WEDC needs to pivot, but survive

WEDC IN WISCONSIN logo - Final 0905If you take a deep dig into almost any human organization – be it a bank, a business, a non-profit corporation, a newsroom or a government agency – you will find plenty of examples of decisions gone awry.

Most go unnoticed outside of the organizations themselves. But when the organization exists in the middle of a highly partisan political environment, every mistake is magnified.

Such is the case with the Wisconsin Economic Development Corporation (WEDC). Overall, in my view, it has done a pretty good job of trying to stimulate growth of the Wisconsin economy. But mismanagement of some loans and grants and cross-links to political agendas has put the agency into the cross hairs of gotcha politics and gotcha journalism.

Political opponents cross-check the databases of public political donations and the WEDC’s subsidies to business, looking for matches. When they find them, it’s gotcha time, especially if the business failed to meet targeted job creation. (Disclosure: My company received WEDC credits, about $5000 per job, as it added about 150 people in a new segment of business. We received the funds only after the jobs were created, as it should be. And we file an annual report to verify to the agency that the job increases are real.)

Should an established company like ours be rewarded for expansion? Should the agency be picking winners and losers? Economists and pundits argue both sides of that subsidy issue. Other states do it, so there is an element of competition.

My take is that such subsidies should not be used in the normal course of business, that they should be deployed only in a highly strategic nature.

Further, the doling out of state funds needs to be depoliticized. The legislature proposes to remove the governor from the WEDC board chairman position, a good move, but it needs to take legislators off the board as well. And citizen appointments should require bipartisan approval. That would end some of the gotcha motivation of critics.

Mistakes will still be made in handing out subsidies, but they won’t make as many headlines.

Some of the work done by WEDC is absolutely essential as Wisconsin struggles to improve its overall prosperity and as it competes with other states and nations where government support of their economies is pervasive.

But we need to be smart about economic development dollars. Here are some strategic learnings from pitfalls and successes of WEDC over the last three years and its predecessor, the Department of Commerce, over several administrations:

1. Forget about subsidies for poaching from other states. That strategy doesn’t work for Wisconsin, and it logically leads state companies to demand equal largesse for their expansions.

2. Drop expansion subsidies, especially loans, for established companies. Their own business dynamics have way more to do with expansion decisions than one-time dollars from the state.

3. Continue support for strategic clusters, like the Freshwater Technology cluster in the M7 region, as long as they hit milestones for attracting or creating businesses and jobs. Understand that such initiatives are a long-term play.

4. Since entrepreneurs create most new jobs, continue the Act 255 investment credits that are administered by WEDC. Those 25% credits have a good track record for business and job creation, and few other states have such a program. Act 255 has been pivotal for building a startup economy, stimulating excellent growth in the state’s early stage capital capacity.

5. Bridge the “Valley of Death,” the paucity of second stage funding for new ventures. The Wisconsin Housing and Economic Development Authority could fill this gap with guarantees for loans from risk-adverse banks. The banks have the expertise in making loans, but excessive regulatory pressure at the federal and state level has made them timid about funding companies with risk. Loan guarantees would get them moving. Wisconsin could have a differentiating advantage in this space. And, if experienced bankers are making the calls, there is less political ammunition.

There’s an old adage in business that derives from an old adage in the military: no battle plan survives contact with the enemy. Rapid strategic adjustments are always necessary. In business it goes: no business plan survives contact with the marketplace.

WEDC has had some wins and some black eyes. For competitive reasons, it deserves to survive, but state leaders need to recalibrate to make the public-private partnership more strategic and more cutting edge.

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  • BeaverDamChamber

    Great article John; of all the points you made about moving into the future with economic development polity the one that I believe is most worth repeating is the need for the state to devote resources to strategic clusters like the Freshwater Technology cluster through my alma mater, UWM. This technique has been very successful both in our own state with biotech in the Madison region, and in many other states where the philosophy has been applied.

    • JohnTorinus

      Agreed. We have to do ED in a very strategic way.

  • Bob Dohnal

    Good article, this can be good but bad leadership and failure to work with them, tommy would have been on top of this.