Thursday, June 21, 2007
Corporate Welfare Part I, 1996. Why has nothing changed?
By Charles M. Sennott, 07/07/96
WESTBOROUGH - A secluded, hilltop campus here was once a state reform school for boys.
Now the institutional brick buildings house the Massachusetts Technology Collaborative - a quasi-state agency that critics say is a classic example of entrenched corporate welfare.
Supporters call the collaborative an innovative ``partnership'' between business and government. But while it is clear that the companies and those who run the collaborative benefit, it's less clear how the taxpayers do.
Some high-tech companies that rely on federal subsidies for product research and development, end up shipping the resulting manufacturing jobs overseas. Other companies that create new technology, often are takeover targets of Fortune 500 corporations. That can mean sizable profits for entrepreneurs, but few new jobs.
Collaborative officials say these federal programs promise long-term results and taxpayers should be patient. But for now, some of these programs are at best high-risk investments. Take for example the Technology Reinvestment Project, under which Massachusetts companies received about $500 million during 1993 and 1994. According to the collaborative's own accounting, the project ``directly'' created about 100 jobs. That comes out to about $5 million per job.
The collaborative is an initiative of Massachusetts Technology Park Corp., an independent state authority created in 1982. It has a powerful board of directors and the strong support of William F. Weld, who has praised the collaborative for playing a ``vital role'' in assisting the high technology community.
The collaborative gets its funding by leasing to Taunton-based Kopin Corp. a 70,000-square-foot technology lab and fabrication facility, built by the state in the early 1980s. The $1 million-a-year lease of the state-owned facility is considered far below market value and a total savings of as much as $400 million in construction costs to Kopin, which uses the space to do advanced development and some production of its flat panel displays for portable computers and virtual reality headsets.
Lease money pays the salaries of collaborative executive director Joseph Alviani, who earns $140,000 a year, and a dozen other executives who help Massachusetts companies access millions of dollars in federal funding.
Amid this partnership between government and business are some puzzling relationships. Consider the collaborative's Robert Kispert. He heads a division called FEDTech, designed to help companies tap the $1 billion a year Small Business Innovative Research program. But Kispert admits he also has consulting contracts from Foster Miller Inc., a Waltham company that is the leading recipient of SBIR money in the country. Foster Miller has received more than $40 million over the last 10 years to develop a variety of products which it, in turn, sells.
Kispert sees no conflict of interest in his dual role as a representative of a quasi-state agency and a paid consultant to a company that stands to benefit from that agency.
But Ann Markusen, director of Rutgers University's Project on Regional and Industrial Economics, which has done extensive research on the issue of government assistance to the high tech and defense industries, says: ``It all sounds like a kind of corporate welfare ponzi scheme.''
``In a lot of states this has become a racket. It makes me furious that politicians, from in-state and in Washington, are doing everything they can to help companies feed on corporate welfare,'' Markusen says. ``They all want to make sure the businesses in their districts get their share, and in the meantime the country as a whole has to make tough decisions like cutting more programs for poor people.''
In addition to its discounted lease, Kopin also receives roughly $10 million a year through various federal programs, some of which the collaborative has helped it access. Despite this sizable public investment in the company, Kopin's chief executive concedes he will be shipping a larger and larger percentage of its jobs overseas.
John Fan said the state and federal funding ``formed the underpinnings for us to grow our commercial activities.''
Still, he acknowledges Kopin already has shifted roughly 30 percent of its manufacturing to Taiwan and Thailand. ``As we grow, the ratio will increase because the manufacturing costs are better there.
``It is a global economy now, and we are going to be competitive. The brainpower is here. So we can pay $18 an hour for someone's brain ... and much less for someone to work with their hands over there.''
When asked if he feels a responsibility to keep manufacturing jobs in the community that has helped his company flourish, Fann replied: ``Nobody wants to be tied down. But if it's good for us, we'll stay. That is natural, right?''
Lionel S. Johns, deputy director of the US Office of Science and Technology, concedes the lack of loyalty by companies that rely on government funding is ``a tough issue.''
But as one of the White House's leading specialists on federal technology transfer, Johns believes the Advanced Technology Program and others like it are essential. The US, he says, is going to have to find ways to keep companies here through incentives, not by getting angry that they go to Taiwan.
``This is a very complicated worldwide game in which this country's economic prosperity is at risk. These guys (Taiwan and other nations offering incentives to lure American businesses) are playing hardball and we are playing sandlot,'' Johns says. ``We end up playing a politicized game with the words `corporate welfare.' If we continue to cut federal R&D,we are going to undermine the technology infrastructure of our economy and then we will ultimately undermine our entire economy.''
But critics like Richard Kogan, a senior analyst for the Washington-based Center on Budget and Policy Priorities, which has tracked federal subsidies to high-tech companies, says: ``I tend to be skeptical of the investment, because the federal money is mostly going to companies that already have a lot of their own money to invest in product development.''
The collaborative's Alviani, who served as Secretary for Economic Affairs under Gov. Michael Dukakis, disagrees. He points out that many recipients of Adanced Technology Program money are small companies. But he concedes that many larger corporations, such as Digital and Raytheon, have benefited from direct funding and partnerships with smaller companies.
The collaborative has helped Massachusetts companies win millions of federal dollars through ``how-to'' seminars and brochures on Washington's maze of programs.
Some federal programs have had questionable results in terms of job creation. The Technology Reinvestment Project, for one, has done so poorly that Congress plans to phase it out. In another, the Advanced Technology Program, the collaborative estimates Massachusetts businesses either led or participated in projects worth $90 million from 1990 to 1994. Nearly 15 percent of the program's money goes to Massachusetts companies, second only to California.
A June 1995 report by the collaborative to assess ``ATP and Its Impact on the Economy'' stated: ``The most promising benefit of the program is undoubtedly the number of potential hires resulting from successful ATP projects.''
But if that is the gauge of success, then by its own estimation it would appear to be failing. The report states that ``on average, companies increased employment by 8 people. Over 150 jobs have been (directly) created as a result of the awards. Several hundred jobs have been indirectly created.''
That comes out to $600,000 for each job directly created by ATP. Asked if that is a sound investment in the economy, Alviani replied: ``It's a fair question. It's very hard to monitor the return on these investments. But you have to keep in mind the fact that there has not been a sufficient amount of time to reach the concrete return on investments. ... We are investing money up front for the long-term growth of the economy.''
This story ran on page 8 of the Boston Globe on 07/07/96.