Offer” envisioned by McMaster and his administration goes much deeper than his command of economical garden variety boondoggle. This capitalist camaraderie alms comes with another big trap – one that could eviscerate the state’s small and medium alcohol retailers.

Regular readers of this medium are well aware that powerful and politically connected alcohol interests have been working for years to undermine the existing drink laws in the state of Palmetto – which maintain a level playing field for large and small retailers. While not perfect, these laws often promote fair competition – preventing wealthy, well-connected companies from exploiting unfair competitive advantages.

Such exploitation would lead to higher prices and a lack of choice for consumers, something I have been writing about for years.

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RELATED | ‘Big Liquor’ again under investigation in South Carolina

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In any case, as part of his effort to build his distribution center in Chester County, Gallo is insisting that lawmakers pass legislation that allows the opening of four “satellite” locations across the state. The company claims that these satellite locations would be mere “tasting rooms” designed to educate the public about the vintages being produced at its new “winery”. In reality, however, these locations would be showcases – stocking and selling the entire stock of Gallo products.

In other words, it is precisely the type of notch that completely unbalances the state’s current liquor laws.

Such a move would represent a profound departure from the laws in the home state of Gallo, California, where each winery is allowed to operate a satellite retail location (where it can only sell vintages physically produced at the winery).

To be clear: Gallo does not plan to physically produce any wine in South Carolina. No grapes are being grown on our hills. Nor is it in any way equivalent to a small “craft brewery” looking to sell its last batch of beers in a store. No … Gallo is a multi-billion dollar company that seeks to bottle its wines within an industrial plant as part of an effort to gain better access to the growing market on the east coast.

Should the company be allowed to do this? And bring jobs here in the process? Absolutely … But South Carolina taxpayers should not be forced to subsidize their efforts (especially not in the name of attracting a “winery”). Because that’s not what is happening here.

Nor should lawmakers effectively repeal South Carolina’s liquor law and potentially put hundreds of small and medium-sized retailers out of business in the name of giving an unfair competitive advantage to a multi-billion dollar California corporation.

As I noticed in the front of this piece, this is exactly the opposite of what our state should be doing now in front of economic development.

Fortunately, state senator Dick Harpootlian he sniffed what Gallo is really up to and started asking tough questions to his lobbyists about these “satellite” facilities. Meanwhile, Harpootlian and state senator Wes Climer have been pressing Trade to be more transparent about its “economic development” agreements – in the hope of providing some long-awaited responsibility for these donations.

Well … I hope that these two legislators will continue their efforts on behalf of citizens and taxpayers.

In the meantime, I am told that Gallo is playing tough with lawmakers – threatening to take his business to another state unless he gets all the concessions his lobbyists are demanding.

Well, I say … let them go.

On so many levels, South Carolina simply cannot afford the “Gallo Grand Prize.”

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