Back to Mercantilism

I hate to hear about "partnerships" between government and business, or between government and other organizations. When there is a partnership between an ant and an elephant, who do you suppose makes the decisions?
  -
Thomas Sowell

We'll be hearing a lot about state-business "partnerships" over the months to come. Much of Obama's "stimulus" plan, and virtually the whole of the bank-bailout plan (if I'm deciphering Secretary Geithner's obscure and confusing outline correctly) are based on the concept. In fact, most of the country's financial establishment is already operating under such a compact.

That being the case, a close examination of the record of such partnerships is more than timely. And it happens that such a case was brought to my attention just this week.

The case involves the state of Ohio (specifically the Ohio Department of Development) and a small Columbus-based communications company called Leader Technology.

Leader Technology has established quite a reputation in a short time. It was Leader that supplied telecommunications capability for the state of Louisiana following Hurricane Katrina. Port Columbus and the Ohio Emergency Management Agency are clients, along with a number of colleges and secondary schools. (The company is endorsed by the Ohio School Boards Association.) To top it off, it has performed critical work involving national security. (Full disclosure: the owner's wife, Nancy McKibben, is a close friend and colleague..)

So everything was rolling along fine until the company was approached by the Ohio Department of Development (ODOD) and invited to take part in something called the Innovation Ohio Revolving Loan Fund, a program in which business loans on generous terms would be made available for purposes of job creation.
Leader was offered a four-part financing package amounting to $5.2 million to assist in creating 159 new jobs. The company received the first payment of $250,000, which was used to buy equipment.

Then things went off the rails in the style typical of bureaucracies. There was an election, and with the change of administrations there occurred, as is often the case today, a change in ideology. The Innovation Ohio Revolving Loan Fund, and the ideas behind it, were no longer acceptable. The program withered, and Leader never received the rest of the funds.


In 2005, the ODOD began pressuring the company for repayment, on the grounds that the promised jobs had not materialized. The fact that funding had never materialized either went by the board. The owners met with officials on two separate occasions to work out a repayment schedule, only to have the plans canceled by the ODOD's legal department on no plausible grounds. At the beginning of this year, the ODOD froze Leader's banks accounts, began efforts to seize payments from the company's customers, approaching the point of harassing the company out of business.

The implications here go well beyond the travails of a small Ohio company.. It's a chain of events that occurs continually in this country, wherever such policies of government-state "partnership" prevail. Recall the St. Louis businessman who was tricked by the Environmental Protection Agency into buying a polluted property and then fined  to near-bankruptcy. Leader had no difficulty with government as a client. (Though the company is still owed enormous amounts by the Feds.) Problems arose when this notion of a partnership was broached, not by the company or its operators, but by state government itself.

Difficulties are inherent in the very concept of state-business partnership, and probably unavoidable, lying as they do in the nature of the organizational elements involved. A business is designed to act quickly for the purpose of making a profit. A bureaucracy is designed to stretch things out as long as possible while generating large amounts of paper. This dichotomy is inherent and unlikely to be overcome.

The end result will be what we have seen here. Leader's story may turn out well - the local paper, the Columbus Dispatch, has taken an interest, various local politicians are becoming involved, and an examination of the paperwork reveals that the mandarins of the ODOD falsified information in order to justify their campaign against Leader.

But it's clear that the Messiah's plans for the economy involve moving into this class of operations in a big way. At the end of that road lies a bastard system called "mercantilism", not socialism and not capitalism but combining some elements of each, in which government figures set goals and then allow a small number of nominally private companies to bid for the privilege of achieving them. The possibilities for corruption here are obvious. Every now and then, when the government finds it convenient, a company or two is seized and stripped of its assets, to encourage the others. Eventually, government and business become effectively indistinguishable. In this kind of incestuous government-business marriage, last seen in the West in the early days of the Enlightenment, the public, workers, and customers come in dead last, if at all.

Let's hope that Leader finds its way out of the woods. The rest of us must take its story as a warning -- there are worse things than slow economies.

J.R. Dunn is consulting editor of American Thinker.
I hate to hear about "partnerships" between government and business, or between government and other organizations. When there is a partnership between an ant and an elephant, who do you suppose makes the decisions?
  -
Thomas Sowell

We'll be hearing a lot about state-business "partnerships" over the months to come. Much of Obama's "stimulus" plan, and virtually the whole of the bank-bailout plan (if I'm deciphering Secretary Geithner's obscure and confusing outline correctly) are based on the concept. In fact, most of the country's financial establishment is already operating under such a compact.

That being the case, a close examination of the record of such partnerships is more than timely. And it happens that such a case was brought to my attention just this week.

The case involves the state of Ohio (specifically the Ohio Department of Development) and a small Columbus-based communications company called Leader Technology.

Leader Technology has established quite a reputation in a short time. It was Leader that supplied telecommunications capability for the state of Louisiana following Hurricane Katrina. Port Columbus and the Ohio Emergency Management Agency are clients, along with a number of colleges and secondary schools. (The company is endorsed by the Ohio School Boards Association.) To top it off, it has performed critical work involving national security. (Full disclosure: the owner's wife, Nancy McKibben, is a close friend and colleague..)

So everything was rolling along fine until the company was approached by the Ohio Department of Development (ODOD) and invited to take part in something called the Innovation Ohio Revolving Loan Fund, a program in which business loans on generous terms would be made available for purposes of job creation.
Leader was offered a four-part financing package amounting to $5.2 million to assist in creating 159 new jobs. The company received the first payment of $250,000, which was used to buy equipment.

Then things went off the rails in the style typical of bureaucracies. There was an election, and with the change of administrations there occurred, as is often the case today, a change in ideology. The Innovation Ohio Revolving Loan Fund, and the ideas behind it, were no longer acceptable. The program withered, and Leader never received the rest of the funds.


In 2005, the ODOD began pressuring the company for repayment, on the grounds that the promised jobs had not materialized. The fact that funding had never materialized either went by the board. The owners met with officials on two separate occasions to work out a repayment schedule, only to have the plans canceled by the ODOD's legal department on no plausible grounds. At the beginning of this year, the ODOD froze Leader's banks accounts, began efforts to seize payments from the company's customers, approaching the point of harassing the company out of business.

The implications here go well beyond the travails of a small Ohio company.. It's a chain of events that occurs continually in this country, wherever such policies of government-state "partnership" prevail. Recall the St. Louis businessman who was tricked by the Environmental Protection Agency into buying a polluted property and then fined  to near-bankruptcy. Leader had no difficulty with government as a client. (Though the company is still owed enormous amounts by the Feds.) Problems arose when this notion of a partnership was broached, not by the company or its operators, but by state government itself.

Difficulties are inherent in the very concept of state-business partnership, and probably unavoidable, lying as they do in the nature of the organizational elements involved. A business is designed to act quickly for the purpose of making a profit. A bureaucracy is designed to stretch things out as long as possible while generating large amounts of paper. This dichotomy is inherent and unlikely to be overcome.

The end result will be what we have seen here. Leader's story may turn out well - the local paper, the Columbus Dispatch, has taken an interest, various local politicians are becoming involved, and an examination of the paperwork reveals that the mandarins of the ODOD falsified information in order to justify their campaign against Leader.

But it's clear that the Messiah's plans for the economy involve moving into this class of operations in a big way. At the end of that road lies a bastard system called "mercantilism", not socialism and not capitalism but combining some elements of each, in which government figures set goals and then allow a small number of nominally private companies to bid for the privilege of achieving them. The possibilities for corruption here are obvious. Every now and then, when the government finds it convenient, a company or two is seized and stripped of its assets, to encourage the others. Eventually, government and business become effectively indistinguishable. In this kind of incestuous government-business marriage, last seen in the West in the early days of the Enlightenment, the public, workers, and customers come in dead last, if at all.

Let's hope that Leader finds its way out of the woods. The rest of us must take its story as a warning -- there are worse things than slow economies.

J.R. Dunn is consulting editor of American Thinker.