EdAction
Maple River Education Coalition PAC
105 Peavey Rd, St 116
Chaska, MN
55318
952-361-4931
http://www.EdAction.org
E-mail
February 14, 2002
By Michael J. Chapman
Board of Directors,
Maple River Education Coalition
Last year, Minnesota passed the Biomedical Innovation and Commercialization Initiative (BICI). Billed as an "economic stimulus initiative," BICI actually represents the state take-over of a successful free-market industry. Nothing like this has ever been attempted before. States have always offered tax incentives and low-interest loans to attract businesses, but this scheme redefines the role of government to be a "venture capitalist" with our tax dollars. Profits will go to government; losses will be passed on to the taxpayers! Similar ventures are being considered for other industries, signaling the coming end of the free-market economy.
Last February (2001), the Minnesota Department of Trade and Economic Development published a report justifying the need for BICI and explaining how it would operate. The report is a diatribe of self-contradictions and straw-man arguments.
Management through "Appointed Representatives"According to the report, BICI is a new "for-profit" corporation formed "to manage the commercial development of the [bio]-technologies it selects...and licenses." Through BICI, taxpayers will "provide early stage seed capital..." to the tune of $10 million! (p.2.) This Government-operated business will be managed by an appointed 5-member board that includes "representatives" from the State Department of Economic Security, University of Minnesota, and from the BICI investment partners. (p.9.) The BICI managers will determine which research ideas have "commercial potential" and are worthy of taxpayer investment.
"Appointed Representatives" are never a good idea in a free republic; but allowing government-appointed managers to risk taxpayer money for its own benefit is nothing but "taxation without representation."
What are the bio-technologies BICI managers will select and influx with taxpayer dollars? According to the report, "the term [biotechnology] is employed in its broadest sense to encompass all discoveries related to human and animal medicine and health. ...including, pharmaceuticals, biotechnology, medical devices, hybrid devices, biomedical engineering, diagnostics, and health care-related information technology." (p.3.) In other words - biotechnology includes just about anything that has to do with the health-care industry.
Failure of the Free-Market?Wasn't the health-care industry doing okay without government managers? "No," says the report. According to the executive summary, BICI is justified for three reasons: "There is a local market failure for commercialization of technology. There is a long lag phase between initial investment and profitability, and it is difficult for capital markets to assess accurately the risk associated with early-stage technologies. For these reasons, the private sector under-invests in commercializing the results of basic research." (p.2. emphasis added) In other words, the free-market has failed the health-care industry, so government is needed to step in and save the day!
In reality, none of these reasons are true. In fact, the remainder of the report contradicts these arguments. For example, if it's really difficult to get the "private sector" to invest in medical technology, how can BICI later claim that three-fourths of its investment capital will come from attracting "private sector" investments? (p. 10. "investors")
Furthermore, if BICI's existence is necessary due to the "failure" of free-market private investments in University research ideas, how can the report later claim: "the University has been successful in protecting its intellectual property and licensing its technology to existing companies"? (p.5.)
Contradictions abound in this report! None so absurd as claiming, "there is a local market failure for commercialization of biotechnology" (which includes "medical devices"). Yet, within the same paragraph, this failure "is contrasted with the very successful medical device industry in Minnesota." (p.6) How is it possible to have a successful medical device industry become the justification for government intervention in the medical device industry? According to the report, BICI will "license" ideas already patented by the University, then enter into a commercial partnership agreement that gives BICI power over eventual start-up businesses.
Taxpayer Guaranteed Success!But the BICI report claims government is not interested in long-term management of new companies, only helping new companies get started. But this too is smoke and mirrors wizardry. The BICI report spells out how it will turn over its management of start-up companies to the private sector. The report explains that BICI will be in charge of developing the "exit strategy" in such a way as to "guarantee an equity and/or cash return to BICI Corp. to assure its future operations." (p.8). As you will read below, "future operations" means setting up the same scheme in other industries! Furthermore, "The [BICI] Board will be required to determine how to best partition the two sources of funding (public and private)..." (p.8). Not only do BICI bureaucrats get to determine how to split up any taxpayer-funded spoils, but "future operations" will be "guaranteed" by the income from any successful ventures.
But there's more: According to the report, if the venture is successful, "BICI management develops the management team for the new company." In other words, the "appointed representatives" of BICI have the right to appoint the start-up company's management board. The possibilities for corruption and graft are obvious and endless!
But what happens if the venture goes bust? According to the report, "The [BICI] board will decide when to seek additional BICI Corp. 'investments' to sustain early market development funding capabilities." (p.9.) BICI knows where to come get more "investment capital" - the same source from which it's startup capitol came - the taxpayers!
What do BICI managers expect in return for their benevolent management of our money? Only the cake and then license to eat it too. The BICI managers claim this is not too much to ask. The report assures us that "The required return on investment for the state is not high, merely a return sufficient to maintain operations and proof of concept funding indefinitely." (p.10) If only the free-market could "merely" ask for as little!
Since we tax-payers are the ones providing the funding, the obvious question is "what's in it for us?" The report states: "The earliest economic returns to the state would be more in the form of tax revenues than job creation. obviously, the state could use these revenues for any legitimate purpose." (p.11) Obviously. It's certainly comforting to know that the government is risking my tax dollars to make a profit for itself, so it may spend the revenues on "any legitimate purpose."
Managing The "Labor-Market" EconomySo, where did this idea come from? And why do they think "other" private investors will have more confidence in government-managed start-ups than in the free-market? The report reveals the answer: "The National Governors Association Center for Best Practices (NGA) has recently evaluated university-industry technology transfer. ...Among their recommendations...[is] university-industry partnerships involving state-based companies." (p.4.) In other words, this scheme came through the same organization (NGA) that convinced the nation's governors to sign the federal contracts that brought us Goals 2000 (G2000), School-to-Work (STW), and the Workforce Investment Act (WIA). These federal bills must be understood in order to see how BICI fits into, what has been called, "The New Labor Market Economy."
What these three federal bills (G2000, STW, WIA) created was a three-way public/private partnership between government, education, and the economy. (see our update).
Robert Jones, of the National Alliance of Business and former Undersecretary of Labor during the Carter years, has referred to the overall system as "managing the K-80, knowledge supply chain." He explains that schools are really "human resource suppliers" for businesses ("customers") who represent the "demand" side of a new type of supply-and-demand economy.
Workforce Development Committees To Manage "Targeted Industries"Workforce Development committees in every state and region of the nation are set up to manage the "labor-market supply chain." They will coordinate the "supply" to meet the "demand" for labor within "targeted industries." One of the targeted industries established by the National Skills Standards Board is -- surprise-- biotechnology. The BICI report hints that it will take advantage of the new school-to-work training system for the purpose of providing labor for its new start-up companies: "As new companies continue to grow, there would be the future potential for companies to locate in areas throughout the state where a critical mass of technologically-appropriate employees could be recruited." (p.11.)
From where will the new companies recruit its "critical mass of technologically-appropriate employees"? They will come from the "labor-suppliers" otherwise known as schools. Next fall, for example, every Minneapolis 9th grader will be pigeon-holed into one of several "career clusters" (called "small learning communities") that will focus their "technologically-appropriate" high school training. It's no coincidence that one of the areas available is health care (read: "biotechnology").
Expansion to Other Industries and other StatesAccording to BICI documentation, future plans include building "BICI"- style corporations in other industries, including: "Agriculture, Digital Science, Media Science, and other areas with commercial potential." (p. 4. of BICI Booklet). Whatever the justification for taking over these "other areas with commercial potential," don't be surprised when they happen to match the career-cluster choices offered to students under the new "education" system.
This idea is not unique to Minnesota. The BICI report offers further justification by acknowledging the fact that Illinois, Indiana, Kentucky, Pennsylvania, and Wisconsin, are also creating similar government-managed venture corporations.
Bottom Line:BICI is not about helping the biotechnology industry; it is about taking it over. Nor is BICI about helping jump-start the free-market; it is about government abuse of power, bilking the taxpayers, and ending a successful free-market system. The report is sprinkled with idealistic, socialist motives. For example, the report admits: "The return to an innovating company may not be as large as the returns to society,"(p.3.) "Efforts...squarely address the need to...benefit the public." (p.4.) These altruistic-sounding motives really state that the free-market should step aside for what government deems the "common good."
Indeed, BICI brings Minnesota, and the nation, one step closer to a state-managed economy.