If you ever doubted that politics makes strange bedfellows, take a look at the Wisconsin Legislature’s current efforts to finalize a state government budget. Two contentious issues standing in the way of an agreement are proposals to repeal the “prevailing wage” and to build a new stadium for the Milwaukee Bucks. Bipartisan coalitions have developed that are resisting each initiative.
These two issues may appear to be very different, but they share a common bond: Both are examples of crony capitalism. And unless last-minute negotiations lead to dramatic changes, the cronies are likely to get most of what they want in each case.
The cronyism behind the Bucks stadium is obvious. If the billionaire owners of the Bucks don’t build a new arena in Milwaukee by autumn 2017, the NBA has the right to buy the franchise from them for $575 million. This is less than the team is worth, but the owners don’t want to pay all of the $500 million projected costs of building a new stadium.
Gov. Scott Walker recently announced a plan for state and local governments to fund half the project’s costs through a complex mix of new borrowing, TIF credits and more aggressive state collection of debts owed to municipal governments (no, really). He was joined on stage by two prominent Milwaukee-area Democrats: Mayor Tom Barrett, who Walker twice defeated in gubernatorial elections, and Milwaukee County Executive Chris Abele. All were trumpeting a proposal that will ultimately increase taxes on ordinary Wisconsin citizens in order to ease the financial burden on the Bucks’ billionaire owners (also Democrats, by the way). Although Walker said the public costs would be less than the revenues generated by keeping the Bucks in Milwaukee, he didn’t release any specifics to support this dubious claim, and even Republican leaders say they haven’t seen all the details of the proposed deal.
Although it’s less transparent, opposition to repealing Wisconsin’s prevailing wage law is also driven by cronyism. The prevailing wage law sets minimum wages that must be paid on state and local government construction projects. This may seem like a sop to organized labor, and it is, but it also benefits large, established contractors at the expense of smaller competitors. The reason is that the prevailing wage calculation is complex, and, in the words of Harvard historian Niall Ferguson, “complexity is not the friend of the little man. It is the friend of the deep pocket. It is the friend of cronyism.”
Large contractors can afford the specialized expertise necessary to file the paperwork demonstrating compliance with prevailing wage laws, while many smaller firms cannot. Prevailing wage laws therefore create barriers to new competition from the small fry. This, in turn, allows big labor and big business to benefit from the higher costs of public construction projects. These large contractors and unions have been behind the effective lobbying efforts in support of the prevailing wage, convincing enough Republicans they will face electoral doom if they support “bold” prevailing wage reform.
It’s not surprising that conflicts involving crony capitalism are primarily taking place within the Republican Party. Although plenty of Democrats have spoken out against the Bucks deal, in reality most Democrats are comfortable with cronyism when it’s devoted to causes (and cronies) they consider righteous, like “green” energy or expanding “access” to health care. Few Democrats are opposed in principle to partnering with private-sector companies to achieve what they consider socially desirable policies. If these partnerships require government subsidies or mandates imposed on the public to be successful, most Democrats will support them regardless of the impact such favoritism has on other, less well-connected firms.
Unfortunately, many Republicans are the same. They may talk a good game about the value of free markets, but if a political supporter approaches them seeking special tax or regulatory treatment, they are all too eager to oblige in the name of “constituent” service. Other Republicans do take principled stands in favor of economic liberty and true capitalism rather than its cronyist aberration. On both prevailing wage and the Bucks arena, they have been supported by nearly every right-of-center blogger, free market advocacy group and think tank in the state, which have been admirably consistent and principled on these issues.
Although the situation is highly fluid, Republican leadership appears to favor a weak rather than bold reform of prevailing wage and some type of public financing for the Bucks arena. It may be misjudging the political calculus on both issues, especially the arena deal. The public is increasingly aware of the nature of crony capitalism and hungry for government that works in the public interest, not for special interests. If the GOP wants to respond to this desire, it should abolish the prevailing wage, strip the Bucks deal out of the budget and subject it to a separate up-or-down vote. Let the public see how each state representative and senator votes on this deal; it will then get a chance to register its opinion in November 2016.
Larry Kaufmann is a Madison-based economic consultant.
