Let's Dodge This Bullet

Posted on October 17, 2004 | Type: In the News
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Buried under the ground in Waxahachie, Texas, sits the world's most expensive mushroom farm.  The miles of abandoned concrete tunnels that were to be an economic engine now grow edible fungus.  Numerous states, including Arizona, heavily courted the project, but Texas "won" and billions of dollars were poured into the so-called supercollider. Instead of putting Texas on the map as a leader in cutting-edge technology, Texas now claims the honor of hosting one very expensive mushroom farm.

At the time, planners said Arizona had missed out on an economic silver bullet. The benefit of hindsight shows that Arizona dodged a bullet.

A similar bullet is headed our way again, this time in the form of a proposal to amend the Arizona Constitution. The proposal would allow the state government, through public universities, to have an ownership stake in private companies.  Proponents of the amendment are using much of the same rhetoric that was used to justify the supercollider project in 1987. Then, the claim was that the supercollider would be "the potential equivalent of Columbus' discovery of the New World or of man's landing on the moon [and] generate thousands of new jobs in the area where it is located."  Sharon Harper, co-chairwoman of today's campaign for Proposition 102, stated, "It's about jobs, discoveries in health care and the vibrancy of our economy and competitiveness."

The truth is the amendment is not about those things. Instead, it would repeal a long-standing protection for taxpayers and throw wide open the door to supercollider boondoggles and public corruption.

The amendment would allow state universities to exchange university-developed technology for an ownership stake in private companies.  Proponents argue that changing the constitution in this way will provide a vehicle to bring university-developed products to market and, in turn, drive the "new" economy.

However, universities already have the most powerful means of bringing technology to market. Arizona universities enjoy some of the nation's most permissive licensing laws, meaning that they can license discoveries to any company with the resources to make that product profitable. In 2003 alone, Arizona universities produced 220 patent applications, 35 patents, and signed 124 licensing agreements. And proponents are hard-pressed to name any promising technologies that are just sitting untapped on university shelves. Even Gatorade, an oft-cited example of profitable university discoveries, was brought to market via licensing.

Not only is a change to the state constitution therefore unnecessary, but changing the constitution poses several dangers ? the very dangers that Article 9, section 7 of the state constitution was designed to prevent. 

The framers of Arizona's constitution were intimately familiar with the history of local governments wasting public funds in speculative ventures, most notoriously with east coast railroad companies.  Similar scandals occurred nationwide during the credit mobilier crisis and in the Midwest with several canal building projects.  Thus, to prevent abuse of public resources and real potential for conflicts of interest, the constitution prohibits state entities from becoming owners or partners in private companies.

Without this prohibition, officials can enter into sweetheart deals with potential purchasers of university-developed technologies.  This includes directing university research to favored companies in which the state has an ownership interest instead of companies that could make better use of the technology.  Most troubling, companies in which a regent or university official may have a financial interest, or those that provide nonpublic incentives, including kickbacks or bribes, may receive university developed technology without providing proper compensation to the state.

Additionally, most projects will not be profitable.  In fact, as the Wall Street Journal recently reported, publicly-funded biotechnology ventures have lost over $40 billion just since 1995. 

Moreover, under the proposed constitutional change, the state will not only have a vested interest in private companies, but those subsidized companies will compete against normal private businesses.  Such a scheme provides an unfair advantage to companies that partner with the state.  As has occurred in the past, the potential for corruption or depletion of the public treasury also exist. 

Economic prosperity results not from state-owned business, but from the freedom of entrepreneurs to operate.  Wealth is created by individuals, not government.  Universities are especially inefficient.  In his recent book, Going Broke by Degree, Professor Richard Vedder conclusively illustrates that higher university spending actually lowers economic growth.

During the past century, Arizona residents have been subjected to proposals from all sorts of snake oil salesmen.  In the 1980's, it was the promise that if we just spent billions on the supercollider, Arizona would be on the cutting edge of technology.  Today it's the notion that changing our constitution and the way government interacts with the economy will bring fortune.  The plan ignores the proven path to economic vitality, and puts our state squarely in another bullet's path.

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