Risky Business

Today’s Sunday Journal reports on the failure of one of the state government’s many ‘investments.’ TCI Medical, which was to build a nuclear medicine plant in Carlsbad, has ceased business after receiving $7 million from New Mexico’s taxpayers.
The immediate cause of TCI’s closure? Private investors realized the company simply wasn’t competitive with others in the industry, and pulled their financing. New Mexico’s taxpayers have all lost money on an investment they never chose to make.
If an endeavor is unable to generate private financing, this is likely because investors have decided the risk of losing their own money is greater than the potential returns. With personal wealth at stake, those with money to invest must be cautious, targeting their investments towards those enterprises most likely to succeed. Even an investment firm working on behalf third-party clients is held to this constraint, for any such firm that doesn’t find profitable returns will lose customers to those that do.
Politicians and bureaucrats, on the other hand, face little personal risk in investing other peoples’ money. Brian Birk, vice president of New Mexico Co-Investment Partners, which funnels tax-payer money to companies who haven’t earned it in the marketplace, laments the failure of “an opportunity that people thought could bring high-paying jobs to rural New Mexico.” Mr. Birk himself mustn’t be too sad at his failure, however, as he is unlikely to find his own job and salary at risk as a result.
Simply put, “thought” and “could” are not sound investment principles. With the risks of investments minimized, Mr. Birk and his colleagues are more susceptible to making decisions based on wishful thinking, how they think and hope things might turn out, rather than any underlying economic reality that actually does bear on the success of such investments.
Meanwhile, the economic harm from stripping this money from the state economy is hard to measure. That $7 million, which could have supported 140 salaries of $50,000 each if left in the hands of the businesses and residents of New Mexico, has simply fizzled away.
The Journal assures us, however, with a meaninglessly broad figure, that “from 20 percent to 90 percent of an investor’s equity portfolio will likely fail.” Often, a few big successes will make up for many individual losses. Given the incentives in play, it would be safe to assume that investments from personally uninvested bureaucrats and politicians lie closer to that 90 percent failure rate.
The verdict is still out on the other technology companies receiving these massive subsidies from tax payers. The state’s dabbling in the film business, however, has shown more rapid results. Of the 4 state funded productions as yet released, none have reported any profits from which New Mexico taxpayers can claim a share, and the state isn’t expecting profits from 9 other productions any time soon. 100 percent failure rate so far.
The use of forcibly confiscated tax dollars in such ‘investments’ is typically justified for ‘creating jobs’ or ‘economic development.’ Never mind the impact on jobs and economic growth of stripping money from productive earners in the first place. Politicians can’t take credit for jobs the private sector creates, and usually escape blame for the jobs they destroy. A politician can count as a victory the hidden destruction of two jobs in creating one high-profile job.
$7 million in state funds wasn’t enough to keep this unprofitable firm in business. You might ask, how many tax dollars would have been required to keep TCI operating in NM, producing pharmaceutical radioisotopes less efficiently than its competitors? In this case, we may never know, but with other investments, in tech companies, movie productions, etc., we’ve so far seen no limit to what Santa Fe is willing to throw into this risky business.
The surest way to see that New Mexicans’ money ends up investing in successful, profitable, job-creating businesses is to simply allow New Mexico’s residents and businesses to keep more of their own money, which they can spend and invest as they see fit.

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