John Kasich’s JobsOhio and the $100 million liquor securitization that his budget seeks to fund it seem to be designed to turn Ohio’s Development Department into a semi-private venture capital firm. Given that’s Mark Kvamme’s comfort zone, and public economic development efforts are not, it’s not surprising. What is surprising is the utter lack of anyone objectively and critically examining such a worldview as a model for economic development.
A few weeks ago, the Dispatch reported that Governor Kasich was spitballing yet another half baked idea of attracting private venture capitalists by changing Ohio’s tax code so there was no State taxation on any earnings they made investing in Ohio for a set period of time. The Dispatch also ran a little chart showing where Ohio ranked in terms of private venture capital investment:
Mark Kvamme, a California venture capitalist by trade, of course just loves the idea:
Ohio, according to PricewaterhouseCoopers and the National Venture Capital Association, received $156.8million in venture-capital investments last year.
"That is nothing," Kvamme said. "For example, in the Silicon Valley, where I’m from, we invest that in two weeks. So we have got to get capital into the state."
The inference being that Ohio can never economically recover until it gets more venture capital. Hogwash. First of all, Ohio’s ranked seventeenth overall, which puts it well above the average amount nationally. (Granted, Ohio is also ranked seventh in the nation for population as well, so I guess on a per capita basis we’re behind smaller States like Massachusetts, North Carolina, and Washington.)
Look at Kvamme’s own home State of California, which has nearly five times the amount of private capital investment as any other State. How’s California faring during this recession? Well, it’s ranked 50th in the nation on unemployment, just under Nevada. North Carolina, which ranks 9th on private venture capital, has an unemployment rate that is .5% higher than Ohio’s.
We don’t need to inject a “buy high, sell low” mentality to Ohio’s economic development. The reality is that a venture capitalist is not interested in economic development. A venture capitalist is interested in profits and a quick and easy return on his or her money. A venture capitalist is more likely to liquidate a company than expand one. Venture capitalist are incredibly short-sighted… they look for a return on their investment within only three to seven years. That is not a worldview that leads to stable, reliable growth. It is one that created the Silicon Valley tech bubble we saw in the early 2000s.
For all the talk about how “new” and “different” JobsOhio and Kasich’s approach is, nobody in the Ohio media seems to be willing to explore whether these approaches truly address the root of Ohio’s economic problems. Does a Silicon Valley mindset to Ohio’s economic development create smart, sustainable growth? Does it even result in jobs gains? Did it for Silicon Valley?
The San Jose Mercury News reported at the beginning of this year that the Silicon Valley boom/bust cycles means that the Valley has no more jobs today in the region than it did sixteen years ago in 1995 (before Google and when Yahoo was launched), even though population has exploded. And yet, this is precisely the model Kasich has adopted. One that seeks to make short-term investments in small, entrepreneurial companies that tend to fail more than they succeed: for every Google, there’s a thousand Pets.com, resulting in virtually no real job gains.
How is this a winning model to combat Ohio’s joblessness?
How is taking the $50 million that was promised in the Issue 3 casino campaign to go to “worker retraining” programs to “get Ohioans back to work” as the casino supporters promised, but instead using it to retrain workers who already have jobs as the Kasich budget proposes instead, help lower Ohio’s unemployment? Keep in mind that Kasich’s proposal could mean that successful companies could incur no costs at all in retraining their workforce: the casino money and the workers themselves could cover the entire costs under Kasich’s budget proposal.
I don’t oppose Kasich out of partisanship or ideology. I oppose John Kasich out of basic common sense. It makes no sense to take $50 million in one-time money and use it subsidize corporations’ own worker retraining efforts when there are plenty of unemployed Ohioans who could use that retraining to find work. The State has no business making economic development decisions based mostly on what companies will give them the biggest return on their investment in a few years as opposed to create the most jobs in a stable, smart growth manner.