In my South Dakota Magazine column this week, I harken back to Adam Smith and challenge some gubernatorial candidate to propose eliminating the Governor's Office of Economic Development:
...let government fulfill its proper role of doing what the private sector cannot or will not. Build good roads and schools and sewers and parks. Build public services and policies that serve and protect all citizens equally. Create a reliable, uniform economic framework in which business and labor can make their own decisions about where to set up shop. But never step into the marketplace with a state decision or a state check that gives one business or one worker a benefit that is not available to every other actor in the South Dakota marketplace [Cory Allen Heidelberger, "Manpower and Free Market Fundamentals," South Dakota Magazine, 2013.12.11].
Purported free-market conservatives Dennis Daugaard and Pat Powers both whimper forth with weak defenses of failed economic development policies. But my suggestion finds support from two very different Ellises.
First, from the liberal media, Jonathan Ellis says former governor turned Senate candidate Mike Rounds will have a hard time explaining his support for unsound business plans like Northern Beef Packers:
It was a big priority for the state and Rounds. But one could argue it was a misguided priority.
Really, if it were such a great idea, if there was really such a big demand for slaughtering Dakota beef, don’t you think an established meat-packing company would have built a facility? You know, market economics.
...It was a mess. But in his final month in office, Rounds agreed to sign a grant commitment to Northern Beef for $1 million. Under the agreement, Northern Beef would get the money from the state if it proved it met certain conditions. The state cut a check for $1 million shortly after Rounds left office.
For Rounds’ political opponents, this episode builds on the criticism that the former governor wasn’t so good with spending taxpayer money. It’s an especially potent argument among Republican primary voters [Jonathan Ellis, "Rounds Campaign Braces for Some Turbulence," that Sioux Falls paper, 2013.12.08].
Then today vehement conservative blogger Bob Ellis fires very similar guns at Governor Dennis Daugaard for defending the state's dubious dalliance with the doomed NBP:
I agree that more business in the state is a good thing. But is it really the role of government to invest between $2 million and $3 million of the taxpayer’s money to start a business? I thought Republicans understood that it is the role of private interests to start a business, and that the best thing government can do is create a clean regulatory and tax environment to facilitate economic development. Apparently many “Republicans” do NOT know this [Bob Ellis, "The Stench from the South Dakota Slaughterhouse," The Right Side, 2013.12.12].
Frequent readers will recognize how unusual it is for me to point to anything Bob Ellis writes as reasonable and accurate. But his essay on government, economic development, and the errors of his Republican Party is definitely on the right side.
South Dakota is now littered with bad state investments in businesses gone bad. South Dakota politicians might save themselves more wrecks by taking their hands off the traditional economic development wheel. Let the Invisible Hand take that wheel and determine winners and losers. Instead, let's focus our political efforts on sensible regulations and taxes and real public goods. Schools, roads, parks... society gets a more reliable return on those investments.
"...point to anything Bob Ellis rights as reasonable..."
rights? or writes?
[CAH: the latter! Apologies for the error, thanks for the proof! Error corrected.]
There's a time and a place. Would you have let GM collapse in '09? Then there's Solyndra. On a state level, given the competition that states face in attracting business and investment, there's probably a place for state intervention when it comes to selling itself on a place for a business to locate. Before tossing the GOED baby out with the bathwater, I'd like to see the track record of SD's economic development efforts before entirely rejecting them.
GM is an interesting example, John. The GM bailout was indeed a government intrusion in the marketplace, as were all of the other anti-recession measures we took in 2008 and 2009. But GM is a going industry with a proven record and a significant impact on the current health of the U.S. economy. The GM bailout was a response to a clear and present crisis. Is GOED an ongoing response to an ongoing economic crisis in South Dakota?
I'm not sure if crisis response on behalf of existing businesses justifies government intrusion in the market any more than the speculative hopes of the NBP backers. Is that difference significant to this argument?
Well stated, Cory. Throwing money at wealthy corporations to locate in South Dakota puts our revenue-poor state in a game against other states with deeper pockets and far more prestigious education systems. My problem with economic development policies in Pierre has been the total lack of vision and ingenuity to building an economic infrastructure that is a sustainable fit for our state's people, culture and hopes for our children. To date, it's been old fashioned, down and dirty smokestack chasing. Under Rounds/Daugaard, it's evolved to building an economy that rewards family and friends and ignores ethics and lawfulness.
There is a smart role for state and local governments to support business growth with smart investments and still remain accountable and transparent to the public these government exist to serve.
Ellis and Ellis: frog and scorpion or mugwump and goody-goody?
Significant and germane, Cory, but I know of and can probably find many examples of govt (at all levels) intervention when it comes to start-ups and expansions of existing businesses that are not crisis-driven and have produced tangible results. We've got scads of apartments here in Rapid City that got financial help from the SD Housing Authority, a GOED division, the SD Science and Technology Authority part of GOED has helped create a gem of a scientific center in Lead. I know there's a function of GOED that directs SBA loans to businesses that can't get conventional financing and have proven out. If those businesses were left to the whims of Smith's "invisible hand," they wouldn't exist. I think the NBP fiasco was a failure of execution, not conception, and I agree with Governor Daugaard that the structure itself can still prove out to be a significant economic asset (once they drop the unworkable SD Certified Beef aspect) if properly developed and managed.
I have previously listed a lot of the failed state sponsored economic development projects started under the Rounds and Daugaard governorships, so I won't bother to list them all again. But what is forgotten is that a lot of the money, time and effort that is put forth toward those failed projects does not only come under the guise of economic development. It is in the hours spent by various departments of the State, such as the PUC, the legislature, the court system, the Highway Patrol and other departments under the Governor's office. I still maintain, that it is not a function of State government, but of the Chamber of Commerce to work for economic development.
You actually believe that the NBP will open as a significant economic asset? How can that ever be an asset when there is so much red ink involved with it? If it is such a good deal, why didn't one of the big four packers pick that dog up for pennies on the dollar? Nope, that dog will never hunt Mr. Tsitrian and was far to big of a leap with far too many dirty hands in the pie. The other plans you list all have one thing in common, they did not involve EB-5 corrupt monies, and they were accountable.
Free beers at the Brass Rail tonight on me and Mr. Fleming until 8pm. We will be discussing economic development. The featured pizza at the ale place across the street is Cardiac Arrest. We will keep our discussions civil enough to avoid those.
Wish I could join you gents for pizza!
Republitarian Ken Santema chimes in with his support for an audit of GOED and EB-5 and for my thesis on economic development:
"Without the GOED office and South Dakota Governor intervening it is unlikely a doomed-to-fail project like the Aberdeen Beef Plant would have ever seen the day of light. Legislators must take a hard look at the economic development policies and decide if the perceived good of these programs outweigh the negative market impacts they have created" [Ken Santema, "Rep. Kathy Tyler Has Bipartisan Support for Independent Forensic Office," SoDakLiberty, 2013.12.12].
It should be glaringly obvious that GOED should absolutely no involvement in the EB-5 program. They have demonstrated their incompetence time after time.
EB-5 could be a successful program if operated properly, as long as South Dakota Republicans control the direction of those funds, it will never work successfully.
It seems to be a function of government to confuse public works with picking winners and losers in the market place. Building a road or fixing a bridge is a public work and probably a legitimate function of government. Serving as the lender of last or even first resort for businesses that cannot raise money in the marketplace ("Hey! I know this company that can make three dollar solar panels for six bucks-we need to get in on the ground floor...") is not. GM needed to go through the whole process of reorganization. Even without a bailout from the taxpayer, it wouldn't have gone away. It was too big in terms of assets and potential to disappear. Instead of letting the legal process occur and following the rule of law, the government intervened as a sop to the UAW-now we're $10.5 billion in the hole and the UAW still has its $32 million "leadership retreat" in Northern Michigan-paid for with "strike funds." Bah!
Hark! I hearken back to when we didn't depend on spell checkers.
Sharp, Curtis! But The Grammarist disagrees: http://grammarist.com/spelling/hark-harken-hearken/
Meh. We'll see. Those who excoriated me here a short while ago about the re-routing of oil supplies from the Cushing, OK, delivery point for my view that energy prices wouldn't jump as a result need only check out the plummeting prices for gasoline to see that local markets were largely unaffected as the supply of product didn't change any. I stand by my sense that NBP has a realistic shot at making it if it's business model is adjusted to the realities of the marketplace, meaning a departure from its SD Certified Beef-orientation and a switchover to a commodity beef producer. It's a tough environment for meatpackers these days, given the short numbers of cattle in the country and the domination of the giants like Tyson. But NBP is a state-of-the-art facility and finding a daily supply of 1500 slaughter-ready cattle within shipping distances that can make travel costs easier to bear for many producers shouldn't be that tough. Considering how cheaply the thing was just bought, if its legal entanglements can get unwound, I think the new owners will have a bit of an edge going in. We'll see, I guess. As to the future of GOED and similar state-sponsored economic development ventures, they're here to stay. The best that should come out of the current fiasco is a much tougher oversight environment. I join all here in condemning the laxness in the first place and the meek response by South Dakota authorities as the reek of the fiasco only gets more powerful all the time.
If you people are going to refer to Solindra, please take the time to actually educate yourself as to what really happened instead of repeating something you heard on TV.
Your oil/gasoline observations has two components john. Markets often don't follow supply and demand when the availability allows the paper traders to play. Ask the metals folks why the trucks are rolling daily backed up to the comex coming and going to keep physical in the hands of enough folks to continue that game.
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Also, a world recession/depression has a great deal to do with gasoline or petroleum pricing.
NBP has a very good chance of surviving with the fire sale that was granted to the party that appears to have lit the match. 1500 head daily? 390,000 head annually? 35 semi loads daily.
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Les excoriating.
NBP prospects? There's a lot of equipment, lightly used. There's a lot of beef in the neighborhood. A good businessperson ought to be able to put those two together and make money. But if NBP was overbuilt, too big to generate enough cash flow to cover its startup bills, is it doomed in anyone's hands?
Not that far-fetched, Les. The 11/19 Cattle-on-Feed report showed SD marketings of fed cattle in October to be 38,00, which is down about 9% from last year. Even with these reduced numbers, SD by itself feeds out nearly 500k slaughter cattle a year. Given Aberdeen's proximity to ND and MN feed lots, I really don't see 390k cattle being that tough to muster up for NBP, though I haven't checked marketing numbers for either of those states. Granted, not all the cattle fed would go to Aberdeen, but my guess is that ND's production numbers are similar to SD's and that MN feeds quite a few more than either of the Dakotas. That's a pretty sizable pool of cattle from which to draw 1500 hd/day. As to my discussion about the "Cushing" effect on WTI a short while back, I got the sense that most of the posters were concerned that oil and gas prices would rise because the WTI contract at the NYMEX went up a couple of bucks. My point was that overall supplies were unchanged and even if the delivery point price rose in a technical reaction to reduced supplies there, the net effect would probably be negligible at localized markets. Given the drop in gasoline prices, I'd say the markets have indeed shrugged of the "Cushing" effect. Hard to say about NBP's prospects, Cory, but I'd say the pennies-on-the-dollar purchase price of the plant makes me think that even if it were overbuilt, it could go into a somewhat pruned production mode and make some money. Of course, as I note, that assumes the Gordian knot of claims can be unwound and business can actually get started there.
Rewild the West, Statehood for the tribes and Mexico.
Trans-Canada has told Bloomberg News that one of prime reasons for XL pipeline is to raise price of gasoline in Midwest. Not sure if that is based on faith in competition, faith in monopoly, or faith in business hype.