Former Gov. Don Carcieri seems to have lost all his political allies because of his historic blunder in giving his friend and political ally curt Schilling $75 million to make a video game in Rhode Island. It will be interesting to see if Brendan Doherty and Mitt Romney – the two candidates Carcieri is really pushing for this cycle – remain loyal to him…
The issue with Rhode Island’s instantly-infamously loan guarantee program is not that the public sector is helping the private sector, it’s that former Carcieri and former EDC chief Keith Stokes made a monumentally awful decision to give one company a huge sum of taxpayer money, not even to mention that it was a video game company run by an ex-baseball player.
Even ask House Minority Leader Brian Newberry, a fiscal conservative who told the Projo, he eventually voted for the loan program because he assumed the addition $75 million would be spread out around the free market. “Nobody anticipated the EDC would give away the store to one company,” he told the Projo. “Who does that?”
Scott MacKay of RIPR has a great op-ed today on how Gov. Chafee has to again clean up a mess left by Carcieri.
Massachusetts has better funded public schools than Rhode Island, they beat us to the casino punch and knew better than us to avoid financing Schilling’s pipe dream … here’s another way our neighbor to the northeast is serving its citizenry better.
File this one under education inequality in the Ocean State: At high schools in Woonsocket, Central Falls and Pawtucket students sometimes have to share textbooks because there aren’t enough to go around, while in East Greenwich the school committee is considering getting every high school student an iPad.
Did you know the Southside Community Land Trust operates about 40 community gardens on vacant lots all over the city? How cool is that!
Good for Congressman David Cicilline for taking issue with some of the often-oversimplified opinions of Projo columnist Ed Achorn … we keep wondering how Achorn will manage to blame the 38 Studios debacle on Stephen Iannazzi and public sector unions (just wait, it’ll probably happen!).
Congrats to Maureen Martin, who GoLocal Prov honors as a “Power Player” this week.
Of course Brendan Doherty still supports Don Carcieri – rather, it’s the other way around. Don Carcieri and his people are running and supporting the Doherty campaign. Brendan Doherty is just a Carcieri puppet.
“The issue with Rhode Island’s instantly-infamously loan guarantee program is not that the public sector is helping the private sector”
Maybe you have no fundamental problem with that issue, but that certainly seems to be the issue on most people’s minds. Virtually all of the public comments on news websites have taken issue with government issuing these kinds of loans in the first place, and many have questioned the wisdom of having an EDC at all. ”Picking winners and losers in the economy” is a commonly seen phrase. You’re going to just blow off all these concerns by saying “that’s not the issue”? I and other commenters certainly think it’s the issue. Would you please provide an explanation of why it’s not?
Are progressives for corporate welfare or against it? They’re for it if the companies are small, but against it if the companies are big? Or maybe they’re for it if the loans are small, but against it if the loans are big? Or maybe big loans are okay if it’s in furtherance of a progressive cause, but not for other causes? It seems to be a simple case of “the ends justify the means” and “when we do it it’s okay.”
“Are progressives for corporate welfare or against it?”
Let’s be clear first that we’re talking about a plan championed by a Republican governor. That said, I think most progressives are for incentives like loans when:
- There is significant creation of jobs and especially if the aid comes after the investment (e.g. R&D credits).
- There is significant benefit to the community or to the environment (i.e. windfarms over oil drilling).
- The benefit is found predominantly in the local economy (i.e. loans to small businesses are generally preferred over those to larger businesses).
The question is, who benefits, the corporate investors or the people who paid for the loan?
I appreciate the explanation, but the preference of small businesses over large businesses is not a principled distinction in my opinion, and the rest of the factors you list are so speculative and subjective that I think they can only result in more 38 Studios and Solyndra/Evergreen boondoggles as a political reality. Keep in mind that a number of progressives were sold on the 38 Studios deal because they thought it would help the local community and economy – alas, it did not.
“The preference of small businesses over large businesses is not a principled distinction in my opinion…”
That’s because imho that’s not the distinction. That’s just the effect seen in many cases because of the preference for public funds benefiting local communities. There’s nothing saying large firms couldn’t fit the bill. It’s just that their corporate structure makes it less likely.
“The rest of the factors you list are so speculative and subjective…”
Which is why activism and engagement are so important. No one said this was going to be easy. The spin that “a number of progressives” were sold on this deal, ignores that the vast majority were not.
Keep in mind the objections were largely that we shouldn’t invest that much in a single company. There was nothing progressive or conservative about that. That’s just plain foolish. It should be expected that many of these early stage companies will fail. That’s not a bad thing, so long as there are some that don’t. Here’s Allan Tear on how early stage support can and does bring firms to Rhode Island (and at a cost much less than the Carcieri “boondoggle”):
[quote]
What makes Providence a great place for startups?
I’d start by saying artists are very entrepreneurial and certainly among the cohort of entrepreneurs Rhode Island must recruit and retain. Imagine if we can help more of our artists and designers create scaleable businesses–think of Alex and Ani as a prime example. It’s a mistake to think that when we talk about entrepreneurs we are talking only about information technology geeks. The startup landscape is far more diverse than that. That’s one of the things that makes Providence such a vibrant place to work and live. We have a world class creatives side-by-side with engineers, computer geeks, social entrepreneurs, scientists, and so on. Providence is a beautiful city with a cultural vibe that is attractive to startups. Plus, we have personality in spades. This is why 15 of the 16 companies that completed the Betaspring accelerator in April have decided to stay in Providence (and only four of them were from Rhode Island to begin with).
[end quote]
Will all 15 still be around in 10 years? Probably not, but in the mean time that jobs and innvoation for Providence, plus the promise of a few that will be the next mid or large scale company in the region.
Putting aside the significant philosophical and moral hazard issues that using public funds to subsidize private companies presents, I still think the approach of the EDC is fundamentally misguided from an economics perspective. Even if you can justify this type of investment in abstract, government should never be selecting individual companies to receive funding. Instead, the process should be kept as broad and decentralized as possible. In other words, if you want a certain outcome for your community, incentivize that outcome broadly without having a central Board with such limited knowledge and perverse incentives picking this company or that company. I don’t particularly like the idea, but having a tax credit or award for any company that reaches X goal is far more efficient than trying to predict which company can best meet the goal. It’s that kind of centralization of decision-making that can only lead to the 38 Studios outcome in my opinion. It has nothing to do with whether the companies are big or small or whether many companies are selected or a few. This all misses the point. I don’t see why risking $75 million each year on big companies with 90% failure likelihoods is so much worse than risking $75 million on a bunch of smaller companies with 90% failure likelihoods. The two approaches are equivalent over the long term.
It’s not that I think the market always does a perfect job of allocating investment - which is a silly caricature of free market advocates - it’s that I see no evidence that government can do it better and a mountain of economic theory and evidence saying that it can’t. I also have an issue with “the will of the people” being expressed in such a way. It reminds me of whenever a Walmart is being protested because “the community doesn’t want it.” Really – then why is everyone shopping there? If people really don’t want it, then it will go out of business in a fortnight.
I think we probably agree, public funding risks political pressure to make otherwise bad investments. You need good governance by independent boards. This isn’t so different than how corporate boards or private VC works. The EDC board has so far (oddly) escaped criticism.
As for the “will of the people,” I actually said “significant benefit to the community or environment.” Some would say WalMart hurts communities and the environment, arguably because many shop there.
“I don’t see why risking $75 million each year on big companies with 90% failure likelihoods is so much worse than risking $75 million on a bunch of smaller companies with 90% failure likelihoods.”
Here I disagree and specifically because we don’t have perfect information. It’s the same reason most people don’t invest in a single stock as a retirement strategy.
When the only tools you have are subsidized loans and tax credits in the most unfriendly to business state, failure is not an option but a guarantee.