Fun With The Department Of Economic Affairs/(Development)

I have received some recent complaints that my posts are becoming increasingly over-the-top, riddled with partisanship and sensationalism. In an effort to appease my detractors, I will endeavour to abandon incindiary propaganda--instead relying on my stylistic and grammatical excellence to satisfy the ridid demands of this blog's vast readership.

With that bit of business out of the way, let's focus on this week's worst idea ever!

(Intermission #1: I thoroughly enjoyed writing those first 2 paragraphs! You see, I went through all these fancy words, in an effort to show that I don't have to make outrageous claims to make these posts good. But then, I went right back and made an outrageous claim that this idea was actually the worst ever! I even implied that there can be a new "worst idea ever" each week. Very funny stuff!)

Some time ago, Mayor Moyer determined that 'Economic Development' was a function worthy of its own department, apparently having outgrown its former role as a sub-office within the purview of the Mayorship. Along comes O-11-07, defining the duties of the new Department of Economic Development. Whoops!!....

"That stinking City Charter--it actually mentions precisely which departments may exist, and 'Economic Development isn't one of them. Curses on the Charter!", the mayor failed to say.

Along comes CA-01-07, a charter amendment to allow such a department.

Now, somewhere along the way, 'Economic Development' got renamed 'Economic Affairs', and I don't quite know why. I cannot think of any legal or perfunctory reason why such a change might exist, and I am somewhat reluctantly forced to conclude that ego and/or political hogwash are somehow involved. The 'Department of Economic Affairs' sounds like more of an ominous, far-reaching, and powerful entity, and if nowhere else than in my imagination, I think a belief in big government drove the name change.

Anyway, I don't much like this idea. It takes a too much time for me to present a flowing narrative explaining my arguments, so instead, I am going to present you with language from the actual bill, inserting my thoughts piecemeal, on a comment-as-you-go basis.

C. The department shall have the following duties and responsibilities:
1. To assist existing businesses to remain in business.

This should ring alarm bells for everyone who reads it. Using everyone's wealth to help certain people is a restriction of freedom, and prevents capitalism from working properly. Economic freedom leads to good things:


The green bars represent the highest levels of freedom--click here for the full scope of the information.

Let me elaborate using a first hand example. When I started my business, it was on a very small scale. I did not have a lot of overhead, and didn't need any startup capital. From year 1 to year 2, business increased by 500%!! I freaked out--heck, I was only 21 years old and didn't have any academic or on-the-job experience. I went to a bank and said "Hello, my name is Brian, I am 21 years old, I just started a company in the most competitive industry that exists, and I need $50,000". The bank promptly responded "son, there's a jar of tasty lollipops near the door on your way out".

So, I went to the SBA, which is a quasi-government agency. They didn't loan me the money, but they guaranteed repayment of 80% of my loan to the bank if I defaulted. The bank consequently gave me the money. I know this seems hypocritical given the case I am making at this very time, but hear me out. As time goes by, I tend to think this money actually hurt my operations. You see, since I had the money, I spent it. I hired more managers than I needed, and leased on office that I didn't need. I went into even heavier debt for 2 years, as these expenses caused me to earn losses for 2 years. As we speak, I have the proper amount of labor, and do not use the office--a profitable arrangement. Of note: the business model that I use now is the same model I used before I received SBA guaranteed financing.

This is precisely the point I want to illustrate: government involvement in the private market distorts incentives. If I hadn't received that money, I would have been forced to succeed using a different model. I might have found another way to get money, but more likely, I would have kept doing business following the original model, which turned out to be the correct model. See what I'm saying?

2. To promote the establishment of businesses that serve local residents.

Here are the steps to promote the establishment of businesses:

1. Have property taxes as low as possible.
2. Streamline permitting process.
3. Provide adequate parking and transportation access.
4. Sit back, smoke a cigar, and watch businesses thrive.

The city can do these things without a new department and a highly paid department head.

3. To recruit, assist, and promote minority and disadvantaged businesses and to enhance employment opportunities for all residents, especially women, minorities, and youth. For example, to develop and administer workforce development activities and programs as the programs relate to the economic vitality of the city.

Why is everyone except middle aged white males entitled to special treatment? Isn't this called racism?

4. To apply for and administer grants and loans related to the economic vitality of the city and to assist with various tax credit and loan programs offered by the County, State, and Federal Governments as these programs relate to the economic vitality of the city.

This sounds like a noble cause, but again, it seems that an existing city department could handle the load.

5. To work with other municipal employees or private parties in identifying areas in the city in need of economic revitalization and to cooperate in the preparation in plans to bring about economic revitalization to such areas.

(Intermission #2. Something good did come of the SBA money. Since I participated in their program, I was eligible for their rewards, and was recognized as Young Entrepreneur of the Year in 2003. Fancy.)

6. To work with businesses and residents to recognize and resolve differences over such matters as parking and special events.

What?? How did that get in there?! Why would the economic affairs department be officiating parking disputes.

I am imagining that the Mayor lost a bet to the person whose job this really is, and was forced to shift this annoyance, or else go back on her word and disgrace the memory of her ancestors.

7. To offer existing businesses and prospective businesses assistance in identifying sources of financing and obtaining professional and technical assistance.

The aforementioned Small Business Administration is a government agency that already exists to do this very thing. They will even loan you money. Then you can waste the money and go into massive debt. Then you can write a blog in lieu of making money to repay that debt. For expert financial advice, you can call me at........

8. To periodically prepare forecasts of economic conditions in Annapolis.

The state already does this.

9. At the request of the Mayor or City Council, to analyze the impact of proposed legislation.

Instead of paying a couple hundred thousand dollars to a department to do this, budget an intern position for some starving grad student to do the very same analysis while working in the finance department.

10. Participate in the urban and regional planning activities of the City, Anne Arundel County, and the regional planning organizations consistent with the character of the City.

I am quite confused. We are talking about Economic Development, right? Are these organizations going to plan the economy?? Or are they just going to overlap duties with the existent Department of Planning and Zoning?

11. Serve as a liaison to the business community through membership and support of recognized business associations in the city including such efforts as providing technical assistance and information to the business community and its recognized associations.

Membership to these associations is not free. Do you support your tax money funding the city's application fee for the Parole Business Association?

12. Assist those who desire to hold special events in the City by providing a single point of contact for the city, advising of necessary permits and City requirements, and assisting in the development of the special event application and necessary permit applications and fees where appropriate.

Again, good idea, but do this in a different department. Perhaps the Department of Neighborhood and Environmental Programs, WHICH WAS CREATED FOR THIS EXACT PURPOSE! Whoops, I forgot, it was created to give a job to a crony.

13. Administer, promote, and financially manage the Annapolis Sister City Program.

Unbelievable.


14. To perform such other tasks as directed by the mayor.

We could all be so lucky.

Don't Count Your Chickens: Economic Development

The Mayor wants to create a Department of Economic Development, which would upgrade the operation from its current status as the Office of Economic Development, which is contained within the Mayor's Office.

I do not recall this ordinance coming up for a vote, but I don't think it did, and it has not appeared on the agenda for a vote since it was up for public hearing.

The point is, Economic Development is still an office and not a department. Yet, here is what the sign says on the door:

Does the city know that they are living a lie? Do they know, and just not care??

Although I cannot state with certainty the reasoning behind this, it is a typical result for the city. The laws don't seem to matter. The fact that certain laws and rules exist is a nuisance to the mayor--she will obey them if it's convenient but if not, oh well.

"Those laws are really hard and time-consuming....I'll just do what I want," I imagine her saying.

Enough about this...let's get to the meat of the debate.

We do not even need an office of economic development, and we definitely do not need to make it bigger. I don't care that other cities and counties have such departments; it doesn't matter, they don't belong.

Here is what the economic development office does, and would do on a bigger basis if it could:

-try to increase business opportunities in the city
-give out money to try and do the above thing
-try to promote minority business opportunities
-administer the sister city program

Question: What, in the name of higher taxes, does economic development have to do with the sister city program?

Answer: The mayor can appoint a major campaign contributor and/or friend to be the department head, then pay that person $115,000 per year and fly that person around the world to visit all of our sister cities. It is a mechanism for political favors.

Question Asker: Oh.

And that's that. Moving on, we do not need a department of economic development because the private market will take care of this just fine. An infinite number of market forces determine where a particular type of businesses will open. If an entrepreneur thinks he/she can make money in Annapolis, he/she will try and do it. This process is repeated trillions of times throughout history, and this leads us to the businesses we have now. The city is hopelessly foolish and arrogant if it thinks that it can do better than the private market.

There is, in fact, one argument in favor of an office of economic development that holds some water. You could say:

"Ah-ha, AP, you think you know it all--the private market only works if there is perfect information. Even if Annapolis would lead to profits for businesses, they might not know about it because they could not possibly know all of our laws or opportunities, and they might not even know us at all. The economic development does what a good government should--they eliminate an information problem and therefore correct a market failure."

and you would have a valid point. But you would be ultimately incorrect. The private market almost always gets it right. Even IF the department could have this benefit, it does not justify the downside.

So what is the downside? Mainly, it's that the government operates as a for-profit entity. Private for-profit businesses make investments based on risk and expected rate of return. Some of these investments succeed, and some fail.

The same can be said for the department of economic development. Their grants to minority businesses, subsidies, incentives, etc.--these are all SPECULATIVE INVESTMENTS in certain businesses, no different than a venture capital firm. THE DIFFERENCE IS, THE OFFICE OF ECONOMIC DEVELOPMENT DOES THIS WITH YOUR MONEY. This is not the role of government. There is a horrible equity problem here. The government is favoring a select few businesses as the expense of the many--at the expense of the citizens.

The best possible thing that could result from a Department of Economic Development is a successful business a few years before it would have otherwise been. The worst things that could happen include government-supported inequity, market distortions, businesses that would not succeed without government support, and worthy entrepreneurs that are put out of business because they cannot compete with the select few businesses that receive government help.

Here is how you spur economic development:
-Lower taxes on businesses, and on residents so they can spend more at these businesses
-Streamline the permitting process
-Sit back and smoke a cigar, because the private market will do the rest

Even if you want the government to promote minority opportunities, you can do this through planning and zoning.

Summary: Economic Development Departments = unnecessary.