Monday, April 08, 2013

Crony Capitalism's Failures: Iowa City Style

April 8, 2013 12:13 p.m.
Gone With the Wind
"Two years ago, we were among those cheering the good news that a [wind-energy-focused] Maryland-based company — North American Ductile Iron Company (Nadicom) — had big plans to locate its first North American foundry in Iowa City . . . promising to bring 175 jobs to the area by the second quarter of 2013 . . ..

"But over the second half of last year, a good deal of wind went out of wind energy’s sails (and sales). The industry nationwide began to wobble on shaky ground . . ..

"Nadicom CEO Prasad Karunakaran recently told the Press-Citizen that . . . it’s already the second quarter of 2013, and not only are there no new jobs on the immediate horizon, but Nadicom officials basically have had to go back to the drawing board as to what type of facility would still make the best use of the land available at the park.

"At best, they won’t be able to move on anything until 2015. At worst, that starting date will be a permanent question mark."
Editorial, "'Shovel ready,' but no one's digging anytime soon," Iowa City Press-Citizen, April 8, 2013, p. A7.

The State of Iowa and City of Iowa City bet $14.2 million of your money and mine on this gamble -- without checking with us first. Now it looks like we'd all be better off if they'd just taken that money to the Riverside Casino and tried their chances.

"Tough TIF Talk" outlines 20 categories of reasons why this kind of "business deal" with taxpayers' money is a bad idea.

Today's Press-Citizen editorial is a classic example of just one of those categories: "All ventures have risk. TIFs have more, because public officials with little business experience and no skin in the game make more mistakes than experienced investors watching their own money."

The Nadicom venture discussed in the editorial also fails most of the other 19 categories of reasons why corporatism is a bad idea. But this blog essay is just going to concentrate on that one.

As the editorial reports, the City spent "$2.4 million [of taxpayers' money] to purchase 173 acres" for Nadicom. Believing that to be insufficiently generous, it then passed along an additional "$9.5 million to extend roads and utilities," following which the State, feeling flush as well as generous with other people's money, chipped in "$2.3 million for rail and additional road work."

The road to "economic development" is littered with billions of wasted taxpayers' dollars -- federal, state, county and city taxpayers' dollars. Thousand of projects that may have once looked promising to politicians end up belly up. Capitalism is supposed to meet our economy's needs with the ventures of private investors -- individuals who are willing to risk the possibility of great loss because of what they see as the probability of great gain.

Bear in mind, I'm not objecting to this project. I think renewable energy resources are the Planet's only long term hope. I don't object to permitting clean industry to locate in and around Iowa City -- the right projects, in the right locations. I'm not worried about the shadow Nadicom's structures would cast over Scott and Highway 6.

Indeed, if there was no taxpayer money involved I would not even complain about a failed business. After all, roughly half of all new businesses fail within their first five years. As has been said of Silicon Valley's hopefuls, "in this California cradle of Internet startups . . . failure is accepted, or even welcomed, as a guide for future success." Failcon.

No, my concern has to do with the risks for taxpayers when our local officials do the equivalent of taking our money to the Riverside Casino and gambling it away; and then, when questioned, try to justify what they've done by saying (a) it creates jobs, and (b) "Gee, you know, we might even have won." When governments are cutting the investment of public dollars in legitimate, traditional public functions of benefit to all Americans -- in the name of "cutting taxes" -- is no time to be gambling with those very same tax dollars, betting on private ventures that ought to be funded with private dollars.

And that's just ONE of the 20 categories of what's wrong with corporatism (the blending of government and business). Read the other 19 in "Tough TIF Talk." Go down the list. Can you honestly tell me you disagree with every single one of those 20 categories of reasons why crony capitalism is a bad idea?

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1 comment:

kurt said...

There are too many crony capitalists. True Capitalism allows for losses - which crony capitalist's don't like.