Every week, NPRI President Andy Matthews writes a column for NPRI's week-in-review email. If you are not getting our emails, which contain our latest commentaries and news stories, you can sign up here to receive them.

Suing GOED

This was a big week for NPRI.

On Wednesday, our Center for Justice and Constitutional Litigation challenged the constitutionality of the state government’s efforts to pick winners and losers in the economy through the Catalyst Fund.

Most of the media coverage since we filed the case — and there’s been plenty of it over the past two days — has rightly focused on the relevant legal issue: The Nevada Constitution expressly prohibits the state from giving money to private companies, and that is what the Governor’s Office of Economic Development is doing through the Catalyst Fund.

Joseph Becker, chief legal officer and director of the Center for Justice and Constitutional Litigation, addresses members of the media this week about NPRI’s lawsuit against the Governor’s Office of Economic Development.

That constitutional issue is at the heart of this lawsuit, along with the basic unjustness of making a business subsidize its competition, and I urge you to read Joseph Becker’s detailed explanation of those issues here.

But today, I’d like to discuss another angle to this story, and to dive into the economic problems inherent to the Catalyst Fund’s existence.

Supporters of the Catalyst Fund have promoted it as a needed tool for “economic development.” They tell us that the $10 million account will draw new businesses, jobs and revenue into the state; that Nevada has to compete with other states for companies; and that politicians need this tool to create jobs.

Why is NPRI, a free-market think tank, against something that helps businesses?

Well, I’m glad you asked, because there is an essential distinction to make here. NPRI is pro-market, not pro-business.

In a free market, there will be some very large businesses that thrive by doing an excellent job of meeting the needs of their customers. We’re big fans of those businesses. And in the free market, there will be some small businesses that thrive by doing an excellent job of meeting the needs of their customers. We’re big fans of those businesses, too.

But we don’t applaud those businesses because of their size, the number of jobs they create or even how much they pay in taxes. We applaud them because they create value for their customers through mutually beneficial and free exchanges. Businesses aren’t ends in themselves, but a means individuals use to reach their goals.

Consumers — that’s you and me — are winners in this system. We get products that are of a higher quality, have more features and are often cheaper.

And in a free market, businesses face constant competition from other businesses who think they can earn money by doing a better job of pleasing those customers. It’s exhausting work staying in business and making a profit!

Some businesses, however, want to take a shortcut to profits, so they seek special privileges from the government to protect or guarentee their success.

These privileges — which could include monopoly status, selective regulatory breaks, bailouts, loan guarantees or, yes, subsidies from Nevada’s Catalyst Fund — are often called “pro-business” policies. But they are really just ways for certain businesses to benefit at the expense of others.

What’s amazing is that history shows that government support does not guarantee a business will thrive or even that it will survive. Just look at Solyndra, Abound Solar, Fiskar and ThromboVision. Despite hundreds of millions in taxpayer handouts, they still couldn’t make it.

So how many of the companies that will receive Catalyst Fund subsidies will end up going bankrupt despite taxpayer handouts?

Through our lawsuit, we’re working to make sure we never have to find out.

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By the way, I’ll be spending some time next weekend up in Oregon, first in Portland and then driving along the coast. If any of you know the area well and have some favorite spots you’d recommend (restaurants, scenic places, historic sites, etc.), I hope you’ll send those suggestions along. You can reach me at am@npri.org. Any ideas would be much appreciated!

Thanks for reading, and I’ll see you next time.

Andy Matthews
NPRI President

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