Editor's note: This story was changed Dec. 18 to clarify Exxon Mobil's view that the job counts the company reported to the state on its exemption applications may not be accurate.

Sulfur Recovery Unit at the Exxon Mobil refinery in Baton Rouge. Exxon Mobil has received more than 200 property tax exemptions over 20 years, shielding the company from paying some property taxes to East Baton Rouge parish taxing authorities. 

For corporations intimidated by the prospect of building familial ties with the suppliers they’ve traditionally bullied, our research offers some bad news and some good news. First, the bad news: It’s tougher to build relationships with suppliers than companies imagine. For more than 20 years, many American businesses have unsuccessfully tried to build bonds with suppliers. As part of the quality movement of the 1980s, these companies ostensibly adopted the Japanese partnering model. They slashed the number of suppliers they did business with, awarded the survivors long-term contracts, and encouraged top-tier vendors to manage the lower tiers. They also got top-tier suppliers to produce subsystems instead of components, to take responsibility for quality and costs, and to deliver just in time. In 2001, the Malcolm Baldrige National Quality Award Committee made “key supplier and customer partnering and communication mechanisms” a separate category on which it would judge the best companies in the United States.

This is because of globalized trade, which big business has the power to leverage, and as in the case below, the local seller often does not. Globalization can mean that some regions will have advantages over others when it comes to producing goods, manufacturing, and services. For example, Idaho has a great advantage for producing potatoes. That is why its farmers send them all over the world. But when you live 2,000 miles away from Idaho, that potato has clocked a lot of road time, and a lot of emissions, to get to you. And, that potato may only be available at chain supermarkets. With local businesses, you will probably have the option of purchasing items that did not travel halfway around the world to get to you. The closer the source to the destination, the lower the overall carbon footprint will be, even if the mode of transport is less efficient.

"We bring people for expertise, but they don't stay on site," Prats said, adding that the mill has an annual payroll of $100 million a year and invests another $100 million in capital expenditures every year. "We bring people in because it's a necessity."

"It has been entirely unscrutinized and has granted a blank check to subsidize private business without even asking those businesses to demonstrate that they need it, let alone that it's worth the investment,” Bagert added.

Going local can apply to all kinds of businesses and products, but one of the most common is food. One-hundred-mile diets (which are more practical in some places than others!), CSAs, and farmers' markets are the pride of every locavore, but is locally grown food really healthier, or just lower impact? Food goes through the same process from farm to table whether it’s local or from a distant industrial farm. The difference in food quality lies in the details of implementing the production process. Here’s a look at the stages of food production and some of the decisions along the way that can affect food quality.

For food, time is nutrients. So while there are no guarantees that the farmers at the market have superior produce, the deck is certainly stacked in their favor.

- The industrial tax exemption program has for years had no job requirement, and many companies have self reported job losses as they were allowed to forego millions of dollars in tax payments to local governments

Unsurprisingly, independent companies spend a higher proportion of their money locally, but how would they increase the number of local jobs and wages? Because while independent stores may employ a smaller number of people than the big chains, they also channel money to other local companies – suppliers, accountants, lawyers, marketers, and website developers. Chains usually take care of these jobs at headquarters and funnel the profits to shareholders, so fewer locals get their hands on the money (unless they’ve invested in the company, of course). So while it’s nice to buy that doodad for a bit less at a chain, a similar doodad bought at the farmers’ market might reap unseen and indirect benefits.

Likewise, Honeywell International, which makes products used by oil and natural gas refineries, received about $49 million in property tax forgiveness while increasing its job tally by nine, for a cost of $5.4 million per job.

“[The Big Three] are hall monitors: I have to get from this door to that door, and they ask for my pass. You do everything you can to meet their objectives, but they keep putting barriers in the way.” —Engineering director, Big Three supplier, April 2001

Since 2006, East Baton Rouge Parish's taxing authorities have lost $571 million to the industrial tax exemption. Ascension Parish gave up $958 million. Jefferson Parish gave up $156 million and Orleans Parish gave up $112 million, according to the Louisiana Tax Commission.

Toyota and Honda have invested heavily in improving the ability of their first-tier vendors to develop products. While their longtime suppliers like Denso, Aisin, and Araco can design components for the carmakers independently, North American vendors still don’t know the manufacturers well enough to do so. For example, tires are critical to a vehicle’s comfort, safety, handling, and noise level, but American vendors complain that Toyota and Honda give them vague specifications for new tires. Honda doesn’t spell out the level of resistance it expects from a tire; it will only say that the tire has to have the right “feel”—a characteristic that is hard to quantify—and that it will be adjusted as the vehicle is designed. Toyota’s engineers have developed a special vocabulary to describe the effect of tires on passengers. For instance, they use gotsu gotsu to refer to the low-frequency, high-impact motions tires transmit to passengers’ lower backs and buru buru to describe the high-frequency, low-impact vibrations they feel in their belly. Toyota’s engineers expect suppliers to understand what they are talking about and to identify solutions to problems the engineers describe. Until vendors learn to understand the terminology that Toyota and Honda use and are able to translate those vague requirements into design solutions, they can’t develop new products for them.

This is because of globalized trade, which big business has the power to leverage, and as in the case below, the local seller often does not. Globalization can mean that some regions will have advantages over others when it comes to producing goods, manufacturing, and services. For example, Idaho has a great advantage for producing potatoes. That is why its farmers send them all over the world. But when you live 2,000 miles away from Idaho, that potato has clocked a lot of road time, and a lot of emissions, to get to you. And, that potato may only be available at chain supermarkets. With local businesses, you will probably have the option of purchasing items that did not travel halfway around the world to get to you. The closer the source to the destination, the lower the overall carbon footprint will be, even if the mode of transport is less efficient.

Unsurprisingly, independent companies spend a higher proportion of their money locally, but how would they increase the number of local jobs and wages? Because while independent stores may employ a smaller number of people than the big chains, they also channel money to other local companies – suppliers, accountants, lawyers, marketers, and website developers. Chains usually take care of these jobs at headquarters and funnel the profits to shareholders, so fewer locals get their hands on the money (unless they’ve invested in the company, of course). So while it’s nice to buy that doodad for a bit less at a chain, a similar doodad bought at the farmers’ market might reap unseen and indirect benefits.

No corporation needs to be convinced that in today’s scale-driven, technology-intensive global economy, partnerships are the supply chain’s lifeblood. Companies, especially in developed economies, buy more components and services from suppliers than they used to. The 100 biggest U.S. manufacturers spent 48 cents out of every dollar of sales in 2002 to buy materials, compared with 43 cents in 1996, according to Purchasing magazine’s estimates. Businesses are increasingly relying on their suppliers to reduce costs, improve quality, and develop new processes and products faster than their rivals’ vendors can. In fact, some organizations have started to evaluate whether they must continue to assemble products themselves or whether they can outsource production entirely. The issue isn’t whether companies should turn their arms-length relationships with suppliers into close partnerships, but how. Happily, the advice on that score is quite consistent: Experts agree that American corporations, like their Japanese rivals, should build supplier keiretsu: close-knit networks of vendors that continuously learn, improve, and prosper along with their parent companies. (Incidentally, we don’t mean that companies should create complex cross holdings of shares between themselves and their suppliers, the way Japanese firms do.)

There is a key difference between the way American and Japanese companies fuel the rivalry between their suppliers. U.S. manufacturers set vendors against each other and then do business with the last supplier standing. Toyota and Honda also spark competition between vendors—especially when there is none—but only with the support of their existing suppliers. In 1988, when Toyota decided to make cars in Kentucky, it picked Johnson Controls to supply seats. Johnson Controls wanted to expand its nearby facility, but Toyota stipulated that it shouldn’t, partly because an expansion would require a large investment and eat into the supplier’s profits. Instead, the Japanese manufacturer challenged Johnson Controls to make more seats in an existing building. That seemed impossible at first, but with the help of Toyota’s lean-manufacturing experts, the supplier restructured its shop floor, slashed inventories, and was able to make seats for Toyota in the existing space. That experience helped the American vendor understand that it wasn’t enough to deliver seats just in time; it had to use a system that would continually reduce its costs and improve quality. Such an approach would better align Johnson Controls’ operating philosophy with Toyota’s.

For decades, various governments around the world have used trade-distorting policies (tariff and non-tariff barriers) to support the development of local automotive industries that would not have otherwise been economically viable. However, to what extent are these policies, which once helped attract market-seeking automakers (or Original Equipment Manufacturers: OEMs), still serving the interests of these countries is uncertain.

In fact, for India and Pakistan, two of the biggest South Asian automotive producers, a recent World Bank Group report highlights that such polices might be reducing competitiveness and slowing down the spread of world-class good practices in the value chain. These effects need to considered carefully. A process of reform via gradual reduction of import tariffs and convergence with international environmental and safety standards is recommended to enhance competitiveness of this sector.

In the automotive sector, India is the world’s sixth-largest auto producer by volume, but it owns less than 1 percent of global export markets compared with more than 3 percent for China, 4.5 percent for Korea and 7 percent for Mexico. The average auto firm in India exported only 5 percent of its total sales, compared to 16 percent in China. Productivity levels in India are one-third the levels in China, and this gap persists for OEMs that are sub-scale, with below-average investment in innovation and skills, and with low participation in global value chains (GVCs). All these factors were discussed in a previous Private Sector Development blog post. The situation is worse in Pakistan, with lower levels of exports and productivity, and with similar factors driving it.

Trade policies, through tariff and non-tariff barriers, play an important role in shaping the external environment, which in turn influences a firm’s incentive to become more productive (or not). Firms facing greater competition in their product markets are inclined to raise the minimum productivity threshold to operate profitably and reduce inefficiencies. They do this both through investing in productivity-enhancing activities and through reducing costs, which in turn helps them capture greater market shares. Competition also helps reallocate resources from the less-productive to the more-productive firms, increasing the incentives for all firms to invest in the within-firm productivity levers such as innovation and skills.

For example, Williams Olefins, a petrochemical manufacturer with operations in Ascension Parish, lost 57 local jobs while enjoying a property tax reduction of about $136 million. Louisiana Sugar Refining in St. James Parish trimmed 120 jobs while avoiding $21 million in tax payments. In Caddo Parish, General Motors reported a loss of 434 jobs even as the giant automaker was shielded from $180 million in local tax payments.

Remember those appealing prices at the big box stores? One of the main reasons they can undercut the little guys is because they buy and ship in bulk. The more they buy, the cheaper it is, and for a worldwide chain, that translates into a serious discount. Big businesses are able to leverage their size to reduce the cost per unit produced to a very low level. Because consumers will always pay a base price for everything they buy (affected by supply and demand), these cost savings will only positively affect the company’s finances. As you can see in the illustration on economies of scale, this principle results in profits ballooning as production increases.

For better or worse, vague definitions are dependent on context. To me, going local is eating food from nearby farmers; to you, it could be buying things from your neighbor’s store; to someone else, it’s investing in Canadian start-ups. Our definitions are based on our experiences, our desires, and our exposure to marketing. It’s okay that our perspectives are different, though, because “local” varies from place to place. It has to – by definition.

"There've been no standards of accountability, no measures for appropriate decision-making, no appraisal by the department that even tries to justify or assess the outcomes of the program. It's the sloppiest public program our state has ever created."

But as Exxon was getting subsidized to grow its footprint in and around Baton Rouge, its local employee count was shrinking. Louisiana shielded the massive energy company from more than a half-billion dollars in tax payments even as its local payroll was trimmed by almost 1,900 jobs — a cut of more than 40 percent.

Since 1997, Exxon Mobil, the world’s 10th-largest company by revenue, has sought and received more than 200 tax exemptions for expansions, maintenance overhauls and technology upgrades. They were awarded through Louisiana’s Industrial Tax Exemption Program, which dates to the 1930s and is one of the largest and most generous giveaway programs of its kind in the nation, according to watchdog groups.

Getting Worse Local Manufacturing

The executive order also seeks to end the practice of awarding tax exemptions for routine improvements, required environmental upgrades and new replacements for machinery. But some skeptics have suggested companies might be able to frame large capital expenditures as expansions and still qualify.

When Toyota and Honda set up manufacturing operations in North America in the 1980s, they started by encouraging the creation of some joint ventures between their Japanese suppliers and American companies. Later, they selected local companies they could develop as suppliers. They gave their new vendors small orders to begin with and expected them to meet certain cost, quality, and delivery parameters. If suppliers coped with the first orders well, Toyota and Honda awarded them larger contracts and taught them their “ways” of doing business. (For more on these approaches, see Jeffrey K. Liker’s book, The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer and Powered by Honda: Developing Excellence in the Global Enterprise, by Dave Nelson, Rick Mayo, and Patricia E. Moody.)

The space between the line of "price consumer pays", and "cost per unit for the company," is the profit margin for the company. The incentive to increase production exists because profits will increase at a decreasing rate. The prime level of production lies just as the curve flattens out – profits are maximized and no more production is needed.

For food, time is nutrients. So while there are no guarantees that the farmers at the market have superior produce, the deck is certainly stacked in their favor.

Just how do Toyota and Honda get it right when their rivals get it so wrong? We have been studying the American and Japanese automobile industries for more than two decades. Between 1999 and 2002, we interviewed more than 50 Toyota and Honda managers in Japan and the United States, several executives who had left those companies’ American subsidiaries, and managers from more than 40 suppliers in the North American automobile industry. We also visited Toyota and Honda plants in the United States, suppliers’ factories and technical centers, the Toyota Technical Center in Ann Arbor, Michigan, and Honda of America’s Purchasing Office in Marysville, Ohio. Our research shows that Toyota and Honda have developed partnerships with their American suppliers by following similar approaches.

"The notion that manufacturing automation isn't reducing employment is one of the most absurd things I can imagine an economist saying," Hicks said. "I don't dispute that there is some outsourcing going on, but it's not enough to account for all the gains in productivity."

But the biggest losers, by far, have been the parishes in southwest Louisiana, a breeding ground in recent years for massive, multibillion-dollar megaplants that process liquid natural gas. Those plants have taken full advantage of Louisiana’s generous break: Since 2006, Cameron Parish has lost out on $4.3 billion and Calcasieu Parish has given up $3 billion in property taxes. That's three times the amount forgone by the No. 3 parish, St. Charles, which has lost out on $1 billion.

Those people are full-time Turner employees and receive benefits, Toups said — adding that they live and pay taxes in the communities they work. He said Turner has grown from a $500 million company in 1997 to a $3 billion company in 2016, growth he said has benefited the capital region. At least half of Turner's growth has been in Louisiana, he said.

Unlike most companies we know, Toyota and Honda take the trouble to learn all they can about their suppliers. They believe they can create the foundations for partnerships only if they know as much about their vendors as the vendors know about themselves. They don’t cut corners while figuring out the operations and cultures of the firms they do business with. Toyota uses the terms genchi genbutsu or gemba (actual location and actual parts or materials) to describe the practice of sending executives to see and understand for themselves how suppliers work. Honda uses a similar approach, and both companies insist that managers at all levels—right up to their presidents—study suppliers firsthand to understand them.

Operations at most plants have moved from pen and paper to computers. More product is moved mechanically instead of being transported by laborers.

Exxon Mobil officials say they have not gone through "significant targeted downsizing efforts” in East Baton Rouge Parish, though they added that the company doesn't have a tally of employment that predates 2010. However, they don’t agree that the slide of 1,900 direct jobs dating to 1998 that is shown on their tax applications is a correct reflection of annual historic job counts. They say that the tax applications only captured monthly counts at the point in time of application.

For all the feel-good talk about developing manufacturer-supplier partnerships, Western executives still believe that the keiretsu system is, at its core, inefficient and inflexible. They assume that in the keiretsu model, companies are locked into buying components from specific suppliers, a practice that leads to additional costs and technological compromises. We find that assumption to be incorrect. Neither Toyota nor Honda depends on a single source for anything; both develop two to three suppliers for every component or raw material they buy. They may not want ten sources, as an American business would, but they encourage competition between vendors right from the product development stage. For example, Toyota asked several suppliers in North America to design tires for each of its vehicle programs. It evaluated the performance of the tires based on the suppliers’ data as well as Toyota’s road tests and awarded contracts to the best vendors. The selected suppliers received contracts for the life of a model, but if a supplier’s performance slipped, Toyota would award the next contract to a competitor. If the supplier’s performance improved, Toyota might give it a chance to win another program and regain its market share.

Expediting progress on the Aviation National Policy Statement to deliver a third runway at Heathrow

But although more individual companies reported gains than losses, the total number of jobs lost outpaced the number of jobs created. And nearly all of the breaks went to companies that already were operating in the parish, like Exxon Mobil — rather than to firms seeking to open up shop.

Driving the creation of sub-national transport bodies for all of England to ensure a more strategic approach to managing locally managed A-roads