As it turns out, it’s really fine that MA didn’t try to meet Rhode Island’s $75 million loan package to Curt Schilling’s video game company, which is now in deep trouble.
As part of the RI Economic Development Corporation’s effort to create jobs in the state, they offered 38 Studios a $75 million loan, if only they would pack up operations and bring them to Rhode Island. Schilling and co. moved to Providence, and pledged to employ 450 locals. It was a gamble for the state, which only had $125 million for the entire job creation program, and took criticism at the time.
It’s 2012, and 38 Studios is in trouble. They’ve only employed 288 Rhode Islanders so far, and the company recently had to pull out of next month’s E3 showcase because their upcoming game, paid for by the loan, isn’t close to being ready. An independent audit expressed “substantial doubt” about whether the company can remain solvent, and state officials have been meeting with 38 Studios in recent days.
The worst case scenario? 38 Studios goes under, and is unable to repay the loan. If that happens, taxpayers are on the hook for $112.6 million after interest is factored in.
Ugh. But here is the worst part, which smells an awful lot like “SEC investigation” to me…
Last year Schilling told Reuters that he had invested “$30 million to $35 million” in 38 Studios. [Similarly, this Globe story reports that as of 7/8/11 he claimed to have invested $20 million. -ed.] A disclosure filing obtained by WPRI shows that Schilling advanced the company $4 million of his own money, and has already been paid back—with funds from the Rhode Island loan.
Yikes. UPDATE: Upon further review, I think it’s possible that the author I quoted above misread the WPRI report. Here’s what WPRI actually said about Schilling paying himself back:
In July 2010, the same month the EDC approved the loan guarantee, 38 Studios established a revolving line of credit with Schilling so it could borrow up to $4 million from him, according to the disclosure filing obtained by WPRI.com. Part of the taxpayer-guaranteed loan money was used to pay Schilling back.
Still on the sleazy side, but not inconsistent with Schilling having made a larger initial investment outside of the revolving line of credit.
Discuss
32 Comments . Leave a comment below.and burned it.
It would have cost them less.
…they might have generated quite a few BTUs with the fire!
Solyndra. And now A123.
Government shouldn’t “investing” in commerce and industry. That includes car-battery manufacturers, bio-techs, and video game companies.
If one wishes to subsidize a private concern, give some tax abatements tied to employment (I disagree with even this.)
when you apply them to the consumer side. IE. give people tax credits to buy the solar panels, don’t give Solandra and Evergreen tax credits to make them. Build the demand first, then the supply will come. Unfortunately, we tried to do things the opposite way and it blew up in our faces.
The problem with this approach is that ignores the enormous investment China is making in alternative energies, especially in solar panels.
The approach you contemplate will have the practical effect of funneling tax money to the Chinese. Virtually ALL the solar panels those new consumers will buy are already made in China. The demand we build will be demand for products of Chinese manufacturers.
It seems to me that we all demonstrate an inadvertent but nevertheless real arrogance when we look at this issue — we assume that because we (or at least some of us) think that government intervention in a free economy is bad, the other world players feel the same. They (and especially the Asian players) don’t.
China is aggressively waging what amounts to economic war, especially in alternative energy. While we wail and whine about failed government backing to the tune of a few hundred million, the Chinese government is backing Chinese competitors at level hundreds of BILLIONS.
Similarly, while the primary US involvement in South and Central America is focused on illegal (in the US) drugs, the Chinese are aggressively “culture building” in the region. While we talk about guns and police, the Chinese are offering education, zero- or no-interest business loans, preferred access to exploding Chinese markets, and so on.
I fear that Americans have not yet come to grips with the many changed realities of the post cold-war world. We are not the only game in town, and we ignore that fact at our very real peril.
My answer to that problem is to tax the hell out of anything that comes out of China and other countries like it. If they want to pay employees a dollar a day to build $500 iPhones…. see what happens when iPhones coming in are taxed 25% before they ever reach the shelves. Factories will be built in America again so fast that we’ll need to actually build a steel industry again to keep up…
The global solar energy market is dominated by Europe and Asia-Pacific. I suspect the primary impact of raising taxes on China is to further reduce our market share and therefore our influence. The only way to stay in the solar energy game is to get into the solar energy game. Right now, we are not just standing on the sidelines, we’re walking away from the field.
I guess this is what I mean by unintentional arrogance. I think I understand where you’re coming from — the sad truth is that it may already be too late. America led many or most technology curves since WWII. We walked away from this one, and we have a great deal of catching up to do if we want back into the game.
I’ve long thought we should be putting solar panels on public buildings, in a New Deal Esque environmental plan, where within 10 years we make sure any public building where solar panels make sense gets solar panels.
That alone would drive up manufacturing of it, but it would be even more so coupled with incentives for ‘buy America’ and disincentives for buying abroad. It may just spark enough manufacturing of them that prices would go down, so more people could afford them.
Or, if we wanted to be really bold, we could start pushing new construction guidelines for expensive developments to include solar.
… in the regulations for new residential construction in Europe somewhere?
but if it is, it’s a smart idea. Solar hot water is already every bit as efficient and cost-effective as gas, electric or oil water boilers.
is to remove ALL subsidies for solar panels in the US, tax credits, grants, etc. That would ruin most of China’s capital investment in solar panel manufacturing. (BTW, it’s manufacturing, not technology innovation, this is China’s competitive advantage right now.)
There’s no REAL DEMAND for solar power because electricity off the grid is one-tenth to 1/50th the cost of power from a PV panel, even when the equipment is acquired at discount Chinese prices.
Let’s focus government resources on the advancement of technology. Let’s support R&D to get PV cost per kwh down. We’re wasting money paying the difference, i.e., subsidizing, between PV power and conventionally produced power.
You seem to be making the same mistake that Ryan makes above. The US has a far smaller share of the global solar market than Europe and Asia-Pacific. I’m not sure why you think it would hurt China if we pulled out altogether.
I agree that our artificially-low energy prices have kneecapped the development of renewable energy. When we run out of oil (and Big Oil owners have finished gouging us for every nickel we have), then the cost of petroleum will skyrocket, demand will shift to renewables, and the resulting economies of scale will drive down the cost of solar energy.
The question is who will feel the brunt of that hump in the price curve that divides the petroleum from the renewable energy economy. The path we’re on (and that you apparently advocate) force that pain on the 99% — the 1% are making sure that (a) they are untouched by the costs and (b) they will own and control revenues from the renewable sources when the transition is done.
The best way to get renewable energy costs down is to put a floor on conventional energy prices.
The thing is, not all market distortions are bad – ‘natural’ markets can present particular outcomes that are the kinds of things you absolutely want to mitigate. Regulation can accomplish such mitigation, but so can subsidy. In this way, even well thought out and well functioning regulation can be thought of as a kind of distortion. The other kinds of ‘distortion’ are questions of market profitability and ‘first actor’ incentives. For example, it was absolutely crucial that semiconductor research was largely driven from the public sector side because no private sector market entity would have looked at that and been willing to put up the front end costs. Try to fathom US GDP growth during the latter half of the 20th century without semiconductors. The point here is that of course regulation and subsidy create distortions. The idea is to get the particulars to give you the distortions that you actually want for your market.
In trying to answer the question of subsidies and PV power, it might be informative to look at Germany. Right now, Germany has been subsidizing solar for years and their rate of adoptions is high. The question is looking back, after having run subsidies for years was it good or bad for Germany and what is the outlook going forward and how to improve that outlook (because context change, after all).
Your example of the semiconductor industry is spot-on. The US dominated that industry for decades because of our significant investment of public resources. Today, while still a leader, we hold something in the neighborhood of a 16-17% share (number two behind Japan). It seems to me that this offers several learnings: (1) public investment in an emerging technology is a crucial component of national dominance in that technology and (2) playing catch-up is possible, and takes decades.
The world has known, from the beginning, that global petroleum reserves are finite. Solar technology is no longer “emerging”. The Chinese are the dominant national player (bad news for Germany). America already missed the window to dominate solar energy the way we dominated semiconductors.
I think the issue now is whether we have the discipline, stamina, and humility to spend the next few decades playing catch-up. Our willingness to commit public funds to that effort is, in my view, a key leading indicator. Another is our national willingness to frob the market knobs needed to impose a floor on conventional energy prices.
Both of those leading indicators suggest to me that America will be a bit-player for the foreseeable future — neither Democrats, Republicans, nor the electorate show any willingness to do what it takes to play the game. Meanwhile, our contribution to the destruction of the world’s climate continues unabated.
Neither Portugal, Spain, nor Italy are viewed as major “empires” today — yet they were each significant players at one time. America is currently following a path to join them in relative global insignificance.
The majority of the semiconductor industry was invented, pioneered, advanced, expanded, and continues today in private hands. Bell Labs invented the transistor; the development of the first integrated chip by Siemans, Sprauge, TI, Fairchild; mainframe computing, PCs,, GPS, and cellular technologies were and are virtually untouched by government.
Government may have driven demand. Ex: our GPS system is by priority a military system. But there’s no reason it would not have been implemented if the US military did not want to control it. Virtually every other satellite system is private, from the very first telecom satellite, Telstar, which was owned by AT&T.
BTW, Al Gore did not invent the internet, either.
Al Gore never claimed to have invented the internet – here’s the exact quote:
And here’s what Vincent Cerf, the man widely credited with actually inventing the internet, said about it:
Give it a rest…
Speaking of “revisionist history”, you might want to get your own history “straight”. The web is full of reference like this that document the enormous role the government played in creating this technology and industry. Virtually ALL of the major players (Bell Laboratories, Fairchild, Raytheon, TI, and so on) were major defense contractors. The need for miniature components was driven by both the space program and the military. The government involvement in those contracts provided leverage for the government to force the early disclosure of that IP. It was, in fact, early government involvement that created the industry and made America the dominant player for decades.
I’m sorry that reality doesn’t reflect your dogma.
I’ve been planning to post about the economics of solar power for a while now – it’s time to revisit a post I did last year, where the situation has changed radically for the better. Guess I have some wordsmithing to do today…
I’ve worked on commercial-grade solar and wind projects so I am intimate with the financial inner-workings of both. If technology has advanced and costs have been reduced by orders of magnitude for either or both, then I’m all ears.
I can put solar panels on your roof for zero down, and put money in your pocket every year for the next ten years. Grid power will take money out of your pocket every year – with an annual increase of around 5.5%. Solar is a much better deal than grid power, and it’s exacty opposite what you describe.
Just curious.
We primarily use two panel manufacturers – SunPower, which is a US company, traded on the NASDAQ, with their manufacturing plant in Malaysia, and Siliken, who manufactures their panels in Spain.
Linky: http://bluemassgroup.com/2012/05/solar-economics/
Do you know how many subsidies the energy industry gets for traditional power plants and nuclear plants? That’s what keeps those prices ‘low.’ If renewable energy received the same investments and resources, the prices would absolutely go down.
Moreover, the prices aren’t ‘low’ for consumers, only the developers. The consumers pay more for energy that comes from fossil fuels, because it costs more to create it. Large renewable energy projects makes electricity significantly cheaper for consumers.
Why do states keep doing this – give benefits to a company on the promise of jobs? Much better I think to say, for each net full time job you created during the filing year, deduct x when filing this year’s taxes and for each net part time job deduct some appropriate fraction of x.
I disagree with bostonshepherd on not doing any investing though. As an expression of the people government should be able to make decisions about what we value. For example, I would love for government to heavily invest, subsidize, etc. green energy while leaving traditional energy completely to its own devices. It’s not “fair” necessarily, but why shouldn’t we steer this country in the direction we want?
public policy should dictate investment in areas that benefit society.
Yet, I don’t see how an MMO developer ever really fit into that paradigm.
as long as me and my guys can dictate what benefits society.
As clawback.org shows on a daily basis, public subsidy programs to create jobs almost never fulfill their goals. Witness the huge tax breaks given to Fidelity starting in the 1990s. Fidelity is now closing it’s Marlborough facility along with 1,400 jobs and the state will never get back one penny of its investment.
Also, Curt Schilling just isn’t very bright.
I’m ok with government playing an occasional role helping get a business create local jobs to boost local economies. This is especially true if we’re competing with businesses abroad to kickstart a new economy (i.e., solar panels). But there should loan guarantees or clawbacks attached, and it can’t be a situation like Schilling’s where the state is effectively acting as venture capital for a start-up.
I’d much rather we be picking these so-called “winners and losers” than subsidizing oil, Boeing, Hollywood, or corporate farming.
If Schilling’s idea was so damn good, I can’t understand why he didn’t have investors lining up down the street, instead of milking taxpayers.
http://www.latimes.com/business/la-fi-china-solar-dumping-20120518,0,7419466.story
…it’s not just you and your guys or me and my guys who get to determine who should benefit. It’s all of us together through the medium of elections. If one party proposes to benefit clean energy and the other traditional energy then I know which way I’m likely to vote.
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