Blog by Nate Archives: Airbus in Alabama (July 5, 2012)

[The relaunch of my new blog starts with reposting my old content.  These incentive deals are alive and well.  Mostly alive and terrible.]

Airbus in Alabama

More expensive than campaign contributions

The recent announcement that Airbus will open there first US manufacturing facility in Mobile, Alabama intersects a couple of areas of interest.  A few quick points.

  1. The state of Alabama and city of Mobile offered lots of economic incentives to lure this investment.  The grand total is expected to be $158 million for 1,000 jobs ($158,000 per direct jobs).  I’ve talked to people in state economic development over the years and they often claim that the indirect jobs for certain types of manufacturing are much greater than the direct jobs.  The estimates for auto production is that that each auto production job producers another 7-8 upstream or downstream jobs.   But this is a very large incentive package.
  2. Boeing and Airbus have been in a nasty competition over the years.  This goes beyond commercial aircraft to a controversy over a refueling tanker.  Airbus originally won the contract but this was eventually overturned and the contract was given to Boeing.
  1. Boeing and Airbus have been in constant WTO disputes.  The short of it is that both Boeing and Airbus have been receiving subsidies inconsistent with WTO rules.  Great blog post with some links on the most recent dispute.

There is some really interesting political science and economics research that has examined how inward investment affects domestic politics.  The short of it is that foreign investment can be used to “jump” trade protection.  This classic example is Japanese automobile investment.

This investment can also defuse trade protection or other forms of legislation that could be harmful to the company’s interests.  See here for a great paper on the topic (gated).

The short of it is, this seems like a shrewd (and costly) political strategy for Airbus.  Building aircraft in the US will certainly give the company a few political allies in the United States, and could help open doors for government procurement contracts in the future.