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Thread: Central planning and government in business..

  1. #1
    Super Moderator LivinLOS's Avatar
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    Central planning and government in business..

    Sorry for the ugly formatting, the link may be easier to read.. But the tone of the piece is one I find hard to fault.

    Curt. Shilling. | Bankers Anonymous

    Everything you need to know about local, state, and national governments engaging in ‘Economic Development’ is right here and here, in this story of Curt Schilling.
    I’m on Cape Cod for two weeks with my family. On the occasion of my re-entry to Red Sox Nation I thought I’d revisit this story of public investment in private enterprise – gone horribly wrong.
    I love Curt Schilling.[1] And I love the Red Sox.[2] And (once upon a time) I loved video games.[3] So you might expect me to hold in my heart a deep well of forgiveness for Curt Schilling driving his tech startup, a video game business, into the ground last year.
    But I don’t have such a deep well of forgiveness. In fact, the whole episode disgusts me.
    Most importantly, it reminds me that government-directed ‘Economic Development’ is a stupid plan which usually ends in waste, corruption, influence-peddling, and tears.
    Schilling’s 38 Studios
    In 2009, the retired pitcher Curt Schilling founded a video game company to develop MMORPs (massively multiplayer online role playing games), apparently based on the premise that he loved playing video games.[4]
    To pursue the dream, Schilling invested his own money from a successful baseball career, but he needed more capital to build the video game empire of his dreams.
    Although Boston’s venture capital community turned him down, Schilling had other strengths, namely his stature as a New England hero and his reputation as an articulate, albeit partisan, spokesman.
    Rhode Island’s then-governor Don Carcieri persuaded his state’s Economic Development Corporation to issue $75 million in municipal bonds to provide funding for 38 Studios if they located their office in Providence, RI. The idea seemed to be that an innovative software company could jump start Providence’s economy, especially in the dark economic times, post-2008 Crisis.
    Schilling’s company promised Rhode Island strong starting salaries, a great health care plan, and the attraction of “knowledge workers.”
    The bloody sock
    The bloody sock
    What happened
    When 38 Studios filed for bankruptcy in 2012, it left a giant question mark about whether the state of Rhode Island would make bond-holders whole on their losses.
    With $150 million in debt and just $22 million in assets, Schilling fired hundreds of employees by email.
    Schilling complained about $14 million in additional undelivered tax credits from the state, and accused the newly-elected Governor Chafee of publicly undermining his company.
    Chafee, for his part, has directed lawsuits against not only Schilling and his partners, but also former state officials, banks and law firms involved in the deal.
    In retrospect
    In retrospect, the most insightful comment, before the state invested, came from the now-Rhode Island State Treasurer Gina Raimondo who said in July 2010:
    “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? If you give away public money now, what do you think you’re going to really get?
    Not a Democratic or Republican thing
    I also want to clarify that this isn’t an ideological, Democrat or Republican issue, or a Left vs. Right issue.
    The city where I live now is dominated by Democrats (pretty hard-core ones, too), while the State where I live is dominated by Republicans (very hard-core ones). Public officials on both sides of the aisle and at the city and state levels love subsidizing specific private enterprises in the name of economic development.[5] Sure, it’s often natural gas drillers on the Republican side and renewable energy companies on the Democrat side, but they’re both wrong. All kinds of political stripes in government are convinced they can help incubate or grow businesses or business sectors.
    As a rule, they can’t, although they can help themselves in the process. By that I mean they can capture public goods – such as tax-breaks or outright grants – and direct them to private individuals and companies. Which same private individuals and companies in turn, out of the pure goodness of their hearts, know who to support in the next election.
    Another way to explain the problem of governments getting in the economic development business
    Beyond the obvious opportunities for influence peddling, however, I recently re-read a book which helps explain why governments are just plain bad at kick-starting economic development.
    In Jane Jacobs’ Systems of Survival [insert link to book review here] she lists the attitudes and precepts which guide the function of government, and then compares them to the attitudes and precepts that guide successful commercial enterprises. More often than not, the government precepts directly contradict the commercial precepts.
    Re-reading the Guardian Syndrome (for governments) I’m struck by how Curt Schilling seems to personify many of these Jane Jacobs-enumerated traits:
    Exert Prowess
    Be obedient and disciplined
    Adhere to tradition
    Respect hierarchy
    Be loyal
    Take vengeance
    Dispense largesse
    Be exclusive
    Show fortitude
    Be fatalistic
    Treasure honor.
    If those aren’t a great description of Curt Schilling leading the Red Sox to victory in Game 6 over the hated Yankees in the 2004 ALCS – in a bloody freaking Red Sock no less! – then I don’t know what is.
    And yet, these same traits can be death in an entrepreneurial venture, where many of the following opposite characteristics lead to success. From Jane Jacobs’ list of the Commercial Syndrome (for successful companies):
    Come to voluntary agreements
    Collaborate easily with strangers and aliens
    Compete
    Use initiative and surprise
    Be open to inventiveness and novelty
    Be efficient
    Dissent for the sake of the task
    Be thrifty
    When I reread Jacobs’ book, I thought of Curt Schilling, and the fact that he’s a natural ‘Guardian’-type trying to do a ‘Commercial’-type activity. Probably it never was going to work. He should have just run for office.
    What is to be done about economic development?
    So what should government officials of either the right or left do when they want to promote jobs, economic opportunity, prosperity, and upward financial mobility in a given area?

  2. #2
    Super Moderator LivinLOS's Avatar
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    The best answers are long-term, and the benefits diffuse, and therefore difficult to attract the attention of elected and appointed public officials, who tend to need short-term and identifiable results, in order to gain election and re-election.
    But, despite the barriers, what should an elected or appointed economic development official try to do?
    I would like my public officials to focus on projects with wide-ranging, inter-generational impact.
    Such as improving public education, and access to higher education.
    Such as reducing crime and enforcing regulations.
    Such as creating and maintaining transportation infrastructure with a view to lowering inter-generational costs.
    Such as beautifying public spaces like parks but also virtually any high-traffic pedestrian area.
    Such as encouraging art and creativity in public spaces.
    Such as lowering barriers to private enterprise by removing layers of bureaucracy at the city and state level. Anyone who has tried to start a small business, or re-develop a building inside a city, or open a restaurant, has found themselves crushed by innumerable codes, fees, inspections, permits, and signage requirements. Some of this is well-intended, or was once useful, but now much of this is the accumulated detritus of years of ‘good policy.’
    Our governments already do all of these things, and often very successfully. Importantly, they all lead to economic development. Just as importantly they can benefit the largest portion of the public, rather than narrow groups. I’m really objecting to the tendency of public officials to get impatient and try to channel the public purse to particular private projects or narrowly defined interests.
    What kinds of thing do we often get instead, which I hate?
    We give targeted tax breaks for a particular favored industry.
    We get tax breaks to incentivize a particular company to move to the city, encouraging a race-to-the-bottom mentality between competing cities in a zero sum game of beggar-thy-neighbor.
    We give tax breaks to companies to ‘create certain #s of jobs’ hoping people don’t notice, or don’t understand, that business owners are – rightly so – not in the ‘job creating’ business, but rather the ‘profit increasing’ business. As soon as possible, or as soon as the tax incentives expire, business owners will try to eliminate jobs, because that’s what they’re supposed to do. That’s what helps keep businesses sustainable. To think otherwise is to fundamentally misunderstand business.
    We give subsidies both direct and indirect to favored real estate developers and favored real estate developments and then justify it with the idea that we’re ‘increasing the long-term tax base.’

    Curt Schilling’s 38 Studios catastrophe is the kind of monstrous hybrid Jane Jacobs predicted would be the result of bringing a Guardian (government) mindset to a Commercial (for profit) enterprise. I think that’s an inherent danger for economic development folks who work in government.
    In the meantime, this could be the year. Go Sawx.

    [1] I mean, let me clarify. I hate his stupid politics. But Shilling was a key figure – and played a bloody martyrdom role – basically the consecrated Jesus figure – in the 2004 Mother of all Sports Championships. So that’s how I’ll always love Curt Shilling.
    [2] I’m wearing my grimy blue, autographed, “Rick ‘Rooster’ Burleson” cap as I write this. He was my favorite player from the earliest years when I fell for the Sox, which included boyhood heroes Freddy Lynn, Jim Rice, Carl Yastremski, and Dwight Evans. I chatted with Burleson at a Las Vegas convention for debt-buyers a few years ago. At that time he coached a minor-league team in the Indians’ farm system. But that’s an entirely different story, and not the point here at all.
    [3] We had the Atari 2600 pretty early on, among the neighborhood kids. Hours, upon hours, of Space Invaders and Missile Command.
    [4] We all know from Tony Robbins that we should just pursue our passions and the money will flow.
    [5] I keep linking to this article because it’s really good, on Texas Republican Rick Perry’s idea of economic development. But the Democrats in my city engage in lower-profile economic development projects with similar merit, one of which I wrote about here.

  3. #3
    Senior Member tnlawyer's Avatar
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    Part of my job sometimes involves beating the hell out of city officials to have them provide incentives for proposed real estate developments. However, what we're typically asking for is not money from someone else's pocket to pay for the development, but rather a reduction in some of the insane fees charged by local governments when a new development comes along or a reduction in real estate taxes for a certain period of time. People can bitch and moan all they want, but in this slow economy, that is the only thing that is going to facilitate growth especially in some of the more stagnant areas of the country. Obviously, local governments need to be judicious about the projects they approve, but supporting solid developments is a good thing IMO and will help spur at least some growth.

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    Super Moderator LivinLOS's Avatar
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    What always baffles and bothers me.. Is not the regulation as much as theres no one helping or going to bat for the little guy to get them through the regulation. Dealing with government form the perspective of a small employer trying to grow was always "no" it was never "no.. but".. I always thought the mindset should have been about guiding and enabling but the feeling and perceptions I had was it was always they saw their job as denying things rather than looking how to be creative within the framework.

    Then they seem to love these huge budget mega projects.. Monorail to no where.. But never the simplest low budget stuff that would make a difference.

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    Senior Member tnlawyer's Avatar
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    Quote Originally Posted by LivinLOS View Post
    What always baffles and bothers me.. Is not the regulation as much as theres no one helping or going to bat for the little guy to get them through the regulation. Dealing with government form the perspective of a small employer trying to grow was always "no" it was never "no.. but".. I always thought the mindset should have been about guiding and enabling but the feeling and perceptions I had was it was always they saw their job as denying things rather than looking how to be creative within the framework.

    Then they seem to love these huge budget mega projects.. Monorail to no where.. But never the simplest low budget stuff that would make a difference.
    Bingo. They get their jollies by saying "No" even when it's a great project and would benefit their community.

    Unfortunately, you have to go to bat for yourself or hire someone to do it for you. Often the little guy doesn't have the skills for option 1 and can't afford option 2. What we need are business minded people in these positions and not life long government employees. The people I see in the development or planning offices are cut from the same cloth as the people I see in the DMV. It starts at the top though. Pro-business, pro-growth mayors can really make a difference although it can take a number of years to change a culture of "No". I'm seeing it happen in several large cities.

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    If I've said it once I've said it a 100 times. We need to start knocking off these beurocrats. And not with elections. If you know what I mean..

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    Senior Member tnlawyer's Avatar
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    Quote Originally Posted by Dupree View Post
    If I've said it once I've said it a 100 times. We need to start knocking off these beurocrats. And not with elections. If you know what I mean..
    55 I think change may be coming, but it's starting at the local levels and will hopefully work its way up. Probably the best way to do it anyway. Local governments are starved for new sources of income and some are finally turning the keys over to people who have some business experience. Regulation is fine as long as it's limited and it serves a legitimate purpose, but a small businessman shouldn't have to hire a consultant or a lawyer to help him navigate the municipal approval process. Local governments should be encouraging responsible growth instead of trying to restrict it.

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    Senior Member sundancekid's Avatar
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    So why don't you do like what happened under Reagan after the recession in the 80s? Instead of firing 1 million public workers at a local level, let's hire 1 million as was the case during the Reagan recovery.

    Besides, small businesses are no more hurting or complaining about regulation today than they were 40 or 30 or 20 or 10 years ago.


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    Senior Member Waharoa's Avatar
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    ^The only thing with that chart SDK... is that it infers that the 2007 recession has ended?

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    Senior Member tnlawyer's Avatar
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    Quote Originally Posted by sundancekid View Post
    So why don't you do like what happened under Reagan after the recession in the 80s? Instead of firing 1 million public workers at a local level, let's hire 1 million as was the case during the Reagan recovery.
    Hire them to do what exactly? Eat their boogers?

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    Senior Member sundancekid's Avatar
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    Quote Originally Posted by Waharoa View Post
    ^The only thing with that chart SDK... is that it infers that the 2007 recession has ended?
    Well, technically the 2007 recession has ended. If not we would have been in a depression by now.

    But yes, I do see your point, and I've been making it for years. We're in a systemic depression that cannot just be wished away by getting rid of bureaucrats, easing regulations etc. etc. If only it were that simple, then I would jump on the anti-govt. wagon myself.

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    We need more bombs and stuff...

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    Senior Member Waharoa's Avatar
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    Quote Originally Posted by sundancekid View Post
    Well, technically the 2007 recession has ended. If not we would have been in a depression by now.

    But yes, I do see your point, and I've been making it for years. We're in a systemic depression that cannot just be wished away by getting rid of bureaucrats, easing regulations etc. etc. If only it were that simple, then I would jump on the anti-govt. wagon myself.
    Just thinking.... could you have the same chart... and instead of investment in Public Sector Employment... have investment in War..? Might explain the 2007 disparity?

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    Senior Member sundancekid's Avatar
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    Quote Originally Posted by tnlawyer View Post
    Hire them to do what exactly? Eat their boogers?
    This could perhaps be a start?

    Thousands of U.S. bridges vulnerable to collapse - CBS News

    Amazing that you cannot find anything that those lazy no-good public employees can actually do to be societally productive. First off, prevent the massive layoffs that has occurred in the past few years in the local public sector. Under St. Reagan public sector jobs grew by a million during the recovery. What were they doing?

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    I don't think anyone knows HOW to build a bridge anymore. San Fran's new bridge is a disaster budget wise..

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    Senior Member sundancekid's Avatar
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    Quote Originally Posted by Waharoa View Post
    Just thinking.... could you have the same chart... and instead of investment in Public Sector Employment... have investment in War..? Might explain the 2007 disparity?
    Interestingly, and as much as it has been mocked here and on other forums, Krugman's (slightly) jokingly argument that if an alien threat was imminent, we could have solved a lot of our economic problems. Imagine the type of mobilization world-wide. Would shut the deficit hawks up for starters...

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    Quote Originally Posted by sundancekid View Post
    Interestingly, and as much as it has been mocked here and on other forums, Krugman's (slightly) jokingly argument that if an alien threat was imminent, we could have solved a lot of our economic problems. Imagine the type of mobilization world-wide. Would shut the deficit hawks up for starters...
    I think emminent domain would be declared and no one would make a dime...

  18. #18
    Senior Member tnlawyer's Avatar
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    Quote Originally Posted by sundancekid View Post
    This could perhaps be a start?

    Thousands of U.S. bridges vulnerable to collapse - CBS News

    Amazing that you cannot find anything that those lazy no-good public employees can actually do to be societally productive. First off, prevent the massive layoffs that has occurred in the past few years in the local public sector. Under St. Reagan public sector jobs grew by a million during the recovery. What were they doing?
    Just a guess, but I suspect they were military related. Look I'm fine with government jobs if they serve a real purpose and make society better. The problem is that government employees in the US are notoriously unproductive and overpaid. Wander into just about any post office or DMV and you'll see what I mean.

    Building or repairing bridges seems like a fine idea to me. Shift some of the DMV employees out to the road crew 555

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    Would you trust a bridge built by a DMV layoff?..Scary!!

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    Senior Member tnlawyer's Avatar
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    Quote Originally Posted by Dupree View Post
    Would you trust a bridge built by a DMV layoff?..Scary!!
    I'm sure that deep down they're good hardworking people and they just want to do a job that is beneificial to society. Right now they just appear unproductive because we aren't fully utilizing all of their valuable skills. As soon as we get them out from behind the desk and out onto the construction crew, they will thrive and do an amazing job.

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