Guest Opinion: Corporate welfare won't attract high-tech firms

If approved by voters in November, Question 1 will repeal the provision in Nevada's constitution which forbids the use of general-fund revenue for direct subsidization of corporations.

Supporters of the measure argue that with the growth of legal gambling around the nation, Nevada's economy must diversify. Unfortunately, while diversification is a noble goal, corporate-welfare measures like Question 1 are inappropriate methods to expand the number of non-casino businesses in Nevada.

As the San Francisco Chronicle's Mark Simon noted a few years ago, "All over the world communities and people want to glom onto Silicon Valley, not just for the economic prosperity but for the glamour and sophistication that come with it." As a result, governments have spent considerable sums on schemes designed to transform their regions into technology hot spots.

Reason's Virginia Postrel described the monolithic thinking behind such behavior in a recent column: "We know the one best future, and it is 'high-tech.'" Backers of Question 1 cite financing for "senior and low-income housing" as one possible result of the measure. But it's clear that their main goal is an expansion of Nevada's technology industry.

Only about 20 out of every 1,000 private-sector workers are employed in the Silver State's high-tech sector, and among the 50 states, Nevada ranks 35th or worse in categories such as patents and R&D investment. Question 1 supporters believe that these numbers are the result of a dearth of VC firms in the state. Pro-subsidy forces hold that government will create what the private sector has not.

But are high-tech hubs really the products of government planning? Douglas County Center for Economic Development Executive Director Fred Jones offers this answer: "The high-tech industries that have sprung up in 'Silicon Valley' California and in the Boston area were not the result of government actions. Both of these geographical high-tech areas primarily developed out of the academic environments existing at Stanford University, MIT and Harvard University (note that these are private universities) and supported by the personal lives, energies and fortunes of a few risk takers."

Furthermore, many New Economy executives want nothing to do with corporate welfare. They understand that what the government gives, it can also take away. As such, a large group of technology companies has publicly sworn off corporate welfare. Each member of the movement has signed the "Declaration of Independence" from government freebies, calling for a repeal of all corporate welfare, "even if it meant funding cuts to my own company."

In Nevada, there is abundant evidence that government officials are incapable of understanding the complexities of the Information Age. If recent history is a guide, allowing politicians and bureaucrats in the Silver State to invest public funds in high-tech start-ups is unwise.

Both the state's welfare and motor-vehicle divisions have recently experienced computer debacles. Legislators have signaled their ignorance of Internet technology on several occasions, particularly when they passed an unconstitutional and unnecessary anti-spam law in 1997. Many state officials continue to incorrectly insist that Nevada has the right to tax out-of-state online purchases by its residents.

Such actions should surprise no one, considering the fact that few in state government have backgrounds in high technology. And government-backed technology debacles aren't limited to the state level. As Las Vegas Review-Journal reporter Trevor Hayes recently noted, after 15 years in operation the Las Vegas Technology Center, a city-funded project designed to attract technology businesses, has "just one high-tech company."

Hayes further noted that Henderson's five-year-old Wagon Wheel Industrial Park has only a single tenant. But while government projects have failed to bring a substantial number of high-tech companies to Nevada, the private sector is offering hope. For example, Southern Nevada e-companies have carved out a niche market by serving the technology needs of conventions, and Las Vegas Mayor Oscar Goodman recently brokered a largely private-sector deal to create a high-tech "incubator" in the city's downtown.

The American Electronics Association reports that between 1993 and 1998, technology jobs grew by 74 percent in Las Vegas. Northern Nevada's high-tech community is growing as well. Technology workers, a prominent Nevada economist recently noted, have started to look at Nevada in general "and Reno in particular because it is less expensive and a better quality of life and it's not too far from Silicon Valley." Reno businessmen Perry Di Loreto and Fred Sibayan are moving forward on a facility designed to "accelerate" budding technology-driven companies "to the next level."

Nevada has mild weather, no corporate or personal income tax and vast recreational opportunities. One would expect that these features tempt many New Economy companies. But the biggest reason why so many pass on Nevada is the condition of the state's government schools. With a dropout rate double that of the national average and a dismal college-continuation rate, entrepreneurs from the technology industry don't see many potential employees in Nevada's labor pool.

"We are last in so many things," Gov. Guinn recently lamented. "We need an educated workforce." Last month the Manhattan Institute, a New York-based think tank, provided further evidence of just how bad things are. The institute's Education Freedom Index ranks each state by its homeschooling laws, availability of charter schools, private-school alternatives and public-school choice options. Forty-seven states ranked higher on the freedom index than Nevada, which bested only Hawaii and West Virginia.

While other concerns keep companies away (a serious crime problem, the perception that casino bosses run all three branches of government and growth-related issues such as air quality and water pollution) Nevada's broken system of government education is the largest barrier to the development of a vibrant high-tech industry.

By adopting market-oriented education reforms-and lightening the tax and regulatory burdens it places on businesses-the Silver State can, in time, build a strong technology sector. But a state-run VC fund will not bring high-paying, New Economy jobs to Nevada. Even worse, it will breed a myriad of additional problems, such as political corruption and unfair competition. To develop a high-tech base, Nevada's diversification proponents should work to empower entrepreneurs, not government.

This is one in a series of issue briefs from the Nevada Policy Research Institute.