Don’t overreact to 38 Studios fiasco

This commentary appeared in the Providence Journal on Wednesday, June 27, 2012.

Scott WolfOne of the underlying assumptions for pursuing the 38 Studios deal may have been that Rhode Island has few if any natural strengths to build on for economic development. That’s a huge fallacy, but one that has plagued our state for generations as part of our damaging self-esteem problem.

A wrong and tragic lesson to draw from the 38 Studio debacle would be that we shouldn’t make any investments in economic development, that we should just accept the status quo and hope that a national recovery eventually jolts us out of our economic doldrums. That’s a recipe for long-term and avoidable underachievement.

A more constructive and accurate lesson to take away from the recent 38 Studios implosion is that instead of making high-risk, speculative investments in a single highly leveraged project, Rhode Island should invest systematically in our proven strengths and assets, such as our nationally renowned collection of charming, historic buildings and neighborhoods; our energy- efficient, compact development patterns; our booming agricultural sector; our well-positioned deepwater ports and harbors; and our accessible and abundant natural beauty.

For example, even though we know that Rhode Island is a very attractive, lively and user-friendly place that many people love to visit, we promote our state to tourists around America in an underwhelming and fragmented way. In fact, we historically have had the most poorly financed tourism-promotion effort of any New England state. This is a self-defeating policy decision that robs us of jobs as well as sales- and income-tax revenue, and it must be changed.

There is a range of other actions we can and should take that are likely to have a far better return on investment than that of embracing an inherently risky industry in which we have no established track record.

Let’s restore our state historic-property tax credit to once again take advantage of our vast collection of historic buildings and neighborhoods, which we know are settings with great appeal for knowledge-economy companies and workers. It’s far from a coincidence that United Natural Foods, the largest distributor of organic food in America, relocated several years ago from Connecticut to the rehabbed ALCO site, in Providence, that Atrion Networking expanded into Hope Artiste Village, in Pawtucket, after that historic-tax-credit project opened for business, or that Moran Shipping, a technologically sophisticated, homegrown corporation with international reach, decided to forgo a move to Houston and instead relocate to a rehabbed building across from the State House.

Let’s capitalize on our large concentration of college students by providing them with more apprenticeships and opportunities to start businesses in the state.

Let’s take fuller advantage of our energy-efficient development patterns, a major asset now that the era of cheap oil is behind us. To achieve this we need to provide more funding for our public-transit system, partly through new transportation user fees that reduce the system’s dependence on the steadily shrinking gasoline-tax revenue base.

Let’s maintain our remarkable urban-rural balance and our thriving agricultural sector, pass the governor’s proposed bond issue for open space and farm preservation this fall and help municipal officials avoid the pitfalls of over-regulating farm activity.

To ensure that our workers and their families have adequate, well-sited affordable housing, let’s pass the proposed affordable-housing bond issue as well.

And to take better advantage of our ports, let’s approve the proposals for maintenance dredging at Quonset/Davisville and for coordinated marketing of port facilities there and at the Port of Providence.

Are these initiatives sexy and headline grabbing? Maybe not. Are they sound investments in a better future for Rhode Island whose benefits outweigh their modest costs? Absolutely!

But to develop the political and public will to pursue these kinds of investments we have to disabuse ourselves of another potential 38 Studios takeaway — that Rhode Island’s leaders and institutions are hopelessly incompetent and destined to fail at forging public private partnerships for economic advancement. The recent expansion of commuter rail south to Wick-ford Junction, the establishment of the intermodal transportation system at T.F. Green Airport, the development of “WaterFire” as an internationally acclaimed public event along downtown rivers moved and reopened with a dozen lovely bridges in the 1990s, the commercial and aesthetic success of the Providence Place mall, the proliferation of successful farmers markets, and the conversion of the derelict Masonic Temple to the vibrant Renaissance Hotel all undercut the suggestion that we’re the gang that can’t shoot straight.

So as we grapple with the aftermath of the failure of 38 Studios, it is critical that we not overreact, not lose our nerve or our verve. We cannot let the 38 Studios debacle lead to an even bigger economic debacle for Rhode Island that would occur if we become timid and reject sound investments in our infrastructure and our people.

Scott Wolf is executive director of Grow Smart Rhode Island.

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15 Responses to Don’t overreact to 38 Studios fiasco

  1. Hy Goldman June 27, 2012 at 12:54 pm #

    good thinking!! well written…. please call me when you get chance. 401-640-2331

  2. Dave Everett June 27, 2012 at 12:56 pm #

    Very well put – we have a habit of simultaneously patting ourselves on the back and practicing various forms of self-flagellation. Our assets are very real and are based largely on a sense of place (places, really, despite the small size) and accessibility – and should not be sublimated to generic models.

  3. Clay Commons June 27, 2012 at 12:58 pm #

    I’m not the one to judge Schilling’s business acumen; neither, apparently were Carcieri, Stokes, Paiva-Weed, Fox, et al. But it doesn’t matter: all of our eggs, my eggs and yours, should not have been put in one high-risk basket. Too late now, eggs all gone, those at fault (not Schilling, but the above-named people in whom we were forced to trust) silent on the issue and not, apparently, being charged with theft of my tax dollars – my children’s too, like as not, and my grandchildren’s.

    So where, Mr. Wolf, will we get more money to invest in all the worthwhile projects listed above? Until the above-named are held to account, I don’t know who would pony up.

  4. Courtney McCracken June 27, 2012 at 1:03 pm #

    Excellent ideas. The questions are: what will they cost and what can be eliminated from the state budget to pay for them?

  5. Stu Nunnery June 27, 2012 at 1:21 pm #

    There are several “wrong” lessons to be pulled from the 38 Studios wreckage and Scott points out several important ones. There are others, and one was articulated not long ago by Mike McMahon, former EDC head who has long suggested that RI’s infrastructure is the first brick in Rhode Island’s mortar. I concur. Our roads, buildings, communications and transportation all need work and their poor condition makes the good things about RI less visible. For all our assets, unless WE build it, they will not come.

    Another is the value, importance or lack thereof of the Economic Development Corporation. While the 38 Studoes deal was being put together, many of us in agriculture and other parts of the economy endured a long and frustrating trail of ignorance and indifference from the EDC about ours and other sectors of the economy and their importance to our present and future. In agriculture’s corner we had Rhode Island’s local foods and farms, orchards and vineyards, tourism and beautiful landscapes and the quality of life in our communities to offer. Nothing from EDC. Until the EDC is populated by broad-minded and deep thinking professionals who “get it” about Rhode Island, any utility to that institution will be hard pressed to be appreciated.

    Stu Nunnery, Director
    Rhide Island Center for Agriculture Promotion & Education (RICAPE)

  6. Lee R. Whitaker June 27, 2012 at 1:30 pm #

    Your opening paragraph says it well enough. Once again, you have presented a closely reasoned and well written argument for the betterment of our state. There are many pearls here. The historic tax credit program probably did more for the state than anyone knows. The self-esteem issue is compounded by the 38 studios debacle because of the extraordinary way it exposes the vast and intricate web of influence at the confluence of politics and money.

  7. Richard Ribb June 27, 2012 at 2:16 pm #

    Scott’s op-ed hit some key points in turning our economic ship around. However, it did not mention one critical component – a strong and effective educational system that is closely tied to industry and innovation. Mr. McMahon included this in a recent Projo op-ed. He tossed it into the salad of his other ideas without discussing the significant challenges faced in getting to that kind of system. It will take leadership, attention, resources and a serious long-term commitment to make that happen – which I would argue are lacking at this point. An educated, connected and skilled workforce is a big reason why other places have weathered the recession (see Mass. next door) better than R.I. The state investment in our university system (not just buildings but people, programs and networks) has been on a long decline and it really shows. We have some real strengths in our university system but they are not being exploited and the state has not been effective in connecting them to regional systems (Mass. universities, Woods Hole, the Rte. 128 community, etc.) that can help breed success. The former R.I. Economic Policy Council issued a report years ago that highlighted the need to be connected to our regional economic framework – it was good advice. Too bad we haven’t taken it.

  8. Maureen Hart June 27, 2012 at 2:33 pm #

    An excellent summary of the lessons to learn from 38 Studio, which is an example of ‘economic development’ that is really just ‘speculation’. Smart investors know that they should only gamble a small percent of their funds on the most risky investments. There should be a similar restraint on public funds.

    However, I would also caution that ‘economic development’ not rely on ‘poaching’ — stealing businesses from other communities. It often creates short term job gains in the community, but at the cost of large sums of public money and leaves the community at risk of the business and jobs being stolen away by the next community offering a better tax break or subsidy.

    As you mentioned, the best ‘economic development’ is investment in RI’s proven strengths and existing assets, such as the state’s strong agriculture base and its supply of college students. This investment should focus on long-term enhancement of RI’s economic, social, and environmental capital, such as turning students into entrepreneurs that build businesses from within or improving the state’s infrastructure in ways that make it less dependent on ‘foreign’ (non-RI) sources of energy and water.

    Remember that the reason we need ‘economic development’ is that we need an economy that supports long-term quality of life for our communities.

  9. Greg Gerritt June 27, 2012 at 9:13 pm #

    Much that Scott says is true and reasonably useful, but the key weakness of the economic strategy that Scott advocates for is that it is based on the expectation of growth. Due to real ecological collapse and overuse of resources, the economy is likely to contract, not just in Great Recessions, but permanently. If we want prosperity in Rhode Island we better get ready for growing more food and using less stuff. We need for real estate values to drop- to what is actually affordable in the community, and underlying all prosperity will be heather ecosystems. We can not just slow the damage to ecosystems if our community is to thrive, we have to repair the damage. And that takes using less. So if we look for prosperity in new ways with a smaller economy we are much more likely to be successful than if we keep hoping for growth to save us.

  10. Candace June 27, 2012 at 9:16 pm #

    As I enter Rhode Island, coming home from a New York trip, I am always amazed by the cement ‘jersey barriers’ that are jammed in front of the closed tourist rest stop and office on Route 95. Welcome to Rhode Island?? With such a resource devoted to display and promote tourist spots, businesses and culinary and agriculture enterprises, why do we close the state entrance and building that could easily highlight our Rhode Island treasures? Economic development begins with the basic catalyst of enhancing, revealing and encouraging what we already have as basic building blocks.

  11. Douglas Jobling June 27, 2012 at 11:05 pm #

    I want to echo others’ comments, especially Stu Nunnery’s. Scott, we appreciate your including the agricultural segment of the economy. It is too often and too much neglected in the state and we appreciate GrowSmart’s inclusion of that sector among its priority recommendations. I also want to point out another example of smart investment in line with the gist of your article. That example is the investment in infrastructure at Fort Adams that enabled the state to pull in the America’s Cup World Series – and will bring in other sailing events. Finally, I’d like to just point out that the amount invested in 38 Studios could have fueled equity investments in a lot of small businesses for which the lack of equity is often a deal-killer with other financing opportunities. Scores of small businesses could have received significant investment, spreading the risk for the state and still creating a large number of jobs.

    Doug Jobling, RI Small Business Development Center

  12. Victoria Rogers June 28, 2012 at 10:38 am #

    Mr. Wolf is correct: build on what is already here (intact stock of historic buildings, walkable neighborhoods, access to Boston & the airport via rail, loads of smart & energetic students, etc.).

    I am relatively new to Providence and I think this is a fabulous place to live. I do not understand why the natives are so negative. It’s not perfect, but the state has many wonderful attributes.

  13. Jack Lancellotta July 2, 2012 at 12:47 am #

    Very quantitatively said, Scott! There are too many quick fixes with public dollars that are in the mix .. and get nixed without proper and professionally centered analysis, financial oversight, regulatory monitoring and open reporting to the public-at large … 38 Studios venture capital tax-dollar extravaganza made a sudden, tarnished and deeply-embedded mark on lil Rhody’s name and landscape.

    Looking at the various and established business sectors along with productive elements of Rhode Island’s diverse natural and entrepreneurial markets, our spirit and creativity for the necessity of funding, development, expansion and maintenance can be a beacon for the likes of Agronomy and Agriculture along with education and training to the points of infrastructure and historic preservation through the enactment of tax policies and government transparency, while powered with the engine of energy technology and the nuance of transportation modeling and a year-round recipe for tourism at its best, the Ocean State can truly (re)discover its compass of success and climb on board to the ‘smart’ competition in our immediate surroundings!

  14. Chris Wilkens July 2, 2012 at 11:12 pm #

    Rhode Island is so very fortunate to have Scott still around to keep things in perspective, inspire and remind us of all that we can be it times like these. Thank you.

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