Earlier this week, Insight Founder and successful entrepreneur Eric Crown published an op-ed on the growing use of taxpayer money to subsidize risky ventures by politically connected businessman. For years the Free Enterprise Club has fought against these types of giveaways that pick winners and losers, and we applaud Mr. Crown for shining a light on it.
Below is the op-ed in its entirety, it is well worth the read:
When Taxpayers Carry All the Risk
By ERIC CROWN
In 1987, after taking a $2,000 advance on my credit card, I placed a single ad offering hard drives in a magazine called Computer Shopper. I gambled that in the 20 days it took for the magazine to come out, the price for the drives from my wholesaler would drop lower than the price I advertised. Thankfully, I won that bet, which allowed my brother and me to launch Insight Enterprises, a direct-to-consumer computer sales company now with $5 billion in annual sales.
It’s an inspiring story but by no means unique. American history is full of stories of entrepreneurs—from Thomas Edison to Steve Jobs to Joy Mangano—taking a risk with their last dollar and striking it big.
But recently I’ve watched a new class of entrepreneurs emerge who reject the idea that they must shoulder risk to earn a reward. Instead they look to lawmakers—who can dip into taxpayers’ wallets—to make their bet for them.
A new example is unfolding in Tucson, Ariz. A company called World View Enterprises wants to offer tourists $75,000 rides in luxury high-altitude weather balloons. I think it’s an interesting concept, and I might even buy a ticket. But even if I don’t, as an Arizona taxpayer I’m already paying anyway, with more paying to come.
World View has already received $250,000 in taxpayer-funded subsidies from the state of Arizona to pay for its startup costs. But that’s not enough. Now the company wants Pima County taxpayers to spend $15 million to build its headquarters and balloon launchpad. In a county with above-average unemployment, officials are desperate for anything that might lead to job growth. So they agreed to take out a second-mortgage on county buildings to raise the money to build World View’s facilities.
World View’s foray into tourism is a new venture and it still doesn’t have Federal Aviation Administration permission to put passengers in weather balloons and launch them 32 kilometers into “near space”—which is higher than airplanes fly but below the 100 kilometer boundary of outer space. That’s a big gamble to take with taxpayer money.
If World View doesn’t get off the ground, taxpayers will be stuck repaying the second mortgages. And the county will have a balloon pad and another empty building.
We’ve seen this movie before. Taxpayers pick up the tab for a brilliant idea on paper and it turns into a bust in practice. New Mexico taxpayers have sunk more than $200 million in a “spaceport” that Popular Mechanics recently called a “ghost town.” SunEdison, once the fastest-growing renewable energy company in the U.S., filed for bankruptcy last month despite receiving $650 million in federal subsidies. Rhode Island taxpayers lost $75 million when former Red Sox pitcher Curt Schilling’s 38 Studios videogame company collapsed.
Even if the countless examples of taxpayer-funded businesses folding aren’t enough to keep lawmakers out of citizens’ pockets, the law should be. The Arizona Constitution, like that of 46 other states, makes corporate welfare illegal.
The thing about deals like this is that they always benefit insiders. When was the last time a Regular Joe got cash to pay his business startup costs and a free building from the government? Even in this age of government generosity, we only see that when someone on the receiving end is plugged in.
In the World View Enterprises case, Mark Kelly, a former astronaut and the husband of former-Tucson area congresswoman and gunshot survivor Gabby Giffords, is director of flight-crew operations for the company. I’m not suggesting that Mr. Kelly or his colleagues did anything illegal or extraordinary. On the contrary, they did what is becoming increasingly common. When you can’t get enough private venture capitalists behind your project, but you know how the game is played, you go to the government.
Mr. Kelly is an American hero and World View has got a good idea. But he and his partners need to go to the bank for a loan, like all the heroes with great ideas who came before them did. If World View works out, its owners will make millions, and they should. But that’s a risk that’s appropriate for the market, not taxpayers.
Mr. Crown is the founder and chairman emeritus of Insight Enterprises, and the chairman of the board of the Goldwater Institute, which is challenging the subsidy to World View in court.