Wednesday, July 30, 2014

Crystal ball gazers?

From page A5 | February 24, 2014 |


The Mountain Democrat recently reported that the Board of Supervisors adopted a new “economic development incentive policy” so “businesses that can provide significant numbers of good-paying jobs” can be attracted to EDC.

This policy is ill advised. Politicians can’t foresee the future and will likely shower taxpayer money on sketchy business ideas such as Solyndra. Entrepreneurs, not politicians, developed Silicon Valley. Political leaders have a poor track record of picking the winners. Do politicians know what “Agile Manufacturing” will look like in five years? This is a concept, not a well-defined business opportunity.

Japan’s success in the 1980s was falsely attributed to the Ministry of International Trade and Industry, its agency for targeting preferred businesses. MITI created an environment of crony capitalism that has choked the country since 1991. U.S. economic growth/person was 50 percent higher than Japan’s from 1990-2010, according to the USDA.

Argentina was the world’s fastest growing economy before WWI. Crony capitalism has destroyed the economy over the last 100 years. Argentina is now one of the “sick” countries of South America. It’s time to “Cry for Argentina.”

The centerpiece of failed central planning policy was the Soviet Union. I had the privilege of spending a day with an economics professor from Moldova State University in the Republic of Moldova, a small country in Eastern Europe. He described how central planning destroyed the Soviet economy. Moldova produced electronic components for the Soviet military that were years behind the capability of the West.

Politicians favor “economic development” policies because they fear they will lose jobs to communities willing to dole out favors to the selected few. A 2004 paper in the American Planning Association Journal summarized 40 studies that showed that targeted economic development incentives across the United States have failed to deliver favorable results.

Free markets and unfettered entrepreneurs have showered abundance on our country and lifted more people out of poverty around the world than any other economic system in history. I urge the BOS to create an environment where all businesses can succeed rather than pursue failed policies that target favored businesses. We need critical government services but politicians picking business winners and losers serves the politically well connected at the expense of taxpayers.

El Dorado Hills



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