RALEIGH – Here’s a successful government program: the state puts $10 million of the taxpayers’ money into the hands of a private venture-capital firm to invest in biotechnology companies. Nine years later, the investment is worth $1.3 million at best.
You may think I’m kidding. Nope. The General Assembly really did appropriate $10 million to the North Carolina Biotechnology Center for the purpose. The Biotech Center did hand over the money to the Durham-based fund Eno River Capital. And according to Eno River, the arrangement was “a tremendous success.”
Now, in standard English, squandering millions of tax dollars on failed biotech ventures would be termed “a colossal failure.” But the political class speaks a different language. Call it Spinglish. Like Mandarin, it contains lots of words that have multiple meanings based on context and vocal intonation. “We” can mean “I.” “Cut” can mean “not a big-enough increase.” And “invest” can mean “give away.”
The former president of the Biotech Center, Charles Hamner, attempted to translate this odd language into English in a Triangle Business Journal story on the tremendously successful venture-capital fund that lost nearly 90 percent of its value. “The reason for investing was not to invest,” he explained. “The reason was to create jobs and help start new funds.”
Because companies that no longer exist rarely have current employees, I must assume that Hamner means either that the $10 million was designed to keep biotech entrepreneurs temporarily employed while they blew through the money or that the jobs being created were at the Biotech Center and Eno River Capital. In other words, it was either stupid or a scam.
The political class needs to read its Hazlitt. You rarely create jobs by pilfering money from the people who earned it and giving it to others to spend. It may look like there are jobs being created, but that’s because your gaze is fixed on the government expenditure and not on the expenditures that households and businesses must, by necessity, forego in the bargain. Yes, net new jobs can be created if the government is using the tax money for a core function that can’t be performed through price-driven markets, such as public safety. But taking $10 million that would have been spent on things people actually want to buy in the private market and spending it on biotech ventures that, obviously, had little market demand is a job-killer, not a job-creator.
Advocates of corporate welfare appear to believe that the laws of economics don’t apply to economic-development activities. That is an exceedingly odd sentiment. True economic development is not a political activity. It is a market activity. It is about testing new ideas through entrepreneurship and salesmanship, reaping the rewards if you bet right and taking losses when you don’t. When government reduces the downside risk of a new business venture through grants, below-cost loans, subsidized venture-capital investment, or special tax advantages, it makes it more likely that scarce resources will flow to marginal enterprises that don’t have much to offer willing buyers of goods and services. In other words, these government programs increase business failures and decrease business successes in the long run. They disrupt the ongoing discovery process among entrepreneurs, investors, and consumers that determines the best possible allocation of resources at any particular time to help the most people get what they seek in the economy.
But if you speak Spinglish and think “economic development” is a term that really means “central economic planning,” you might well conclude that a failed $10 million state investment in biotechnology ventures was so “successful” that it makes the case for even more taxpayer funding. And, indeed, the Biotech Center is currently seeking $3 million on top of its annual $12 million appropriation. The North Carolina Senate’s version of a FY 2007-09 state budget includes additional funds for the Center. The House budget doesn’t.
I’d rather spend those extra millions developing an English-Spinglish dictionary and distributing it widely among North Carolina voters. Come to think of it, if we set up shop in the right county, perhaps we could qualify for all sorts of tax credits and government grants. Think of all the jobs we could create!
Hood is president of the John Locke Foundation.