John Kasich’s JobsOhio and the $100 million liquor securitization that his budget seeks to fund it seem to be designed to turn Ohio’s Development Department into a semi-private venture capital firm.  Given that’s Mark Kvamme’s comfort zone, and public economic development efforts are not, it’s not surprising.  What is surprising is the utter lack of anyone objectively and critically examining such a worldview as a model for economic development.

A few weeks ago, the Dispatch reported that Governor Kasich was spitballing yet another half baked idea of attracting private venture capitalists by changing Ohio’s tax code so there was no State taxation on any earnings they made investing in Ohio for a set period of time.  The Dispatch also ran a little chart showing where Ohio ranked in terms of private venture capital investment:

DispatchVentureCapital

Mark Kvamme, a California venture capitalist by trade, of course just loves the idea:

Ohio, according to PricewaterhouseCoopers and the National Venture Capital Association, received $156.8million in venture-capital investments last year.

"That is nothing," Kvamme said. "For example, in the Silicon Valley, where I’m from, we invest that in two weeks. So we have got to get capital into the state."

The inference being that Ohio can never economically recover until it gets more venture capital.  Hogwash.  First of all, Ohio’s ranked seventeenth overall, which puts it well above the average amount nationally.  (Granted, Ohio is also ranked seventh in the nation for population as well, so I guess on a per capita basis we’re behind smaller States like Massachusetts, North Carolina, and Washington.)

Look at Kvamme’s own home State of California, which has nearly five times the amount of private capital investment as any other State.  How’s California faring during this recession?  Well, it’s ranked 50th in the nation on unemployment, just under Nevada.  North Carolina, which ranks 9th on private venture capital, has an unemployment rate that is .5% higher than Ohio’s.

We don’t need to inject a “buy high, sell low” mentality to Ohio’s economic development.  The reality is that a venture capitalist is not interested in economic development.  A venture capitalist is interested in profits and a quick and easy return on his or her money.  A venture capitalist is more likely to liquidate a company than expand one.  Venture capitalist are incredibly short-sighted… they look for a return on their investment within only three to seven years.  That is not a worldview that leads to stable, reliable growth.  It is one that created the Silicon Valley tech bubble we saw in the early 2000s.

For all the talk about how “new” and “different” JobsOhio and Kasich’s approach is, nobody in the Ohio media seems to be willing to explore whether these approaches truly address the root of Ohio’s economic problems.  Does a Silicon Valley mindset to Ohio’s economic development create smart, sustainable growth?  Does it even result in jobs gains?  Did it for Silicon Valley?

The San Jose Mercury News reported at the beginning of this year that the Silicon Valley boom/bust cycles means that the Valley has no more jobs today in the region than it did sixteen years ago in 1995 (before Google and when Yahoo was launched), even though population has exploded.  And yet, this is precisely the model Kasich has adopted.  One that seeks to make short-term investments in small, entrepreneurial companies that tend to fail more than they succeed:  for every Google, there’s a thousand Pets.com, resulting in virtually no real job gains.

How is this a winning model to combat Ohio’s joblessness? 

How is taking the $50 million that was promised in the Issue 3 casino campaign to go to “worker retraining” programs to “get Ohioans back to work” as the casino supporters promised, but instead using it to retrain workers who already have jobs as the Kasich budget proposes instead, help lower Ohio’s unemployment?  Keep in mind that Kasich’s proposal could mean that successful companies could incur no costs at all in retraining their workforce: the casino money and the workers themselves could cover the entire costs under Kasich’s budget proposal.

I don’t oppose Kasich out of partisanship or ideology.  I oppose John Kasich out of basic common sense.  It makes no sense to take $50 million in one-time money and use it subsidize corporations’ own worker retraining efforts when there are plenty of unemployed Ohioans who could use that retraining to find work.  The State has no business making economic development decisions based mostly on what companies will give them the biggest return on their investment in a few years as opposed to create the most jobs in a stable, smart growth manner.

Evangelize!
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  • http://www.facebook.com/profile.php?id=1561659527 Jeffrey Hansen

    Glad that someone is making the connection (or lack thereof) of the reality of trying to run a government modeled after a corporation. The two are not even in the same ballpark, much less analogous.

  • Annekarima

    Was ENRON venture capitalism? That company did a lot for California. How about Jack Abramoff and the Indian casinos? Venture Capitalism?

  • Tim M

    Great post. Very insightful. Yes, we definitely need to question how John Kasich wants to address economic development. Some concerns I’ve had – – With the diversion of liquor money, this kind of “development” will definitely lose money. Think coingate. Some of the companies that this new entity will invest in will fail. That is money lost that can never be recovered. In addition, you are correct these small entreprenuerial companies have extremely hard benchmarks they must meet in-between funding cycles. A start up company can have several funding cycles moving from angel investing to venture capital investing, but any down rounds where a company can only raise less than what they previously raised (because they missed financial goals in their term sheets or elsewhere), and it can lead to serious dillution, money lost, and as you pointed out a VC firm taking control of the company, shutting it down and selling its assets. If JobsOhio is not the lead in the deal, they will probably lose some or all of their money. Another thing I’ve been questioning is how much VC firms would welcome having an entity like JobsOhio in on a deal. Again, the more people in on a deal, the less profit (if any) to go around. Finally, I know a lot of small business owners who are very worried that this is going to turn into a show-friends economy. If Ohio turns into a state where there is a perception that you have to know the right people and insiders are picking which businesses win and which lose, it could drive businesses out of the state.
    This is another reason why Silicon Valley really isn’t growing. As you stated, there could be some short-term gains with this kind of system, but for long-term stability, it seems like it could put the state at risk.

  • Anonymous

    At some point in its life, Enron probably had venture capital, but not in its collapse. Venture capital is in the start up phase. A way to get the next big thing. Unfortunately, for every winner, you probably go through nine losers.

  • Guest

    It is interesting that Kvamme has stated that he is only taking a leave of absence from his California job for between 4 and 5 months. It’s already April, so I guess he’ll be heading back to California soon?

    From: http://finance.fortune.cnn.com/2011/01/07/silicon-valley-vc-heads-for-ohio-to-create-jobs/

    “Mark Kvamme is stepping down as a general partner with Sequoia Capital, arguably the nation’s top venture capital firm, in order to take on a public service role in Ohio.

    Kvamme will become interim director of the Ohio Department of Development, where he’ll be charged with transforming the scattered agency into a private jobs development organization. His salary will be just $1.

    The Columbus Dispatch reports that Kvamme is a longtime friend of incoming Ohio Governor John Kasich, who appointed Kvamme to the position.

    Also worth noting that Ohio campaign finance records show that Kvamme contributed over $44,000 to Kasich’s campaign, plus another $24,000 to the state’s GOP campaign committee.

    It will be interesting to see how Kvamme manages to translate Silicon Valley to Ohio, at least for the short time he’s expected to be out there. Again, this is an interim position that only is expected to last between four and five months.

    I emailed Kvamme to ask if he’ll return to Sequoia once the Ohio gig is over, and he responded affirmatively (albeit as a “special limited partner,” a new position that Kvamme says will be fulltime).

    Kvamme’s investment portfolio with Sequoia includes LinkedIn, AdBrite, Funny or Die, StrongMail and Corvigo.”

  • Annekarima

    It is beginning to sound like Ohio is going to become if it isn’t already, one of those places where you don’t want to admit you are from and you want to get out of as soon as you can.

  • TonyBuckeye

    There is a serious disconnect between the JobsOhio strategy and some serious public policy issues that should come into play anytime taxpayers dollars are being used. On the one hand, I agree with a focus on venture capital. Ohio does NOT have sufficient VC in the state, but there is a significant discussion going on as to whether the issue is sufficient VC or sufficient deal-flow. That’s why the effort by the OSU Biz School in the area of commericalization is so important. A further disconect is the apparent reliance on VC as the primary driver for a state like Ohio. While busienss starts are important, in the near term our job growth is going to come primarily from existing Ohio businesses expanding. I hear NO discussion about a balance development strategy. The budget includes a new refundable job retention tax credit that will cost taxpayers $25 million in each of 2012 and 2013 and $50 million per year thereafter. This type of incentive costs real money; it take money that we are already receiving through taxes and gives it back to existing businesses.

  • Common Sense

    Can someone please explain to me how this JobsOhio does NOT violate the full faith and credit clause of the Constitution? Article VIII, Section 4 states “The credit of the state shall not, in any manner, be given or loaned to, or in aid of, any individual association or corporation whatever; nor shall the state ever hereafter become a joint owner, or stockholder, in any company or association in this state, or elsewhere, formed for any purpose whatever.” Who wants to file the first taxpayer’s suit?

  • Guest

    Great jobs creation by Rethugs for their friends and campaign contributors to rob us the real residents of Ohio.

  • Adrienne

    Oh, and I forgot, what do they care about jobs creation at all as long as they can rob us like the last set of bank robbers did. Great way to make money, steal it from the suckers who earned it and paid taxes for the general welfare. Looks like another welfare scam for the benefit evil rich people (who don’t pay taxes either).

  • http://twitter.com/Quackers48 Linda Myers

    Just a question: Ohio is filled with forty and fifty somethings who had decent jobs making piston rings, or mini blinds or whatever who are now barely hanging on cashiering at a Meijers or stocking shelves at Home Depot. These people are the C students who will work like he!! if they get a job, but they may struggle reading a book. In other words, they are simply not cut out for many of the “jobs of the future”. They can’t find work paying like what they lost, and they are many years from retirement. What happens to them? Does Kasich even know or care that they exist?

  • stryx

    From the San Jose Merc story Modern linked to:

    “As 2011 begins, the drama of job creation and destruction continues. At about 850,000, the number of jobs in the valley today is about the same as in 1995,….Over the same period, the population has grown by 20 percent.
    …the number of people here who are unemployed — hovering around 100,000 for a year and a half — is the highest since the state began keeping comparable records in 1990.

    Even more troubling is that while Silicon Valley will start producing additional jobs, the skills needed for many of these new positions will not match the skills of those looking for work. The result: Thousands of people now out of work will struggle with joblessness for years.

    It’s a typical pattern for the valley, although its impact has been exacerbated by powerful economic forces — particularly the globalization of the tech industry and the increase in technological efficiency, both of which have cost the area jobs.”

    Yeah, totally want to model our economy after that, brah.

  • http://www.facebook.com/people/Carrie-Preston/100000765994211 Carrie Preston

    I am going to address the part of your article that says “It makes no sense to take $50 million in one-time money and use it subsidize corporations’ own worker retraining efforts when there are plenty of unemployed Ohioans who could use that retraining to find work.” If he is serious in investing this money to subsidize in the retention of workers then why not put that money back to the schools and help retain some of the teachers that are losing their jobs? The companies he will be wasting money on are companies that are already retaining their workers with their own programs. The investment of any money to help strengthen our schools will have lasting effects be. Will the companies come if we do not have a strong schools. I don’t think so.

  • stryx

    And just because I don’t trust anything these guys say, I went to see if VCs invest 156.8 million x 26 weeks equals 4+billion dollars a year in Silicon Valley.

    Siliconvalley.com says, yeah they probably do. But not entirely on what Kvamme wants you to think.

    “Investments in clean technology firms grew 76 percent in terms of total dollars and 37 percent in the number of deals compared with 2009. But investment in the sector remained below 2008’s all-time high. Five of the top 10 venture deals last quarter were in the cleantech sector, though none were in Silicon Valley….
    The Twitter investment was the nation’s second-largest of the year, eclipsed only by the $350 million Palo Alto-based cleantech firm Better Place ….
    Five of 2010’s 10 biggest venture deals were in California, and four of them were in the Bay Area. And half of the year’s top 10 deals were in cleantech.”

    http://www.siliconvalley.com/venture-capital-survey/ci_17416341?nclick_check=1

    Clean Technology. That sounds familiar.
    http://en.wikipedia.org/wiki/Clean_technology

    Ohio was put on a excellent path for this by the Strickland administration.
    http://blog.cleantechies.com/2011/02/14/top-ten-highlights-of-cleantech-in-ohio/

    Please Mad King John. Please don’t blow it.

  • Fotogirlcb2002

    I hear Kvamme had an accident..apparently thinks hes a Evil Knevil
    missed a jump and broke his face — maybe he will go back to Kalifornia for plastic surgery( a doctor of the stars ) and decide he misses it there and stays !!
    We dont need him here.He got busted down — whats his title now.

  • Annekarima

    Is Silicon Valley what the lowly king wants to recreate in Ohio? All good and great I guess, if It Could Be Done. He forgets as he marches his army thru the state destroying it. California once had something people wanted. Ocean, great beaches, scenery, PIA traffic, but worth it for the excitement, beautiful people, great shopping, lovely wineyards and wonderful year round weather. Malibu babes probably didn’t hurt either. Techies flocked out there. As did a lot of others. Perhaps folks just get more inspiration from the Pacific Ocean than they do from….
    Lake Erie.

  • Annekarima

    If you haven’t noticed, Kasich’s karnage is happening in the private business sector also. Workers are being replaced by “national companies” who do this “work”. Contract companies who come in and take over. Is this even IRS compliant? I suppose it is is it is industry standard. Some of these companies do not seem to have web sites. One wonders where they come from, why they are destroying one’s life and where does one go from here?

    If one has a backbone, one learns how to play the game, leave this states, starts one’s own business and fights back.

  • Guest

    They want those folks to go way and die like Alan Grayson said. At least they voted for their own extinction. “We” are too expensive, and “they” don’t need us to work for them to make money. Beware R’s bearing reform and “jobs”. The job creation is for Rethug politicians only.

  • Anonymous

    Well stated Modern.

  • Anonymous

    Totally.

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