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Monday, September 29, 2008

Alien Technology: Yet Another Failure For Government-Run Economic Development

I read in the Fargo Forum that yet another much-touted economic development project here in North Dakota is failing.  Alien Technologies, a company that opened up shop in Fargo to make RFID tags, projected a payroll of 319 employed Fargo-area workers.  To date, the company has only managed to employ 35.

FARGO, N.D. From the ceiling of Alien Technology’s facility in north Fargo hang several vacuum hoses, waiting to be hooked up to the technological marvel that assembles and tests the company’s “smart tags.”

They serve as a reminder that while Alien has enjoyed strong growth in recent months, the plant is operating at less than full capacity. It also is short of long-term job projections Alien provided when seeking tax breaks and economic development incentives to expand to Fargo.

By 2008, Alien had expected 319 workers in Fargo. Its current count is 35. The company postponed its initial public offering of stock in July 2006, and went through a round of layoffs designed to boost efficiency and cut costs.

“I think, in their minds, obviously with their IPO they expected to be at a different stage,” said Brian Walters, executive director of the Greater Fargo Moorhead Economic Development Corp.

“But, again, for the capital investment they’ve made and the jobs that have been created, (they) have exceeded what we required,” he said.

If employing 35 North Dakotans is all that was required of this company North Dakota taxpayers are getting screwed.

Consider:

The Bank of North Dakota initially gave Alien Technologies a special, low-interest $1.7 million loan.

The Bank of North Dakota gave Alien Technologies a second special, low interest $1.2 million loan.

The Bank of North Dakota bought $500,000 of equity in Alien Technologies.

The Greater Fargo Moorhead Economic Development Corp. loaned Alien $134,000 to help buy down the interest on those Bank of North Dakota loans.

The state Commerce Department’s North Dakota Development Fund bought a $500,000 preferred stock equity investment in Alien.

The city of Fargo gave Alien a 10-year, 100 percent property tax exemption on its facility worth about $87,500 per year, based on the plant’s appraised value of roughly $3.8 million.

All of that based on Alien Technology’s claim when they opened up shop in 2006 to employ 1,200 people in North Dakota by 2010.  The taxpayers of North Dakota have invested $7,700,000 in this company through loans, purchased equity and tax exemptions.  And what have the taxpayers gotten?

Thirty five jobs, at a cost of $220,000.00/job.

Granted, some of these loans will probably be paid off.  Some of that equity might create some proceeds.  But given how badly off-track Alien Technology’s business plan seems to be that’s very much in doubt.

So given this, and all the other failures of government-run economic development we’ve seen, can we finally admit that government can’t create jobs?  That keeping taxes high to pay for loans and investments and tax exemptions for businesses that wouldn’t even be in North Dakota were it not for all the tax dollars they get is a bad idea that rarely ends in success?

I hope so, soon, because I don’t know how much more of economic development like this North Dakotans can afford.

Comments

I’m sure if that 8 million dollars would have been left in the economy we’d have a lot more than 35 measly jobs.


[W]hat you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.


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The Whistler on September 29, 2008 at 09:27 am

This thing was doomed from the start.  One of the big promoters of this, Dr Chapman Pres NDSU was in Chicagoland.  We had lunch.  He was high on this.

I questioned why anyone would site this in NODAK.  I love NODAK but the amount of money and other foolishness that would go into Alien was way over the top.  Many people inclding me was skeptical about all eggs in this basket.

North Dakota is good at growing things to eat and drink (barley) Oil, Coal and a few home grown manufactuerers that just happeneed by accident to start there.

This was not the case with Alien. 

Alien was and is Alien to ND. 

Stick to the Knitting was always the truth Tom Peters espoused.  It’s still true.

Alien wasn’t even in the skein.

I wish government would get out of the business of picking winners.

They almost never do.

Think George Bush and Fuel Cells.


Old Tigers are more dangerous when they believe this is their last hunt.

From , “The League of Extraordinary Gentlemen”
Old tigers, sensing the end,
they’re at their most fierce. 
And they go down fighting.

Gene on September 29, 2008 at 09:32 am

I don’t know that this is a failure of ND adapting to Alien.

I think it’s an example of either a bad idea or bad execution subsidized by arrogant people spending other people’s money.


[W]hat you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.


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The Whistler on September 29, 2008 at 09:33 am

I think you could view this in two ways:

Alien Technology was put in a place where the technically trained workforce didn’t exist.

Whose fault is that?  Alien’s for locating their business there, or local education for not providing training opportunities?

Carrick on September 29, 2008 at 09:40 am

I think the reason Alien was here in the first place was they are a part of that Cameleon (sp) project that has gotten absolutely nowhere. 

Plus the jobs are not high tech.  They are all manufacturing from what I understand, no R&D which is all done in California if I remember right.


The best argument against democracy is a five minute conversation with the average voter
-Winston Churchill

Moszer on September 29, 2008 at 09:42 am

Alien Technology was put in a place where the technically trained workforce didn’t exist.

I don’t believe that’s a factor in this.  In fact they said that they’ve been able to increase production while cutting the workforce.

I think there are bigger issues than that. 

ND ranks very high when it comes to school graduates.  Fargo has a large Microsoft facility as well.

We aren’t all a bunch of dumb farmers.


[W]hat you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.


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The Whistler on September 29, 2008 at 09:50 am

Hard to believe a project that Byron Dorgan and Brian Walters are involved with can’t make a profit.2rwu8hs.jpg

Kevin on September 29, 2008 at 09:56 am
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Alien Technology was put in a place where the technically trained workforce didn’t exist.

Whose fault is that?  Alien’s for locating their business there, or local education for not providing training opportunities?

Well you’re assuming the Fargo/Moorhead area doesn’t have enough trained workers.  And on that I think you’re wrong.  But even if you’re right, there’s another option:

“Our politicians, for investing our tax dollars into bringing in a company that wasn’t viable in ND.”

Which, frankly, seems to be about the only sort of business government-run economic development brings in.


When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

-- Thomas Jefferson

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Rob on September 29, 2008 at 10:02 am
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Once again, the only way to take money out of an economy is to not spend it.  The state budget surplus is an example of taking money out of an economy.  Economic development is not.  Also, I’d say that $8 Million spread out amound around 650,000 (around $12.50 per person) would not have generated even 3 jobs.

As for Alien, things don’t always go according to plan, but that’s the way of the free market.  Market conditions change requiring a change in business plans.  Right now the city of Fargo’s and North Dakota’s investment doesn’t look good, but that doesn’t mean that things will change in the future.  Their biggest customer is Walmart who are going to have a bigger need for RFID tags in the future which means that Alien could expand.  That would benifit both Fargo and North Dakota.

I guess I don’t understand what you would do differently to bring business into ND and diversify ND’s economy?  Some of you talk about changing tax laws, but that would only have a neglegable effect.  It seems to me that the best way to bring in new businesses and to compete amoung other states in the microeconomy is economic development.

theovermind99 on September 29, 2008 at 10:16 am
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Byron Dorgan will do an earmark and give them more money and the ND Taxpayer will have invested not just state dollars but federal dollars too.

I met Chapman once too, he’s a doofus and profoundly pathetic.

patriot on September 29, 2008 at 11:33 am

Also, I’d say that $8 Million spread out amound around 650,000 (around $12.50 per person) would not have generated even 3 jobs.

That’s really stupid you know. Eight million more in the economy would create a ton of jobs. 

As for Alien, things don’t always go according to plan, but that’s the way of the free market.

They should spend their own money to play in the free market, and not spend ours.

Their biggest customer is Walmart who are going to have a bigger need for RFID tags in the future which means that Alien could expand.

Or Walmart might go a different way and it will collapse entirely.  Either way if there’s a need someone should invest their own money to supply that need. 

It seems to me that the best way to bring in new businesses and to compete amoung other states in the microeconomy is economic development.

Despite the fact that economic development is a failure again and again.  The people pushing these schemes for the various government entities are not smarter than everyone else.  They need to drop their arrogance.

If you want to invest your own money in these schemes then go ahead.  Just quit taxing the rest of us to boost your ego.

Some of you talk about changing tax laws, but that would only have a neglegable effect.

I couldn’t disagree with you more.  Good businesses don’t need handouts but they do evaluate where it’s best to do business.  Right now ND is pretty good (workers comp, workforce) but we have sky high income taxes.

Plus even existing businesses would have more money to invest if they were able to keep the 5 or 6% of their profits that they pay to the state for income taxes. 

Then you’d have thousands of people benefiting rather than a few corporate charity cases like Alien, or Websmart, or Imation or any of the other losers that we keep backing.


[W]hat you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.


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The Whistler on September 29, 2008 at 11:50 am
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Once again, the only way to take money out of an economy is to not spend it.  The state budget surplus is an example of taking money out of an economy.  Economic development is not.  Also, I’d say that $8 Million spread out amound around 650,000 (around $12.50 per person) would not have generated even 3 jobs.

All spending that is done unnecessarily is government waste, as it expends tax dollars that could have stayed in our pockets.

And it’s not spread out over 650,000 citizens.  It’s spread out over taxpayers.  Which, in the state and (in the instance of money coming from local government) the county, is a much smaller number.

But nice spin.

As for Alien, things don’t always go according to plan, but that’s the way of the free market. 

Sure, but we’re not talking about a free market.  We’re talking about porking up some business with my tax dollars.

Not the same thing.

I guess I don’t understand what you would do differently to bring business into ND and diversify ND’s economy?  Some of you talk about changing tax laws, but that would only have a neglegable effect.  It seems to me that the best way to bring in new businesses and to compete amoung other states in the microeconomy is economic development.

You say that while assuming that there are things government can do to diversity the state’s economy.

Let me say that keeping taxes high to fund millions in economic development pork isn’t a good way to do it.  It’s expensive, prone to cronyism and corruption and ultimately doesn’t work.

As Alien Technology, the latest in a long line of fiascos, proves.

How many times do we have to go through this before we recognize that government-managed economies don’t work.


When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

-- Thomas Jefferson

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Rob on September 29, 2008 at 12:07 pm

Govt spending for anything other than the legitimate functions of govt is misallocation of resources.


The only legitimate role of government with regard to economics is to prevent fraud and provide a remedy- civil and criminal penalties- in case of fraud.

People have the mistaken notion that the free market has no rules.  But it most certainly does.  All our problems are due to government meddling.

robert108 on September 29, 2008 at 12:11 pm

Alien Technology was put in a place where the technically trained workforce didn’t exist.

Waves the BS flag.  I’m an EE (Electrical Engineering) grad from NDSU who lives in Fargo and works as an EE.  I can tell you that there isn’t a shortage of people who are technically competent in my field. 

Plus the stuff that they do here isn’t very technical anyway. As I said before the R&D is out of state, not here. 
From what I have heard, those folks flip a switch and turn a dial at the plant here. 

The problem is most move away after graduation because there isn’t enough jobs to keep them here.  If Alien came out tomorrow and said they needed 100 EE’s they could get them I think.  Some would just move back, others would be fresh out of college, others would come from the various companies around town who do hi-tech work.


The best argument against democracy is a five minute conversation with the average voter
-Winston Churchill

Moszer on September 29, 2008 at 12:21 pm

North Dakota’s Democratic model of economic development involves replacing each million dollars of private capital invested in a business with a Byron Dorgan news release.

And then you bundle them all up and sell them as a Dorgan-Backed Security.

Pomerdorgrad on September 29, 2008 at 12:33 pm

And then you bundle them all up and sell them as a Dorgan-Backed Security.

Backed by a guy who can’t balance his own checkbook or figure out who’s skybox he’s borrowing?

Thanks but no thanks. 

Dorgan-Backed Security is a bit long, for short let’s just call them a Dorganoff.


[W]hat you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.


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The Whistler on September 29, 2008 at 12:45 pm

There’s a financial term, haircut, which means taking some value off the top. Guess that term could never apply to a Dorganoff.

Pomerdorgrad on September 29, 2008 at 01:04 pm
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Combover?  What combover?

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When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

-- Thomas Jefferson

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Rob on September 29, 2008 at 01:58 pm

Alien Technology was put in a place where the technically trained workforce didn’t exist.
Whose fault is that?  Alien’s for locating their business there, or local education for not providing training opportunities?

Ignoring how insanely condescending that is…

The second question of who’s to blame doesn’t make sense (if we follow your logic). If there is no technically trained workforce...it is because there is no technical industry. If no industry, there are no teachers. Why train kids in an industry that doesn’t exist in ND?


For the first time in my adult life, I am ashamed of my country.

Kenny on September 29, 2008 at 03:20 pm
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Well, Kenny, I don’t think it’s up to us or the government to pick what career field kids go to college for.

Just as it shouldn’t be up to the the government to decide which businesses move into a given area.


When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

-- Thomas Jefferson

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Rob on September 29, 2008 at 07:41 pm

I couldn’t agree more Rob.

But the question is (assuming Carrick’s logic):

If North Dakota is a field of backwater hicks who have no clue what a computer is, and they have no technical field...why would anyone waste their time teaching their children technical skills.

It’d be as useless as teaching Arizonians how to shovel snow out of a driveway.


For the first time in my adult life, I am ashamed of my country.

Kenny on September 29, 2008 at 09:22 pm
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That’s really stupid you know. Eight million more in the economy would create a ton of jobs.

How many jobs? Also how would they be produced since individuals would only have a extremely small chunk of the money?

Despite the fact that economic development is a failure again and again.

How so?  Grafton seems to have done well with Marvin Windows.  Also not every investment pans out.  The only people who would argue that investments should are hyper liberal democrats.

Right now ND is pretty good (workers comp, workforce) but we have sky high income taxes.

I’d disagree with ND being pretty good right now.  The business owners I talk to hate workmans comp insurance in this state.  We do have high income taxes but the bigger problem is property taxes.  We need to do what South Dakota did and freeze them.  We are also overly dependent on commodity prices which have tanked in the last few months.  If we don’t diversify the economy, through economic development or something else, we will have a statewide recession where businesses will go under and all taxes will go up.

Sure, but we’re not talking about a free market.  We’re talking about porking up some business with my tax dollars.

We are talking about a free market.  North Dakota competes with other state in order to bring businesses to the state.  You’re making the mistake of think ND is a macroeconomy when it’s not.

You say that while assuming that there are things government can do to diversity the state’s economy.

So are you.  You have said that lowering taxes and changing laws, both of which are things government can do passivly, would diviersify the economy.  I’m just saying that ND needs to more activily compete to bring businesses to the state.

How many times do we have to go through this before we recognize that government-managed economies don’t work.

Government managed economies don’t work, but thats not what economic development creates.  Just like the job market where incentives like health insurance are used to attract job seekers, state can give incentives to bring businesses to the state.  A managed economy requires quotas and price fixing, none of which is done by Economic development.

theovermind99 on September 30, 2008 at 06:20 am
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How many jobs? Also how would they be produced since individuals would only have a extremely small chunk of the money?

You’re buying into the broken window fallacy.  You take tax dollars out of our pockets and use them for these schemes, but if that money stayed in our pockets it would have stayed in the economy any way and it would have been spent a lot more efficiently.

To deny this is to deny the fundamental, free market principals our entire economy is based on.

How so?  Grafton seems to have done well with Marvin Windows.  Also not every investment pans out.  The only people who would argue that investments should are hyper liberal democrats.

I wouldn’t be too quick to champion the situation in Grafton.  As for some investments not panning out, fine.  But you’re dealing with the public’s money.  Government shouldn’t be “investing” in any private enterprise.

I’d disagree with ND being pretty good right now.  The business owners I talk to hate workmans comp insurance in this state.

The business owners you know must not be very cognizant of what worker’s comp. insurance is like everywhere else.

If we don’t diversify the economy, through economic development or something else, we will have a statewide recession where businesses will go under and all taxes will go up.

Again, you assume that government can stimulate the economy and diversify it.  That’s wrong, because as we see economic development fails again and again.  And trying to tax-and-spend our way into prosperity is just plain stupid.

We are talking about a free market.  North Dakota competes with other state in order to bring businesses to the state.  You’re making the mistake of think ND is a macroeconomy when it’s not.

You talk about our state government as though it were a business.  Which is the problem with revenue Republicanism.  You pay lip service to free markets, but really you want to manage the state’s economy so that we can “compete” with other states.

If we want to compete with other states we should reduce our tax and regulatory burdens on businesses.  Not keep taxes high so that we can give special benefits to marginal businesses that wouldn’t even come here if we didn’t give them those benefits.

You have said that lowering taxes and changing laws, both of which are things government can do passivly, would diviersify the economy.  I’m just saying that ND needs to more activily compete to bring businesses to the state.

You want government to manage the economy.  I want government to get off the state’s economy back.  Two very different things.

Government managed economies don’t work, but thats not what economic development creates. 

YES IT DOES!  Small private-public boards deciding which businesses get special treatments and which don’t?

Cripes, open your eyes.


When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

-- Thomas Jefferson

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Rob on September 30, 2008 at 08:20 am
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You’re buying into the broken window fallacy.  You take tax dollars out of our pockets and use them for these schemes, but if that money stayed in our pockets it would have stayed in the economy any way and it would have been spent a lot more efficiently.

Actually, you’re talking about “crowding out”, which is when governement spending eliminates the around the same amount of private spending on in a particular area.  Also you have bought into the fallacy of taxes taking money out of an economy.  The only way to truly take money out of an economy is to not spend it, either through individuals not spending their paychecks or government running up surpluses. 

To deny this is to deny the fundamental, free market principals our entire economy is based on.

No, I just don’t believe that if economic development agencies closed tomorrow that an equal amount of private angel investors and venture capitalists would appear in the state.

As for some investments not panning out, fine.  But you’re dealing with the public’s money.  Government shouldn’t be “investing” in any private enterprise.

Ideally that’s true.  However we don’t live in an ideal world.  In some cases it is better for government to encourage certain industires to develop when they aren’t developing otherwise. 

You talk about our state government as though it were a business.  Which is the problem with revenue Republicanism.  You pay lip service to free markets, but really you want to manage the state’s economy so that we can “compete” with other states.

If we want to compete with other states we should reduce our tax and regulatory burdens on businesses.  Not keep taxes high so that we can give special benefits to marginal businesses that wouldn’t even come here if we didn’t give them those benefits.

You talk about this state like it’s a macroeconomy, which it is not.  Like it or not we compete with other states for people and businesses.  There are several factors in that competition.  Taxes and regulations are one of them, however so are things like climate and activities for people to do.  This is why economic development is needed.  It gives incentives to bring businesses to the state.  Those businesses would retain or bring in people to the state to work.  Those people would pay taxes.  The tax burden goes down because of it.

You want government to manage the economy.  I want government to get off the state’s economy back.  Two very different things.

This is not managing an economy.  Managed Economies involve the government telling businesses what to produce, how much to produce, and how much to sell it for.  None of that is happening here.

theovermind99 on October 1, 2008 at 02:32 pm
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