Blake Snow

writer-for-hire, content guy, bestselling author

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When “economic development” goes wrong

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In a market economy, I believe state run economic development can sometimes be a good thing. But I suspect it’s usually a bad thing. Here’s why, in which a Rhode Island state treasurer cautioned against backing a celebrity owned company that would ultimately become a $75 million bath for taxpayers:

“In general, I would proceed very carefully on this.  [The company] is in the Boston area where there are 200 venture capital firms, and it is in a very hot area of gaming so if it were in fact a compelling investment I would have to think it would be well funded already by venture capitalist; the fact that many have looked at it and passed is a red flag.” 

That pretty much sums it up.  The state officials who signed off on putting $75 million into a gaming start-up essentially bet, without explicitly saying so, that all those smart venture capitalists were wrong – that the venture capitalists had missing something in Schilling’s 38 Studios, that they saw.

When I hear about government officials these days investing in or subsidizing everything from electric cars, to solar panel manufacturers, to incentivizing companies to relocate through tax breaks, I worry.  Why do you think the private markets turned down this idea?

That said, I can think of a couple of instances in which economic development seemingly went right. I know the city of Baton Rouge found success recently in attracting digital media companies with tax breaks. Not sure what the overall books look like, but on the surface it appeared to be a net gain. Additionally, I hear AIG paid back all that money American taxpayers gave them, unless they’re fudging the numbers.

What do you think: Does “economic development” go wrong more than right?