A recent story about Brooklyn based Kings County Jerky provides a wonderful illustration of how subsidy programs can go awry. The artisanal beef jerky producers have made such a name for themselves that they have to expand production. One might expect this to be the end of the story. After all, when you’re selling 2 ounce bags of jerky for $8.99, there is clearly sufficient demand to justify an expansion. However, the story doesn’t end there. Because the company is doing so well, it won a $50,000 grant from the City of New York.
One might reasonably ask why a company that is managing to sell beef jerky for nearly $5 per ounce requires subsidies. But given that these awards are ostensibly about boosting local manufacturing, the obvious focus should be on whether this grant is achieving that goal. This brings us to the twist: the company plans to quadruple production by working with a factory in Pennsylvania. While it’s entirely possible that I’m missing details that would rationalize this subsidy, it strikes me that one of the following is likely the case:
- Expanding production isn’t viable without a subsidy. This seems unlikely, given the relatively small size of the subsidy. Surely they could find $50,000 of investments to plow into such a high margin operation.
- Expanding production isn’t viable in Brooklyn given the regulatory environment. Brooklyn is, after all, notoriously anti-development. This is almost certainly part of the issue. A subsidy to mitigate the underlying problem hardly seems appropriate, though.
- The cost of expanding production in Brooklyn is inherently prohibitive, thus expansion to a low cost jurisdiction is inevitable. This seems unlikely. There is plenty of underutilized industrial land in Brooklyn at the moment. While costs may be intrinsically higher than in Pennsylvania, it’s hard to imagine that this explains everything. It’s entirely plausible that this is the most reasonable expansion strategy regardless of the local regulatory environment. But this would make the subsidy even more baffling.
It should be emphasized that if the expansion is successful, some benefits should accrue to the City of New York. Assuming the company maintains its Brooklyn headquarters, it will continue to pay taxes to the city and state. Moreover, employees at the headquarters will continue to pay sales taxes and spend money in the city. But it’s hard to imagine that $50,000 will have made the difference. It sounds like just another well intentioned subsidy heaped into the corporate welfare abyss.