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Published in Print: March 13, 1991, as Business's Words, Actions To Improve Education at Odds,

Business's Words, Actions To Improve Education at Odds, Economist Argues

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American business's much-trumpeted support for education has created a smoke screen that obscures a more profound--and potentially devastating--corporate withdrawal from the public sector, a new book to be released next week argues.

At the same time business has become an influential advocate for school reform, Robert B. Reich, a prominent political economist at Harvard University's John F. Kennedy School of Government, argues in The Work of Nations, it has quietly worked to procure subsidies and tax breaks from state and local governments.

Moreover, he says, American corporations have increasingly looked to foreign countries to fill their workforce needs, and the growth in business donations to precollegiate education has dramatically declined during the past decade.

"It's a great irony that business is saying it is supporting education in the front door, but [is] taking away money through the back door," Mr. Reich said in an interview last week.

In The Work of Nations, Mr. Reich contends that the free flow of world capital has created an international economy in which borderless corporations rove the globe for the employees they desire.

Because the best-educated Americans do not need to rely on their fellow citizens and have no allegiance to a national economy, he argues, they have withdrawn from the larger society.

That contention, several observers note, undermines the foundation on which corporate philanthropy in education rests: that American business needs a well-educated workforce to remain competitive.

Mr. Reich's book says growth in corporate donations to education has been meager and only enough to keep up the facade of "enlightened self-interest."

Support jumped by 5.1 percent in 1987 and 2.4 percent in 1988, compared with growth in the 1970's that averaged 15 percent a year.

Only 1.5 percent of all corporate giving in 1989 went to primary and secondary schools, according to the book, and that sum was far exceeded by the subsidies and tax breaks won by business from state and local governments.

All told, the corporate share of local property-tax revenues--the primary funding source for public education--dropped from 45 percent in 1957 to about 16 percent in 1987.

"Corporate munificence is a high-profile affair," Mr. Reich writes. "Lobbying for huge tax breaks is, conveniently, far less so."

The Work of Nations stands in marked contrast to a report issued by the Committee for Economic Development late last month that declared business's support for education well-motivated and effective. (See Education Week, March 6, 1991.)

That report, researched by P. Michael Timpane, president of Teachers College, Columbia University, and Laurie Miller McNeill, an education consultant, acknowledged that corporate support for education had tapered off at the end of the 1980's.

But it attributed the decline to transient economic forces and optimistically predicted that support would resume in earnest in the 1990's.

Mr. Reich, on the other hand, holds that the recent slowdown merely underscores a withdrawal of corporate tax largesse from the public sector that has been occurring for the past 20 years.

"You put them together, and the only explanation I can come up with is that corporations are becoming less dependent on their home bases, indeed less dependent on the American workforce in general," Mr. Reich said.

The Work of Nations has already generated considerable debate after being excerpted as cover stories in The New York Times Magazine, The Atlantic magazine, and the Harvard Business Review.

Reactions have ranged from heated dismissal to enthusiastic acceptance.

Generally, however, representatives of national business organizations and other groups have staked out a middle ground, arguing that, while the book's contentions may have held true in the past, corporate support for public finance and investment is changing.

According to Mr. Timpane, taxes have traditionally been a taboo subject among corporate leaders, who took it as a given that business would oppose anything that would hurt profits.

"Contradictions are a vast improvement," he concluded.

Said Robert McIntyre, director of Citizens for Tax Justice, a Washington-based group that advocates higher corporate taxes: "At the national level, Reich is 100 percent right. At the local level, he's more right than wrong."

"But it's important to note that business isn't as stupid as they have been in the past," he added. "They're starting to know when they're shooting themselves in the foot."

Responding to Mr. Reich's assertions, business leaders insist they do need a well-educated American labor force, and, they say, given assurances that corporate taxes will create one, they are willing to pay the price.

James J. Renier, the chairman and chief executive officer of Honeywell Inc., agreed that many of the nation's low-skilled jobs have already left the country. His company has moved and expanded facilities away from its native Minneapolis to Mexico and the Far East, where taxes and labor costs are cheaper.

But, he added, there are still 10,000 Honeywell jobs in the Twin Cities area.

"What's left ... is far more demanding," he said. "We do need a far, far more capable workforce."

In an interview, Mr. Reich adamantly stuck to his premise, although he was careful to say that the public advocacy of many of the nation's top chief executive officers is not hypocritical.

"I'm sure many CEOs and executives believe what they're saying," he said, "but their corporations' activities are inconsistent with their beliefs."

While one branch of a company--typically community affairs or public relations--is stumping for education, he said, its lobbyists and finance departments are often bargaining for income-tax breaks, abatements, or lower property-tax assessments.

In Tarrytown, N.Y., where General Motors Corporation has had a factory since 1914, gm's successful efforts to eliminate its taxes reduced local revenues by $2.81 million last year, forcing the town to lay off scores of teachers, Mr. Reich noted.

Gm, a visible education advocate, also led a property-tax revolt in Michigan that has reduced local tax receipts by millions of dollars. (See Education Week, April 22, 1987.)

In 1986, the Michigan Tax Tribunal ruled that gm had overpaid the Delta Township more than $1 million in property taxes as a result of inflated assessments. The ruling set off a wave of property-tax appeals by major corporations across the state.

The Tax Tribunal now faces a backlog of more than 3,000 cases, according to Gene Thornton, director of legislative affairs at the Michigan Township Association. With 60 percent to 70 percent of property-tax revenues going to the schools, he said, the effects could be devastating.

"It's a fair question to ask whether these challenges, when undertaken in such a systematic way, are consistent with the goal of substantial improvement in our education system," said William Mathewson, president of the Michigan Tax Information Council, a nonprofit research group.

Also draining local tax coffers are the lucrative abatements offered by state and local governments to attract and retain industry, according to the book. Such tax breaks have become almost commonplace, Mr. Reich contends.

To persuade gm to locate its Saturn plant in Tennessee, the state offered $21.7 million for personnel training and $30 million for road building and improvements, according to Robert D. Parsons, assistant commissioner for marketing at the Tennessee Economic and Community Development Department.

Maury County offered to collect no taxes through 1995, after which payments would slowly increase to normal property-tax levels, said A.C. Howell, Maury County's budget director. In exchange, gm paid the county $7.5 million up front in 1986, $3.5 million in both 1987 and 1988, and $3 million a year from 1989 to 1995.

In total dollars, the county loses money, Mr. Howell said, although he could not calculate how much.

"If we had offered no concessions, we wouldn't have gotten a Saturn plant," he said. "You're not in the real world if you don't think you're going to give something away to get jobs into a community, because everybody does it."

The idea behind abatements is that economic growth will more than make up for initial lost revenues.

"Remember, those people [moving in] are living somewhere, and they're paying taxes," said Jeffery Finkle, executive director of the National Council for Urban Economic Development.

In countering that argument, Mr. Reich asserts that the highest-paid executives will most likely pay their taxes to elite suburban communities and send their children to untroubled public schools in the suburbs or to private schools. Abatements thus contribute to what he labels "the secession of the successful."

Likewise, studies by the Urban Institute and the New York State comptroller's office have doubted that there is a net gain in local tax receipts. The ced and other business groups have said a location's quality of life, schools, and other factors are far more important than abatements in attracting business.

"Most of these abatements are just gravy," said Jack Brizius, a public-administration consultant.

The continued use of tax incentives is more an indictment of local and state governments than of business, many observers say.

If economic developers automatically offer them, many note, business should not be expected to turn them down.

In addition, they say, politicians, the media, and development offices like abatements because they are tangible tools to attract business, more easily grasped than long-range commitments to improving a community's quality of life.

"When we look and see our education system in shambles and our transportation systems not working, we have only ourselves to blame," said Mitchell Horowitz, director of the Center for State and Local Development at the Corporation for Enterprise Development.

That may be the case, Mr. Reich argues, but business has used implicit and explicit threats of relocation to keep taxes low.

"I don't believe for a second that corporations are not seeking abatements," he said. "No financial officer worth his or her salt will refrain from getting the best incentive package possible."

In their defense, business advocates point to numerous cases where corporate support was decisive in winning legislative approval of a tax levy for education. Business groups in Kentucky, Oklahoma, South Carolina, Maryland, and Colorado, among numerous other states, have supported tax increases when they were sure the extra revenue would go to education.

In other states, business has elected to quietly accede to tax increases rather than to oppose them as they have traditionally done, Mr. Brizius said.

"Nobody wants to come out and say, 'Hey, please tax me,"' he said. "That's asking a lot of anyone."

The education community understands that stance to a point, according to John Ellis, commissioner of education in New Jersey.

The major New Jersey business groups have generally stayed out of the fray that erupted last summer over tax increases to support education spending. But Mr. Ellis said business support would be helpful when push comes to shove.

"At some point, you have to get beyond rhetoric and take a position, especially in funding, or you lose credibility," he added. "You have to take a stand."

Mr. Brizius and others admit that, wherever there has been corporate support for taxation, there has also been corporate opposition.

Business, they say, is not monolithic, and a clear split has developed between manufacturing industries that need highly skilled workers and smaller service and retail businesses that feel tax pinches more acutely and do not have the same concerns about how well educated their workers are.

Where businesses are more united is in their opposition to general tax increases not tied to specific programs.

Business has become frustrated that more money has not created better schools, said John Augenblick, a Denver-based consultant on education finance. That has led many to insist there is already enough money in the system, he added, and that it simply must be reallocated.

"It's not at all inconceivable that business would push hard for education and, at the same time, would push for general cuts in budgets,'' Mr. Renier, the Honeywell CEO, said. "I don't see that as inconsistent at all."

Mr. Reich concedes that many useful routes to education improvement cost little money. But, he writes, the two changes that educators agree would be most effective are also among the most expensive: smaller classes and better-qualified teachers.

There is no way business and affluent businessmen can rationalize not paying their fair share, he says.

The Work of Nations concludes that the stratified society that business is creating will ultimately sink corporate America. While industry may thrive without American workers, he argues, the tide of impoverished, uneducated citizens will eventually knock society from under business's feet.

Anarchy is a bad business climate, he adds, no matter how disconnected business may be to the civil strife around it.

As for the United States, competitiveness in a global economy depends more on the value of a nation's citizens than on the profits of its corporations, Mr. Reich writes. Because the world's corporate profits depend on well-trained citizens throughout the world, he says, investment will follow the best workforce.

Thus, he concludes, it is incumbent on the United States to invest heavily in education.

Business leaders say they agree with that conclusion more than Mr. Reich might realize.

"Sure, there's a long way to go, but I don't think that long way contains an element that business has to get more interested," Mr. Renier said. "We're there as far as that's concerned. We just don't yet know exactly how to help."

Mr. Reich remains skeptical.

"Deeds do speak louder than words, and corporate strategy is what it does, not what it says it does," he said. "It is accurate and useful to describe the business community as a whole as not yet willing to put its money where its mouth is."

Vol. 10, Issue 25, Page 1, 26-27

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