Third Frontier Unlikely To Revitalize Ohio's Economy
There seems to be a unanimous chorus coming from Columbus that Governor Taft’s Third Frontier initiative is based on sound principles. Taft’s Third Frontier is a ten-year, $1.6 billion state program that is supposed to “to create high-paying jobs for generations of Ohioans through the expansion of Ohio’s high-tech research capabilities and promotion of start-up companies.” A key component of the Third Frontier program is a $500 million state bond issue that will be placed before the voters this fall.
If this measure is approved, according to the Governor’s office, these bonds “will provide the necessary resources to recruit world-class scholars, attract additional research dollars, and help researchers move their products from the laboratory to the marketplace.” Ohio certainly needs to revitalize its economy. Yet we must soberly evaluate the soundness of this initiative as Ohio’s taxpayers may be paying for it, with interest, over the next 35 years.
The Third Frontier has a laudable goal: to revitalize Ohio’s aging Rust-belt economy into a technologically driven one with secure high-paying jobs. However, the plan assumes that large state subsidies will bring long-term economic growth. Yet, all too often large-scale state-sponsored initiatives aimed at enhancing economic development create bureaucracies that continue to advance themselves regardless of the merits of the program. A recent example of a government-sponsored technological initiative whose creation and survival depended upon politics was the Concorde supersonic jet. The development of the Concorde was a joint British/French state-sponsored project designed to assist the local aerospace industry.
By just about any criteria, the Concorde was a disaster. It was unsafe, noisy, a fuel guzzler, and operated at a loss. The chief reason that the Concorde project lasted so long is that a giant governmental/industrial bureaucracy grew to depend on continued subsidies for the Concorde and lobbied hard for its continuation. Only after decades of losing money was the Concorde finally terminated. No assurance has been offered to guarantee that the Third Frontier will not create a large state/industrial bureaucracy that will attempt to perpetuate lucrative pork-barrel subsidies like the Concorde coalition did. In addition, the temptation for government bureaucrats to play politics with Third Frontier money will be immense. Is it unreasonable to worry about politicians directing these funds toward favored businesses and universities for political purposes?
State bonds may be a wise means of raising capital for long-term capital investments such as bridges, sewers, and school buildings that are used for many decades. Unfortunately, much of the proposed $500 million in bonds for the Third Frontier will not be used to pay for capital investments. Rather these long-term bonds will be used to pay for short-term expenses such as recruiting “world-class scholars,” writing grant proposals, and helping “researchers move their products from the laboratory to the marketplace.” Unlike bridges and schools, these “investments” can leave Ohio just as easily as they came. The debt for the bonds, however, will remain an obligation for Ohio’s taxpayers for decades.
In the final analysis, a bond issue implies higher future taxes, and taxes are clearly detrimental to the health of the economy —especially when the funds are to be used for such imprudent “investments.” Policymakers should not be trying to do the job of venture capitalists and investment bankers. The job of the government is to provide basic services like roads, education, police & fire protection, and leave the rest to the marketplace.
Douglas L. Oliver is a member of The Buckeye Institute's Board of Research Advisors, an associate professor of mechanical engineering at the University of Toledo.
