Governments are Terrible Businessmen
What is the role of government?
Many things we can all agree on. It is there to catch and punish bad guys, stop polluters and fraudsters, put out your house if it catches fire, enforce contracts, and fix crumbling bridges, among a few other things.
The one thing most people do not want the government to do is play the role of businessmen. When a business person or entrepreneur takes a financial risk, he or she alone benefits from the success and alone suffers the consequences of failure. Yet when the government plays that role, the benefits of success are concentrated to a few well-connected folks at the top while the consequences of failure are diffused among the taxpayers.
Imagine if the government could tax you for $10 then bet it all on red at a casino. If it wins, it will keep $15 and may generously give you $5, but if it loses, you’re out the $10. Either way, the taxpayer loses, but the government either comes out ahead or just loses your money. How fair is that?
This is what happens when politicians commit taxpayer money to grandiose projects like sports stadiums, convention centers, and in south Iredell County, a bankrupt cable provider.
Promises of massive economic gains, lower taxes, and better services are often spouted by politicians. But rarely, if ever, are these promises even remotely realistic. When the gains fail to materialize, those that touted the idea blame the opposition party and hope everyone quickly forgets. Taxpayers just accept the higher taxes caused by this new debt and move on. Rarely are the politicians held accountable nor do we get an apology for their buffoonery.
If you ask anyone in Mooresville for an example of the government wasting their money, nine out of ten will quickly tell you “M-I Connection”, the local government owned cable and internet service provider. Most refer to it under their breath as if to not dignify the entity by saying its name.
In 2007 the leaders of Mooresville and other neighboring communities thought it was worth it to take a risk on failing cable and internet service provider Adelphia (acquiring it for nearly three times its fair market value), promising it would reduce taxes because it would make so much money.
Nearly a decade later, M-I Connection is nowhere near turning a profit. The towns of Mooresville and Davidson are on the hook for millions of dollars each year simply to cover operating expenses. And with Time Warner Cable muscling into the local market offering arguably better service for a lower price, M-I Connection’s days of making any money at all look numbered.
Even if we try to look at the decision to buy M-I Connection in good faith, the best outcomes that could be conceived were slightly lower taxes and some politician’s names in the headlines. The risks associated with this venture however, were tremendous, such as the $90+ million loan taken out in the taxpayer’s name, an already outdated internet infrastructure that would immediately need to be updated, and competition from cable giant Time Warner Cable right next door.
The politicians who made these decisions created a scenario in which they would take all the benefits of success and deflect all the consequences of failure. They would take all the credit for lowering taxes, while the taxpayers would be stuck with the debt if it failed. They gambled with other people’s money.
What is happening in Mooresville, is happening all over the nation - bad investments made with the best of intentions. Politicians making bets with the money that is not theirs and failing to even remotely investigate the economic realism of the promises they’re making.
There are countless horror stories out there of places that have it even worse. Google: “Harrisburg PA Incinerator” or “Studio 38” or “St. Louis Rams Stadium” or “Dunkin Donuts Park” or “New Mexico Spaceport”. Governments simply cannot be trusted to make good business decisions.
There is hope. We can limit our exposure to wannabe-entrepreneur politician’s grand ideas by crafting laws that hold those politicians criminally liable for taking risks on the taxpayer’s dime. If these ideas really are ‘can’t-miss’, then the politicians should have no problem putting their freedom on the line, right?
This may not get the taxpayer’s money back when projects fail, but it will make sure politicians think long and hard about the risks inherent when gambling with the taxpayers financial future.