Rhode Island’s Economic Development Boondoggle

By Tom Sgouros

You hear a lot about “economic development” in discussions of state government these days, and about the various agencies charged with promoting it, but why?  It’s not because casinos are now important (though they are) or because jobs are important (though they are) or because our economy is in such terrible shape (though it is). The reason is much sadder.
In large part, the best things the state can do for the state’s economy have to do with those essential things that the private sector can’t (or won’t) do: universal public education; maintaining roads, bridges, water and sewer lines; policing the marketplace; protecting the environment; facilitating basic scientific research. These are the factors that could make ours a stronger economy, and each of them affects hundreds or thousands of companies at a time and millions of citizens, even here in Rhode Island. What an economic development agency can do will only ever be a minor effect compared to these others.
Unfortunately, the last 30 years of tax-cutting lawmakers have left your state unable to provide these services well. In the name of keeping taxes down, we have deferred maintenance and borrowed too much. We have pushed responsibilities onto cities and towns, to be funded by regressive taxes, and now Central Falls is in bankruptcy, with Woonsocket, East Providence, and Providence teetering on the brink. We’ve avoided discussion of programs meant to save money, like early childhood education and maintenance. So we pay too much for the little we get, and public services are a shambles.
Enter the economic development apparatus, a collection of functionaries who promise we can still have a thriving economy without paying enough to manage the fundamentals. This is a very appealing pitch, and Governors and legislators around the country have fallen for it, in Rhode Island as much as anywhere else.
Here in Rhode Island, the Economic Development Corporation is a free-standing quasi-public agency, which, through a quirk of its history, has almost unlimited borrowing authority, none of which has to be approved by voters. And borrow they have, for good and for, well, less good. They blew $30 million on Alpha-Beta, a bio-tech flop (they did recover about $25 million of it eventually), and EDC’s authority was a pivotal part of the deal that allowed state debt to balloon in order to pay for the I-boondoggle rearrangement of Route 195, loading up the state with hundreds of millions of dollars in new debt. There’s plenty more, including $14 million for the Masonic Temple hotel project, and over $30 million for the troubled Wyatt jail in troubled Central Falls. The prison, far from being a source of support for that city, recently announced it would not try to make up for its past lapses in payments, let alone meet its current obligations to the city. (After all, says their management, they have to repay their bondholders and make a profit before they have anything to spare for city government.) Now EDC is again in the news, having thrown $75 million at former Red Sox pitcher Curt Schilling’s failed video game company, 38 Studios.
What’s more, as a freestanding agency, EDC was free to pay its executives whatever they please, and to conduct their business however they pleased. Their executives could wear good suits, house their operation in first-class office space, and generally conduct themselves just like the overpaid CEOs they spend their time with.
There are two problems with this. The first, and biggest, is that the EDC vision of a healthy economy for Rhode Island isn’t really sustainable. Attracting companies from elsewhere will only get us companies who don’t care about Rhode Island: empty growth, if growth at all. There’s already enough corporate irresponsibility in the world. We absolutely don’t need a system that encourages more.
The second problem is more theirs than ours: about the only tool that RIEDC has at its disposal is various kinds of tax breaks to offer companies and a limited amount of money to lend (much of which they’ve dedicated to 38 Studios). Without much of the infrastructure to support a healthy economy, they have to put their faith in salesmanship and tax breaks, not in fundamentals.
What happens at an agency with such an ill-defined and difficult role? Failure, that’s what. Over the years, EDC has seen some good people come through its doors, along with the inevitable few who only look good in a suit, but they’ve been tasked with the impossible. Their mission has been to make our state’s economy bloom despite the fact that we are shrinking our investments in our infrastructure, our workforce and our environment. And what have we seen?  Tremendous pressure to do something has produced ill-considered loans, and nebulous and occasionally laughable plans.
A future EDC or something like it could play a useful part in monitoring the state’s economy, and in technology transfer, trying to push new technologies into the market to advantage local businesses. They could be useful promoting networking and centralizing some information businesses need. But our EDC has served mostly as an ATM for corporations, and as a state-paid corporate lobbyist, pushing tax cuts in the legislature, oblivious to the effects these cuts have had on education, police forces, bridge maintenance, and all the rest.
The time is long past when we can afford to continue this way. We have to understand government as an integral part of keeping our economy sound, sustainable, and just.

Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net, and the author of “Ten Things You Don’t Know About Rhode Island.” Contact him at
ripr@whatcheer.net.

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