Op-ed: The collapse of 38 Studios

By Occupy Providence

Once again, the people of Rhode Island have suffered from an insider deal marketed as “economic development”. Rhode Island’s Economic Development Corporation (EDC) awarded $50 million to a video-game company that has now collapsed.

It’s not enough to dump the blame on 38 Studios and Curt Schilling, the company’s well-connected but inexperienced founder.  Most Rhode Islanders are aware that the problem goes wider than that.

To finance the Curt Schilling deal, the EDC helped secure a $75 million loan from Wall Street.  It was not listed as a taxpayer bond, but RI state leaders have now promised a taxpayer-funded bailout if the financial firms can’t get their money any other way.  We at Occupy Providence believe that job-creation projects shouldn’t end with a bailout, and we realize that the bailout was probably a result of Wall Street pressure on politicians.

This deal never made economic sense.  Curt Schilling’s company promised to create 450 jobs in Rhode Island. It never had more than 300.  But even if Schilling’s company had kept its promise, the cost would still have been over $100,000 per job created.  That’s more than double what most Rhode Islanders make in a year.  A deal which pays that much per job isn’t about job creation.  Instead, it’s at the level that’s normally considered corporate welfare.  For that much money, you could have given jobs to more people than Schilling promised to employ, and they could have been jobs that left a lasting benefit for the whole state in fixing roads or helping the schools.  So even if this deal had worked out and didn’t leave taxpayers on the hook for repaying Wall Street with interest, spending $100,000+ per job still amounts to a bogus form of economic development.

Occupy Providence sees this latest scandal as only one example of a much wider problem: the power of insiders in Rhode Island.  When Curt Schilling got his great deal, he was an insider. He was a prominent supporter of then-Governor Carcieri’s Republican Party, and Carcieri chaired the EDC that arranged the $75-million loan for him. It’s not just the Republicans, of course. Both parties have given plenty of examples of how they’re ready to abuse whatever amount of power they have.  And the power of insiders goes beyond political parties.  Dan Doyle’s Institute for International Sport seems to have used his insider position to evade financial controls at URI.  Wall Street firms are able to use their insider status to increase their wealth and make us cover their losses with money from the real economy.  In the Schilling deal, Wall Street firms didn’t only lend the money – some of them took a share of the proceeds to facilitate the deal.

Occupy Providence promotes the voice of the 99% because Rhode Islanders continue to suffer from insider deals.  If the 99% had been consulted about the Schilling deal, it wouldn’t have happened – only 28% of Rhode Islanders favored it at the time.  The 99% would have done many other things differently, too. It was insiders who made a deal with Achievement First to run schools in RI, even though Achievement First’s questionable record led many residents to oppose it.

The EDC, a board of business, government and nonprofit leaders who are appointed by the governor, is great at promoting their deals. One year it’s Curt Schilling, other years it’s been a biotech firm like Alpha Beta (another flop) or the troubled Wyatt jail that was supposed to help save Central Falls.  Meanwhile the EDC engages in what economists call a “race to the bottom”, competing with other states to give tax breaks to big business, and borrowing money from Wall Street to fund whatever deals the insiders like. They call it economic development, because it’s true that economic development requires spending money. But when we leave it up to the 1% to spend that money, we don’t get any more real prosperity than a mediocre video game.

We in Occupy Providence believe that economic progress comes from cutting out the insiders.  We keep hearing that there’s no more money for the concerns of the 99%, like education and transit, but these are the things that bring real economic development.  Once we work together to put the 99%’s concerns into practice, Rhode Island will have a brighter future.

(A somewhat edited version of this statement was published by the Providence Journal as an op-ed on June 4, 2012.)