I was somewhat disheartened to read in the Maryland Daily Record, that Maryland was moving ahead with a plan to invest $70 million in high tech start up firms. Pennsylvania has long been a leader among states in that business. I’ve personally shared some of our best practices on how we operate our early-stage tech company investing program in Pennsylvania, with business people from Maryland.
Our Ben Franklin Technology Partners program has been getting that right since 1983 when we taught other states that a program that invests in early stage technology companies can earn more tax revenue than it spends. You select companies to work with based on business analysis, surround the company with assistance, invest appropritate amounts of money and you are likely to generate a positive return in many ways. For instance, our clients generate $3.50 in tax revenue for every dollar spent in the program. With this $70 million investment, Maryland will usurp Pennsylvania’s leadership in the technology economy because the current budget discussion in Pennsylvania cuts the Ben Franklin program by 27% after other cuts of 42% over the past 2 years.
The Maryland program certainly carries long term risk. I’m sure there are critics of the program wondering why $70 million would be spent in this way. Given the early stage company investments to be made with this capital, many legislators will be out of office by the time these investments start making the case that it was money well spent. Which is why it is the legislators who vote for this big investment are thinking more like business people than elected officials…downright courageous on their part!
Businesses succeed or fail (earn a profit) based on economic outcomes of the investments they make. Elected officials succeed or fail (win re-election) based more often on perceptions of their actions. The outcomes of their actions are often less important to their success than the statement they make by taking the action. (Note well, Donald Trump…you will fail if you try to run government like a business!)
Business people behave as “economic man” behaves…the namesake for this blog as defined by none other than Adam Smith. Investment money goes where the business person calculates he earns the biggest return. Period. Elected officials do not have this luxury. It is the vote for or against an investment that is most closely evaluated for their success; not necessarily the ultimate outcomes of their votes. Remember “Read my lips…no new taxes”? George Bush, Sr. lived to regret those words. Not because raising taxes had horrible outcomes, but because he had to increase taxes. Business owners and executives change course all the time, too. Both the political decisionmaker and the business decisionmaker use enlightened self interest to drive their decision. But in business, the promise is not important, the outcome is. Politics is usually the other way around.
Economic times like 1983 and 2011 are not too dissimilar. Both are years of recovery after hard years of economic downturn. Both are years in which investments like those of Ben Franklin and this new Maryland program make both good business sense and good political sense. That good sense was applied in 1983 in Pennsylvania. Hopefully, good sense will be applied in both Pennsylvania and Maryland in 2011.