While the focus here and across the Bay State political landscape has rightly been on the fiscal crisis we face and the mix of taxes, cuts and reforms needed to get us out of our fix, I worry that what get’s lost in looking after the fiscal now is attention to the economic next.
I was struck by a few Globe articles of late (here and here) highlighting the decline of venture capital and investment in key growth sectors of our local economy. Its bad news, because if we hope to start generating the jobs and tax proceeds needed to help fill our fiscal gap and support our vital public services, we need our key industries to be slingshotting us out of the recession.
I know its cliche to say we are a knowledge economy, that our brains are our greatest investment, that our future is tied to the next big things coming out of life sciences cluster and fledging renewable energy shops. But like many cliches their is much true in the sentiment.
Governor Patrick devoted a lot of attention in his first two years to nurturing these very sectors of our economy. He passed a landmark life sciences bill and supported green enterprises directly and indirectly through a variety of regulatory interventions on energy and the environment. These efforts will pay long-term dividends.
The risk we face today is that the recession may put out of business or delay new ventures that in more normal times would have succeeded and grown. So, the State may want to consider a new method of intervention to help. It could be a public-private, State sponsored venture capital fund to aid innovative Massachusetts start-ups weather the economic storm and thrive beyond it.
The State Govt already has a number of public and quasi-public entities that support private and non-profit enterprises. The list includes: the Massachusetts Development Finance Authority, the Health and Education Facilities Authority and MassHousing most prominently. These agencies provide low interest financing and loans, bond underwriting and tax benefits to a variety of private and non-profit entities. The Life Sciences Center and Mass Technology Collaborative provide grants and loans to life sciences and energy companies and research entities. The MBTA, Turnpike Authority and Massport as major land owners also facilitate development. The State also offers a variety of other tax credits and tax increment finance tools to lure and support businesses.
What none of these agencies do though, as far as I can tell, is take equity stakes in promising ventures. Its one thing to provide land, loans or favorable tax treatment, but as far as I can tell, the State does not have a vehicle for taking ownership interest in private entities beyond investments from its pension fund, which of course are ring-fenced from State interests otherwise. There are likely reasons to refrain from State direct ownership in private ventures. And I generally believe the State shouldn’t intervene in well functioning markets. But what we are seeing now is a drying up of investment in the very entities that will build lasting prosperity in our State.
So why not create a quasi-public Massachusetts Investment Finance Corporation, financed at the start by State funds (not derived from annual operating budgets but through capital and investment pools – particularly as the State can borrow more cheaply now than many private groups) but levering in resources from private and non-profit sources overtime (maybe even from existing quasi-publics), eventually with the aim of being fully or mostly sold to private investors at a profit to the State. Major non-profits, particularly our research universities and medical centers, would make ideal investment partners and would have an interest in ensuring that the research their institutions produce has a commercial outlet and pipeline.
Of course investing in new ventures carries risk, but the State already takes risks with taxpayer resources in supporting businesses through loans and tax benefits without ensuring itself or taxpayers any equity return.
In difficult economic times, creativity in preserving our State’s competitiveness is vital to our future. While the focus on Beacon Hill is now on revenue and reform, we need to add economic recovery to the priority list beyond spending federal stimulus cash. We need to distinguish ourselves from other States to bounce back quicker and stronger out of the recession. Its time the State took a stake in promising ventures starved of investment. The payoffs to our economy and in repaying the taxpayer could be significant.
