Cautionary tale

Former Boston Red Sox pitcher Curt Schilling asked the state of Rhode Island for additional help to save his video game company last week.

The business was lured from Massachusetts in 2010 after Rhode Island offered a $75 million loan guarantee that state officials said would help bring hundreds of jobs and millions in tax revenue. Officials with the state’s Economic Development Corp. said the company has received nearly $50 million and created at least 250 full-time jobs with an average annual salary of at least $67,500 – at a cost of $200,000 per job.

But concerns about the financial health of 38 Studios (named for Mr. Schilling’s jersey number) arose when it failed to make a scheduled $1.1 million payment – essentially a service fee – on May 1.

The Rhode Island General Assembly in 2010 created a program giving the economic development agency the authority to back up to $125 million in loans to businesses promising to create permanent, full-time jobs. The loans would come from lending institutions, but Rhode Island would agree to repay the lender if a company defaulted.

We have no idea whether Mr. Schilling’s video games will succeed. But neither do Rhode Island’s politicians. And that’s the point.

There is a cautionary tale here for states and other government entities looking to spend tax money to lure economic development. Just as it’s easy to be cavalier about high-risk strategies when playing a video game – after all, if you “get killed” you can always play again tomorrow – so well-meaning politicians with tax money know full well that their own kids won’t go without supper or a roof over their heads just because the wheel doesn’t stop on black 28, this time.

That’s why it’s not the job of government to create jobs. It’s the job of government to create honest courts and a rule of law to punish theft and fraud, to create a level playing field and the conditions that encourage and reward the entrepreneurial spirit – and then to let the market run its course so those who succeed may keep the fruits of their labors.

Governments have a scattershot record – at best – when it comes to selecting which economic endeavors to support.

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