EDC: Merely Broken Up and Redistributed Is Inadequate and Pointless

The headline of Friday’s Providence Journal article

Proposal would disband the EDC

is incomplete. Let’s look at a description of the proposal from the article:

The Rhode Island Economic Development Corporation would be dismantled and reorganized with three components — one strategic office attached to the governor’s office, one university-led research arm and a reconstitut ed board of directors to administer programs within the private and public sectors, according to a proposal scheduled to be made public on Friday.

So an EDC would still exist, just in a more diffuse form.
We should pause here to note another item in the ProJo article:

As the state is reeling from the collapse of 38 Studios and the failure of a controversial $75-million loan guarantee that encouraged Curt Schilling to move his video-game company to Providence, these suggestions are the first among many that are anticipated in coming weeks as the EDC remains under scrutiny.

Any re-arrangement of EDC, such as described above or ones that yet may be proposed, would address neither the failure of the 38 Studios deal nor the larger problem of Rhode Island’s abysmal business climate and corresponding damaged economy.
The principle cause of the 38 Studios loan guarantee going south was the lack of due diligence – by then-Governor Carcieri, Speaker Fox, Senate President Paiva-Weed and the EDC – that didn’t prevent it from happening to begin with. A secondary factor still to be sorted out is the lack of oversight by Governor Chafee once the guarantee was in place. Candidate Chafee was quite emphatic, and rightly so, in his opposition to the guarantee. Yet once in office, it appears that he failed to ask any questions or avail himself of the oversight tools provided for in the agreement between the state and 38 Studios. (See, for example, Pages 51 and 52 of the Loan and Trust Agreement.) Had Governor Chafee done so, it is quite possible that the state’s losses could have been mitigated.
In view of this, by the way, Governor Chafee’s comments of a couple of weeks ago

“This was just not a startup atmosphere in the company, where you really hunker down and have macaroni and cheese – that’s what most companies do,” Gov. Lincoln Chafee told WPRI.com on Tuesday. “This was very, very different. [It] might not have been caviar, but they were living high on the taxpayer’s dollars.”

are inexplicable inasmuch as they point directly to his own failure to monitor 38 Studios and their cash burn rate.
As for the larger problem of Rhode Island’s very poor business climate, as I’ve noted, this is the result of decades of bad legislation passed by the real “EDC” of the state: the Rhode Island General Assembly. Under the conditions created by the state’s legislature, the EDC is simply shoveling against the tide. Reconfiguring that organization would do nothing to change those conditions.
The Rhode Island Economic Development Corporation needs to be disbanded and deep sixed altogether. The many millions spent on their budget are wasted as long as the real EDC continues to choose to make this an anti-economic development state.

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11 years ago

I’m in basic agreement with your recommendation to shut down the EDC, but I disagree with your characterizations of the EDC as useless or “shoveling against the tide.” The EDC, in both concept and execution, is entirely consistent with Rhode Island’s poor economic reputation and actively contributes to it.
Progressives and other statists support the EDC public-private concept because it increases top-down political control over the private economy – a control which they hope to capture. They demonize individual loans for political convenience only after they fail and only when there is a Republican they can blame for it, but at the same time they are always calling for more “investment” from state government in local businesses.
A level field allows businesses to plan, which is the advantage of rules over discretion. As long as there is a politically controlled EDC in any form handing out public loans to favored companies on a whim, no legitimate business that can succeed on its own merits will want to invest in Rhode Island.

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