July 27, 2011

Loan Guarantees: Another Gimmick That Won't Spark Business Activity

Monique Chartier

Further to Justin's post, we learned yesterday that

A dozen companies – half of them out-of-state businesses looking to relocate to the Ocean State – are lining up to take advantage of the same controversial loan-guarantee program that drew Curt Schilling's video game company, 38 Studios LLC, to Providence.

Loan guarantees by the state are no way to lure and keep business here. It is simply not feasible for the state to expose itself to the amount of risk involved in backing a sufficient number of such loans to make a difference.

The pertinent correlation, of course, is between Rhode Island's abysmal business climate and its poor economy and corresponding employment figures. A spark to the latter will not ignite until Rhode Island's real EDC decides to step in and address the former with substantive regulation and tax/fee reform rather than continuing to sit on the sidelines with the rest of us watching the gimmick parade.

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I believe this particular loan guarantee was championed by former Governor Donald Carcieri. Funny, all this time, I thought it was taboo on this website to offer any criticism of the great "Don".

Posted by: Kerry at July 28, 2011 8:02 AM

All of these "tax credit" plans to attract businesses are the fiscal equivalents of the Catholic Church selling indulgences to escape purgatory. It is particularly apt when you remember the Church had invented purgatory, much in the way that the government has created our "fiscal crisis". More interestingly, the Church has only recently abandoned the idea of purgatory, so what happened to all the money and prayers offered for indulgences? Much was spent on the construction of St. Peters, are we doing the fiscal equivalent now?

Where is our fiscal Martin Luther when we really need him?

Who will arise to nail 96 theses to the door of the Capitol Building? Is there a national defense reason for the ethanol subsidy, or has someone bought an indulgence?

Posted by: Warrington Faust at July 28, 2011 8:11 AM

"Loan guarantees by the state are no way to lure and keep business here."

Ha! Never mind that 38 Studios already moved here (a deal I didn't support) and 6 other firms are now considering it, eh? You guys crack me up.

Ever run a small business, Monique? I have. Access to capital was the issue when we were starting out.

Since we're talking about it, the position of this blog is that the Small Business Association (the model for the state program) is a gimmick? Surely there are a few righties out here who have used SBA loans to start a business.


Posted by: Russ at July 28, 2011 9:58 AM

Here's URI business professor, Edward M. Mazze, defending what Monique describes as a "gimmick:"


State programs such as higher loan guarantees for small businesses, Buying Local Rhode Island, promoting tax free sales and streamlining business registrations must be supported...

A large part of Rhode Island’s ability to exit from the recession quickly is dependent on what happens in its small-business sector. Most job creation takes place in small businesses. The American Recovery and Reinvestment Act has targeted three quarters of a billion dollars to improve Small Business Administration (SBA) loan programs...

As a result of this new federal act, small businesses in Rhode Island now have easier access to funds so they can hire additional workers, expand their facilities and purchase equipment. With over 90 percent of businesses in Rhode Island being small businesses, this sector can take the lead in making Rhode Island a stronger economy.

But, hey, what does that egghead know that Monique doesn't, right?

Posted by: Russ at July 28, 2011 11:52 AM

Russ loves his appeals to authority. Some business professor at URI thinks the stimulus worked so it must be true. Some business professor at URI supports loans to small businesses so we should all support them too. And of course if you disagree with Russ and his "experts" it means you are anti-intellectual. This is the elitist progressive mentality that has kept Rhode Island stuck in the muck for decades. Don't worry though, they're working on a great top-down recovery plan that will fix everything for sure this time. They guarantee it - just put them in charge.

Posted by: Dan at July 28, 2011 2:33 PM

"Russ loves his appeals to authority. Some business professor at URI thinks the stimulus worked so it must be true..."

Dan, as always your free to ignore the advice of experts. I don't think Mazze is always right.

But Mazze isn't just "some" professor. He's the dean of the College of Business Administration and holder of the Alfred J. Verrecchia - Hasbro Inc. Leadership Chair in Business at the University of Rhode Island.

He's also a darling of the right, frequently sited on this blog and on right-wing talk as an expert. I didn't select him randomly. For instance...

Posted by: Russ at July 28, 2011 3:34 PM
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