Open Thread: The Rhode Island Economic Development Corporation
Carroll Andrew Morse
Philip Marcelo of the Projo reported last week that...
Governor Chafee said on Friday that he is not considering major changes to the state Economic Development Corporation, despite a state-commissioned report calling for a major overhaul of the embattled agency, which came under fire for its handling of the 38 Studios debacle.
I know every other state has some sort of economic development body (RIPEC provided a summary of them, at the end of its report
on the RI EDC issued earlier this year), but what exactly is it that an "economic development agency" is supposed to achieve?
The question isn't whether government should be involved with economic development; one way or another it will be. As Justin pointed out earlier this year, during his Ocean State Current coverage of a non-profit/business community get-together, there is a strong perception from people who are trying to do economic stuff that the major way in which government is frequently involved in the current RI economy is as something that needs to be worked around. This leads to a first question: can an economic development agency make any difference with a government as broken as Rhode Island's is?
The other question is more fundamental: Even under as reasonable as can be hoped for conditions of good government, what exactly is it that a mission-specific economic development agency can do (whether as a quasi-public agency or as a regular government department) to bring about more improvement in the Rhode Island economy that directing the same level of "resources" (i.e., moolah) to more fundamental functions of government cannot?
Ted Nesi, in his Saturday morning post for WPRI-TV (CBS 12), recalled that the RI Department of Economic Development, the forerunner to the current Economic Development Corporation, was only created in 1974. The state got by without one for several centuries. Could it do so -- could it even be advantageous to do so -- again?
The fundamental theory behind the RIEDC is that market forces are an inefficient means of resource allocation and central economic planning through expert advisors can achieve more efficient results. Roughly a hundred years of mainstream economic theory has disproven this idea, and yet Rhode Island persists in the folly of central planning because of self-interested politicians and the progressives who enable them election every election. Until Rhode Island can reteach its politicians and electorate fundamental economic principles, it will continue corrupting its economy through fragile, failure-prone public investments and achieving the same stagnation as the planned economy of the former Soviet Union.
Of course progressives and Chafee don't want to reform the EDC - they fundamentally believe in central planning. They can identify no principled reasons for opposing the 38 Studios loan, and criticize it ex post only because it happened to fail and a Republican was governor at the time. Look no further than the RIFuture contributors and commenters who supported it at the time. They don't have the slightest clue why the 38 Studios loan failed, and going forward would simply reset the experiment with their people in charge.
The proper role for an EDC - if Rhode Island insists upon appointing connected persons to yet another political board - is to identify enticement strategies that apply to all businesses equally or remove restraints and frustrations that are having a negative impact on the economy. Listening to actual businesses would be a good start.
The RIPEC report played down Hawaii’s economic development body even going so far as mislabeling the official name in the report as Hawaii “Dept of Business and Economic Development” as the official name is State of Hawaii Department of Business, Economic Development & Tourism.
HIDBEDT has a wide range of authority and funding and is very active in planning, education, research, economic development, land use, foreign trade zones, alternate energy, hi-tech development, film/TV industry, commercial space travel and tourism. Every month HIDBEDT provides public detailed reports on each activity status and annual reports on state economic growth. For a complete definition of what HIDBEDT does and the extensive impact it has on Hawaii’s economy see the following web page:
Before Economic Development Corporation there was a RI Department of Economic Development but before that a lot of the functions were performed by the RI Department of Community Affairs (DCA) as that department acted as a clearing house for all incoming federal and grant funding making sure each city and town was allocated fairly for development and within the central planning and economic development. Governor Edward DiPrete (R) dismantled DCA and spread all the internal departments with funding and grant writing specialists throughout RI state government offices making cohesive streamlined processing across all 39 cities and towns impossible.
I agree with the general gist of what Dan wrote. My question is this: RI already has a Department of Business Regulation, which if it did its job effectively (stop laughing) might be expected to properly manage the restraints and frustrations part. The enticement strategies bit is a little more unique, and might justify its own department. But would the reasonable function of such a department extend beyond giving advice to, and maybe doing some research for, other executive-branch policymakers? Or would economic concerns get further trampled in Rhode Island policymaking, without their own bureaucracy to point to?
I don’t understand you comment or what you are implying when you say; “My question is this: RI already has a Department of Business Regulation, which if it did its job effectively (stop laughing) might be expected to properly manage the restraints and frustrations part.”
I used to work for the RI Department of Business Regulation as the computer programmer/analysis responsible for all the in-house databases and programming the printing of all licensing and certificates across all divisions.
The only thing the RI Department of Business Regulation does is issues and tracks business licenses that are regulated in the state of RI; inspects those businesses as required for compliance to state laws and regulations as required by state laws.
RI Department of Business Regulation has nothing to do with RI economic development, trying to entice business to relocate to RI or offer incubator funds for start-ups via grants.
In very broad brush strokes, I'm asking if it's possible that a combination of more reasonable business regulations (that account for economic impact) and sensible enforcement would do half of the job that an "economic development corporation" is supposed to do, i.e. make Rhode Island an advantageous place to locate a business.
The way the RI Department of Business Regulation (DBR) is set up as a law enforcement agency which mandates all employees shall not show favoritism towards any business entity so no one can on the outside can claim conflict of interest. ALL DBR personnel have to maintain neutrality.
The laws are mandated by the RI GA and all DBR does is enforce the laws and make sure the companies comply. If a company is a regulated business in RI then they fall under DBR’s jurisdiction.
DBR lawyers do at times might advise the RI GA as to the legalities of certain laws as they apply to the single affected business trade related to what the rest of the 49 states and federal laws and regulations require and case law. There is a whole law department within DBR that tracks what the RI GA does and mandates via new or amended state laws also there are applicable US Securities Exchange Commission laws and mandates that must be followed.
I don’t think you’d want to have people that enforce the laws attending business parties, accepting gifts, going out to dinner with potential business customers and promising things to the very business they might have to enforce laws on.
You also have the problem of as a state employee directly representing the people of the State of RI, Governor and the purchasing regulations. That is why RIEDC is a quasi-public state agency.
That would make a very sticky case in a court of law when you tried to bring a business up on charges.
The culture of economic development as to what can you give me to move my business to your state and culture of regulated business law enforcement are two totally different animals and should not be mixed together.
The time I spent working for RIDBR was eye opening and for the small staff covering all the regulatory business disciplines they have a full plate each day of the week.
If you want to see what a real state economic development body does, go to the web site link above for the State of Hawaii Department of Business, Economic Development & Tourism.
You can read the description of duties for each division and agencies. You can read the progress reports and see how they work to get federal grants into the state and create private investor funds to support new hi-tech incubator business.
You can read all the monthly economic reports, set economic goals and annual reports plus news releases which are sorely lacking on the RIEDC web page.
The HI tourism section is on the brink of surpassing all published goals for 2012 and investment in advertising of HI by exceeding the extraordinary benchmark year of 2007 tourist spending $12.7 billion as of October 2012 tourists have pumped $11.7 billion into the HI economy and the final numbers for November and December are yet to be counted (so far averaging a little over $1 billion a month and hotels are indicating Jan 2013 are already at 90% occupancy rate (NFL Pro Bowl Week party and game).
"if it's possible that a combination of more reasonable business regulations (that account for economic impact) and sensible enforcement would do half of the job that an "economic development corporation" is supposed to do, i.e. make Rhode Island an advantageous place to locate a business."
YES. Make that "would do 95% of the job". Thank you for asking.
The existence of an EDC in RI is pointless under the business conditions created by the General Assembly. It's like they've handed ice cube trays and a bottle of water to someone, placed him in a sauna and said, "Here, make ice cubes".
I disagree in one regard - I don't think the EDC is just ineffective. I think the public loans the RIEDC and Providence EDC have given out have done incredible damage to the already poor business climate in Rhode Island. Besides the direct costs of all the failed loans and inefficiency of the programs, they have reinforced the state's bad reputation as a climate in which only connected insiders can make it and some businesses are favored over others. The 38 Studios debacle drew particularly bad press. It made the state look incompetent, unstable, and corrupt.
For those who don’t feel like plowing through all the words on the State of Hawaii Department of Business, Economic Development & Tourism web site DBEDT has two divisions that work closely monitoring the effect of state GA regulatory rules and the effect on business both small and large and one division which develops sustainable venture capital industry for existing and new businesses.
Why can’t RIEDC do the same??????
Business Development & Support Division:
The Business Development & Support Division (BDSD), promotes industry development and economic diversification in Hawaii by supporting existing and emerging industries, attracting new investment and businesses that can create more skilled, quality jobs in the state, and work to increase exports of Hawaii products and services. Business support provides new and existing businesses direct loans, licensing and permit information and referral, business advocacy, planning and coordination of programs and projects aimed at specific business sectors or economically-distressed areas (including rural areas and areas affected by natural disaster); and to promote the statewide economic development of the film and video industry in Hawaii.
Within this Division is the Business Advocate Rules Review:
The DBEDT Business Advocate reviews proposed agency rules and regulations and provides comment to the Governor on how Hawaii business may be affected or negatively impacted by the new or changed rule.
There is an active email link for direct complaints; “If you would like to provide input on how your business might be affected negatively or positively by a proposed rule, click below to enter your comments.”
Small Business Regulatory Review Board:
The Small Business Regulatory Review Board is the watchdog for small business within the Hawaii state government. Based on comments from small businesses, the board recommends to the Hawaiian legislature and state agencies that they review and modify overly burdensome regulations. The board also evaluates state agencies’ responsiveness to small business, and reports these findings to the legislature.
Hawaii Strategic Development Corporation:
The Hawaii Strategic Development Authority's (HSDC) mission is to develop a sustainable venture capital industry in Hawaii which will stimulate the growth of viable new businesses. HSDC works to diversify the state's economy by commercializing emerging technologies and providing skilled employment opportunities for citizenry.
Near-term objectives are to develop venture capital investment funds in Hawaii which will attract external sources of private investment; to establish a fund of funds to raise capital for Hawaii venture funds, to expand the business infrastructure supporting the venture industry and the growth of emerging companies; and to assist entrepreneurial development through focused conferences and seminars.
I had an (ex) inlaw who works for MassDevelopment, a quasi public in Massachusetts which seems to be much more effective than RIEDC, and I'm not sure why. It would seem to me a comparistive study between the two agencies, at least to determine how the agencies differ in mission, means, funding, and approach, might be worth doing. I am aware that Mass Development had a lot to do with putting businesses in Hanscomb when it closed as an Air Force base, and I am aware of nonprofits that were able to get construciton funding via tax-free bonds rather than commercial morgages, saving their budgets a bunch of money in financing costs.
"For those who don’t feel like plowing through all the words on the State of Hawaii Department of Business, Economic Development & Tourism web site"
Why would we do that when we have our cross between Rain Man and A Beautiful Mind to regurgitate a certifiable amount of boring information about Hawaii on here day after day?
"the public loans the RIEDC and Providence EDC have given out have done incredible damage to the already poor business climate in Rhode Island."
You convinced me. Abolish the RI EDC.
Meanwhile Andera (riedc.com/success-stories) was just named one of American Banker’s list of 10 Tech Companies to Watch.
One of the success stories of the EDC’s Small Business Loan Fund is Andera Inc., of Providence, according to Meaghan Wims, a senior account executive with Duffy & Shanley Inc., who works as the public relations contact for EDC.
Andera also received loans and investments from the Slater Technology Fund, a state investment fund begun in 1997 to stimulate the creation of new, technology-based companies in Rhode Island, and the Business Development Company. “We received $750,000 in three different installments from Slater,” said Charlie Kroll, the CEO of Andera. In addition, Kroll said that his company also received financial support from the Providence Economic Development Partnership. “It was a four-legged stool.”
Sorry to interrupt the nay-saying. Carry on.
Russ - A daily trade newspaper names an RI company on an arbitrary and constantly changing list of companies "to watch." Well, golly, I guess the hundreds of millions in tax dollars poured into these public loan programs were a success after all.
The difference between our positions is that I don't have to cherrypick failures and political embarrassments from the Rhode Island EDCs. I just have to throw a rock from Kennedy Plaza and I'll hit one.
"I don't have to cherrypick failures..."
Odd because you can't even be bothered to discuss the successes. I agree that's a difference between you and me. I'm interested in what worked as well as what didn't. btw, I just about could throw a rock from here and hit Andera.
Okay, let's be pragmatic. Unless Andera is generating $100 million in tax revenue for the state and getting 400 additional people off the unemployment rolls, then it's a safe bet Rhode Island is still in the hole for all these politically dispersed gifts - I mean investments - in private companies, since that is what 38 Studios ALONE cost the state, nevermind all the other failures (Capco Steel, etc.). Oh, I know, you oppose the 38 Studios loan ex post just like all the other progressive johnny-come-latelys, nevermind that you support the EDC and have no principled reason for objecting to that specific loan, which couldn't have gone any other way given the incentives and structure of the EDC.
"Oh, I know, you oppose the 38 Studios loan ex post just like all the other progressive johnny-come-latelys..."
That's false. No one supported the deal until after 38 Studios was already here. In fact, I wrote about it at the time with reference to cutting funds for the Slater Technology Fund while funneling cash to a single company. Unfortunately those older posts didn't move over to the new platform. I referenced it here.
Never was a fan of Stokes. Saul Kaplan was much better. It's actually laughable how much you want to pin Carcieri's and Stokes' policy on progressives. These were supposedly our business savvy saviors.
"No one supported the deal until after 38 Studios was already here."
So support or opposition to policy doesn't matter once it's been enacted? How convenient - because policy can never be changed or have an effect on future policy. A contributor on this blog could support slavery post 13th Amendment and you wouldn't consider that relevant to their credibility or how its viewed? A politician could support the Patriot Act and that wouldn't be relevant to you because "it's already here"? Have some integrity, Russ. Of course it matters that RIFuture contributors supported the 38 Studios loan, especially because they now rail against it for political gain.
The RIFuture gang is the only one deflecting blame - from Democrats and progressives who supported the loan or said nothing. I have never, nor has anyone here, once denied that Carcieri and Stokes were intimately involved in the deal. You're accusing us of dishonesty where there is none. Yet you progressives are actively perpetuating this fairy tale that ONLY Carcieri and Stokes were involved and progressives were united in opposition to the loan all the way through, when both narratives are patently false. FACT: Progressives support the EDC and have no specific objections to the 38 Studios loan besides its size and the fact that it failed in the end (in other words, no principled objections). When asked what specific types of loans should be made by the EDC and why, you have nothing intelligble to offer.
"So support or opposition to policy doesn't matter once it's been enacted?"
I'm just keep trying to get you to get your story straight. Your characterization that we were cheering in unison for Carcieri's misguided econmic policies is simply wrong. Believe it or not the RIF crowd isn't such a big fan of corporate welfare.
"When asked what specific types of loans should be made by the EDC and why, you have nothing intelligble to offer."
You want some magic formula. I don't think one exists. I'm generally supportive of R&D credits, smaller loans (see www.rifuture.org/chafee-passed-rule-to-shrink-size-of-edc-loans.html), seed or early stage venture capital, and a focus on firms specializing in biotech, IT, or digital media. I've offered Slater Technology Fund as an example of money well spent.
My major objection to Carcieri's EDC vision was that the state was cutting those types of loans to instead provide "friends of Don" with massive payments.
"Believe it or not the RIF crowd isn't such a big fan of corporate welfare."
Unless it's green corporate welfare, or unionized corporate welfare, or manufacturing corporate welfare, or local corporate welfare, etc. The ends always justify the means to progressives. If it benefits a progressive-favored industry or special interest group, they're willing to break a few eggs and tolerate things they would in principle oppose. The EDC is by definition corporate welfare, but progressives support it because they want more central planning (less marketization) of the economy and they realize it's public money that can go to their pet projects as long as they elect the "right" people.
"I'm generally supportive of R&D credits, smaller loans (see www.rifuture.org/chafee-passed-rule-to-shrink-size-of-edc-loans.html), seed or early stage venture capital, and a focus on firms specializing in biotech, IT, or digital media."
So basically you support the 38 Studios loan on a smaller scale. So we'll have lots of little failures instead of a big one. Thank you for supporting my point that you have no principled objection to what happened - only that the loan was big and it failed. I'm not sure why we should invest in "bio" or "digital media" or any other random industry. It's just your personal whim and guesses versus anybody else's. Why not put everything in Apple stock? The iTV could be big and make RI billions! If you believe the state can beat private venture capital, then the state should have no problem picking stock market winners. The only difference is then the failures would be directly measureable instead of this amorphous cloud of "we gave X company a million dollars... we'll have to wait 10 years to see..."
"My major objection to Carcieri's EDC vision was that the state was cutting those types of loans to instead provide "friends of Don" with massive payments."
So a politically appointed loan board results in politically awarded loans? Amazing, Russ. But maybe if we all believe really hard in the power of government to do the right thing, they will stop these practices on their own without us actually changing anything.
This is the funniest line for me... "Thank you for supporting my point that you have no principled objection to what happened."
What you mean is that my principles (smaller loans, focus on seed capital, etc.) don't result in a total rejetion of any public interest in the market. Correct.
"So we'll have lots of little failures instead of a big one."
Yes, or course. We've discussed this before. I find it odd that you act as if the idea of minimizing risk by diversifying a portfolio is somehow no different than betting your entire savings on the performance of a single stock.
You also pretend that there are never successes which is demonstrably untrue.
Here's the story of Nabsys in downtown Providence:
NABsys is an example of how a startup can successfully grow by leveraging grant money to attract follow-on investments. In 2007, the company was awarded more than $1 million in grant funding from the National Institutes of Healths National Human Genome Research Institute, and subsequently received seed-round backing from Slater and other investors. In 2009, the company raised another $4 million in A round of financing from institutional investors, followed by an additional $7 million in 2010. In 2011, NABsys closed a $10 million venture capital round, led by Stata Venture Partners, bringing the total of funds raised to date to over $21 million.
Russ - I've already explained several times why your "diversification" theory makes no sense. These are ALL high-risk loans in the first place, which is why they can't get private investment. People diversify stocks so they aren't wiped out - not a concern with the state - and so they can use the law of averages - also inapplicable here due to the nature of EDC loans. Besides, Nassim Taleb has demonstrated that portfolios with 90% in essentially zero-risk assets with 10% in extremely high-risk stocks on average perform better than normally diversified portfolios. As for successes, I don't deny that there will be some in any broad investment program, but what are considered successes are highly speculative and subjective. 38 Studios was a "success" - until it wasn't. Same with so many of Obama's stimulus "successes." You can't prove they outweigh the opportunity cost.
"38 Studios was a 'success' - until it wasn't..."
Exactly why a portfolio makes more sense than an "all in" position in a single company. A hundred companies don't all go under at the same time. Consider that restraunts in Providence go out of business every year. Does that mean no one should open a restraunt or become a chef? Of course not.
I disagree that results are subjective. Nabsys is a good example where there are hard numbers on the return in outside investment, jobs, tax revenue for each dollar put in from the state. That said, I'm not against the EDC crunching numbers to see what's working and what needs to change.