Local Papers and the Growth of Government

In some sort of synergistic relationship I haven't fully figured out, local newspapers love to cheerlead the expansion of government programs.  Here is a great example, via Rick Perry.  The headline in the Detroit Free Press web site reads:

State venture capital funds starting to pay off

But then we go on to read:

Michigan's two venture capital investment funds are starting to generate results, state economic  officials said Monday.

Since their formation in 2006, the $95-million Venture Michigan Fund
and the $109-million Michigan 21st Century Investment Fund have
invested in six venture capital firms with either a headquarters or an office
in the state. These firms have used the money and other capital to
invest in 11 fledgling Michigan companies that have added 40 workers in
recent years.

The two funds have made investment commitments of $116.3 million, or slightly more than half of their total capital.

So out of $204 million in taxpayer funds (why the state has entered the venture capital business with state funds is anybody's guess) the state has invested $116 million to create 40 jobs.  Given that the notion of the government venture fund was to create state jobs, its not clear how $3 million per job is a really good return.  Further, there is no mention of the government has gotten any kind of financial return from this investment, so I will presume it has not. So how can the paper possibly with a straight face say that the funds are "starting to pay off?" 

Eleven companies with an average of 3 employees each somehow each got $10 million in state funds.  I bet it would be fascinating to see just who these 11 companies are, and how their owners are connected into the political power structure. 

  • Esox Lucius

    I sent a letter to the editor, this is what she said:

    Thank you for writing! The job statistics that state economic development officials touted on Monday is not the “end result”. Venture capital investments can take five to 10 years to mature so the 40 jobs that officials cited is just the start. One or more of the 11 companies that received the money could end up being a homerun and create hundreds of jobs. I should have explained this in more detail but I was trying to keep the story short. Yes, venture capital investments are high risk and it remains to be seen just how well these Michigan funds do. But to calculate that each job cost state taxpayers $3 million is incorrect at this point in time. That cost cannot be calculated until a few years down the road.
    I do, however, think that the headline of the story is misleading. But I don’t write headlines.

    Best Regards,

    Katherine Yung
    The Detroit Free Press
    (313) 222-8763
    kyung@freepress.com

  • CRC

    I believe, checking my statist-to-normal-person dictionary here, that "starting to pay off" in regards to any state-sponsored activity means showing ANY kind of progress whatsoever.

    However I find that the phrase, when applied to private enterprises appears to equate to greed, profiteering and exploitation.

  • CRC

    It's funny you mention this symbiotic relationship between local papers and government because every time I pick up my local paper it sure looks like a government propaganda rag.

  • K

    The AZ Republic is totally a captive of bigger government. They seem to report corruption fairly honestly. And cover local affairs. But whenever government can spend more money for anything they are for it.

    In their opinion the rest of the state exists to benefit a few square miles of downtown Phoenix. And in reality that is about how it works out.

  • Leonard Huff III

    In the oil & gas industry, payout is defined (from a legal & accounting term), as when the total investment in the well equals the total net income (gross revenues minus monthly operating expenses, royalties, overriding royalty interests) equals the total amount of the orginial investment.

    Simple formula to track "payout" from a legal & accounting stand point in a private industry deal.

    The goverment's formula to calulate "payout" in a goverment investment sounds like something that only a goverment enitity can come up (definition of payout) to keep the tax paying citizens from asking alot of questions about when will we (taxpaying citizens) see a payout on our investment and what is the rate of return on that investment.

    In private industry , if the CEO does not perform according to returns of invested capital in the industry , they don't usually last long (Fired). But a goverment worker (CEO) is harder to fire and replace if the rate of return on the investment in a project does not work out according to the first plan. ("What if" dog & pony show to get the funds raised)

    Have a nice day!

  • Mike

    The interest of local media in pumping up government spending is fairly easy to explain when the issues at stake are spending on mega-projects (light rail, stadiums, convention centers), since projects that are financed primarily with non-local funds bring investment into the locality, thus pushing up the demand for land. Many big-city newspapers have their headquarters in CBD (downtown) locations, and so are particularly sensitive to these kinds of proposals.

    The interest in promoting other types of government programs is harder to identify. One possible explanation might emphasize sorting, of the type that causes liberals to overwhelmingly staff college faculty. Analogously, those who favor a larger government or who believe a larger government to be somehow more effective may gravitate to occupations where they can affect public opinion about government scope and performance (e.g. journalism).

    I do agree that it is unquestionably a bad idea for governments to get into the venture capital game, or any other type of risky investment. Recall that it was this type of risk-taking that caused Orange County to go bankrupt in 1995 -- and this was before the advent of mortgage-backed securities secured by subprime loans. I would also wager that $116 million in obligations to the recipients of the venture capital are not spread anywhere close to evenly among the 11 recipients.

  • K

    Mike: I think newspapers also promote government spending because it supplies such easy and cheap material.

    The AZ Republic, which I spoke before, is mostly articles about new public buildings, new plans of the public agencies, how wonderful public schools are, biographies of wonderful teachers, principles, firefighters, and the awards they receive from the their employers - public agencies.

    Another significant portion consists of interviews with faculty and staff at the state universities about how vital their programs are. And the state also provides venture funds for technology advancement companies - AZ boosts biotech mostly - and the Republic dutifully prints their press releases as stories. They cheer it all on.

    See how easy it is. You take the handouts from public relations hacks, change a few words, and have instant free news. You ask public employees if they do a good job and more you have more instant free news.

    And it is all good news. How can good news be bad?

    But to provide balance they supply bad news. They ask about tax collections. The data is free. Collections are currently down? Oh, bad news, the government needs more revenue. Just ask government departments if they don't need more revenue. Yep! Write a story about their problems.

    When times were better more revenues were needed because the public demanded more services. What a hellish world our public agencies must cope with.

    When your reporters don't have to research a story and never challenge the source you don't have to pay them very much. And you don't need many. Think of the salaries saved.

    Oh, enlarge the letters to the editors section. That's cheap. And ask public officials to contribute guest editorials. That's innovative. Why pay reporters for stuff that writes itself?

    But garbage stories bring falling subscriptions and declining advertising sales, ....... And somehow papers from one end of the land to the other can't figure it out.

    As I said before. They still pay attention to outright corruption and seem to play fair. They don't want corrupt government, just more and more of it.