Tuesday, December 22, 2009

Nothing ventured

isconsin Political Fix
not just another blog
December 22, 2009

By Bill Kraus

John Torinus and Tom Hefty have weighed in and given the state an 'F' on their economic test. They are tough graders, but it is hard to argue with their facts about lost jobs, low family incomes, shrinking wages.

So what will reverse these discouraging trends? I don’t hear anyone suggesting that the mainstays of the 20th century Wisconsin economy like paper, heavy machinery, and auto-related manufacturing are likely to return to their glory years.

The same article touts the cluster strategy that would build on still lively assets like GE’s medical equipment and Milwaukee’s hundred plus water related companies. They do not emphasize the prospects of the small, fledgling idea-driven companies being spawned by Wisconsin’s research universities and institutions in, mostly, Madison and Milwaukee but they have in the past.

Happily they do not dwell on the usual government suspects: taxes, fees, regulation, attitude. They lament instead the lack of a new economic strategy for the state and by the state.

They do view the dismal state of providing the kind of high-risk, venture capital that is mother’s milk these aforementioned start-ups and early second stage enterprises need with rightful alarm.

This, happily, is something that state government can do something about. Or can it?

The Democrats in the state Senate have put together a stimulus proposal that would put modest amounts of state money into the hands of entrepreneurs to nourish and encourage job creation.

Why not a full fledged venture capital program which would grow the state’s economy with a tiny percentage of the money (more than $70 billion at the moment) being invested by the state investment board on behalf of the thousands of people who have retired or will retire from their jobs in state and local government and education?

As it happens, I can tell you why not. This idea surfaced some 30 years ago and was immediately and vigorously opposed by the state employees’ union, the directors of local government organizations, and the state teachers union.

These risk-averse organizations preferred investments in the blue chips like, say, General Motors. So how well did that work out?

It would be foolish to pretend the safety firsters (if indeed there are any safe places) don’t have a point. Venture investing is a risky business, and the rules of venture investing make its operatives easy marks for the advocates of the more traditional AAA stocks and bonds, even though these are unhappily in some disrepute these days.

But this doesn’t make venture investing less risky or protect it from criticism.

This is why: Venture investing, not unlike baseball, is mostly about failure. Even the best of the best in baseball and in venture investing rarely bat .300. This is bad.

What is worse is that those venture investments that go bad do so quickly. So right out of the box, the most canny practitioners have to own up to and abandon--this is another unpleasant aspect of successful venture investing--the early losers.

To succeed, venture investors have to spread their money around. If they want to get three successes they have to make 10 investments, seven of which will either fail completely or simply mog along and produce little if any in the way of earnings and growth. Those that fail, what’s more, have to be jettisoned. Successful venture investors are ruthless about adhering to a “no good money after bad” strategy.

It is not hard to imagine what kind of public outcry will ensue from early failures and fast reinvestments with what is essentially public money because the public will have to replace those losses with more tax money if the three winners in this hypothetical example don’t come through.

Can any elected official stand up to this kind of criticism? These are the same people who caved in on indexing the gas tax when the talk-radio people raised the decibel level on that penny ante burden during the $4-a-gallon trauma.

If they can and will, however, the rewards are provably worth it. Those three winners and the one heroic success of those three represent the future, the next Wisconsin economy. No one knows what they will be. No one knew a century ago that a salesman and a hardware dealer in the Fox River Valley would have an idea that would become Kimberly-Clark, or that a man who built a dam in Wisconsin Rapids would find a way to use the excess power it created to make coated paper.

Wisconsin has the money. What Wisconsin needs is the will and the expertise and the guts to stand up to the inevitable criticism.

The alternative is another richly deserved 'F.'

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Sunday, December 13, 2009

The future, should you choose to accept it

isconsin Political Fix
not just another blog
December 13, 2009

By Bill Kraus

There was a well attended legislative hearing last week on a very large, very complicated, very important proposal. The name of the proposal is the Wisconsin C.O.R.E. Jobs Act. It deals with the next Wisconsin economy generally and what the state government could and should do to find and support what one witness called “the new normal.”

That description encapsulates the size and difficulty of what is being attempted. It dismisses the fantasy that says that, as this recession recedes, Wisconsin will return to normal.

That kind of normal in which our economy was driven by construction and automobiles is history. The new kind of normal is being visualized and invented in many mostly small ways by many people, but it is still not clear what it will look like or when it will arrive.

Part of the reason for the hearing was to get expert testimony and viewpoints from the smartest people in the room and state who are working their way through this maze.

The committees introducing C.O.R.E. are headed by Senator Julie Lassa and Representative Louis Molepske. This hearing gave the members of their committees a chance to express their views and recommendations on the concept generally and the specific ideas in it that a lot of people doing a lot of hard work have fashioned.

Those familiar with the committee-hearing process will not be surprised to learn that many legislators on these committees wandered from the subject at hand to criticize the current administration, deplore the sad state of the economy, or get a plug in for whatever is on the top of their personal agendas.

It did strike me that these side trips into ego-land indicated that a lot of legislators are still playing a hand in a game that is that is no longer being dealt. They didn’t seem to notice that there were no reporters in the room. Or that the audience for their wisdom was strictly limited, or, as another old journalistic hand once said, “If the press doesn’t cover it, it doesn’t exist.”

This is a small loss on the sideshows, but a grievous one for the future of C.O.R.E.

It would be amazing if the 14 main elements of C.O.R.E. repair the damage that has been done to our economy, but it seems to be a step in the direction of re-imagining and re-inventing our economy that is needed and of playing in particular to the enormous strengths of a 150 year investment in education and academic research.

Everyone in the hearing room who testified endorsed the effort.

Even the committee members who were critical mostly complained that it didn’t go far enough.

If all the gubernatorial wannabes don’t rush to Senator Lassa’s office for their transcript of the testimony and a personal copy of the paper prepared by David Ward’s NorthStar Economics company, they shouldn’t even go to the trouble of filing nomination papers.

This is the issue for 2010. This is the challenge for the century.

Or to steal from the less polite but more graphic way a long ago campaign advisor to a long ago president did in a previous millennium said it, “It’s about jobs, stupid.”

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Wednesday, December 9, 2009

Prosser's process

isconsin Political Fix
not just another blog
December 9, 2009

By Bill Kraus

When Justice David Prosser signed the letter from a then-unanimous Supreme Court endorsing full public funding of Supreme Court campaigns, he must have assumed that the funding would be somewhat north of the $400,000 that made it into the recently enacted law.

Prosser now says this is not enough money to run a full-blown, TV ad-driven campaign in the mold of the three most recent contests for the Supreme Court, and that it does nothing to protect a candidate from interventions of “phony issue ads.”

He is right on both counts.

The issue-ad issue was intentionally postponed for another day for fear that an impending U.S. Supreme Court decision could kill the whole bill if it was included.

The money complaint, however, is somewhat disingenuous. It is a minor miracle that the Legislature came up with even that kind of money in these desperate fiscal times.

This is a work in progress, this idea of fully funding campaigns with public money, and as, if, and when the state’s revenue streams get better more money may be available.

For the nonce, however, these are the cards that have been dealt and Justice Prosser, who is up for re-election in 2011, is, as he says, the guinea pig for the whole concept of bringing campaign spending down to earth.

This “guinea pig” campaign can develop in one of several ways.

Prosser may run unopposed, which is not unusual for a sitting Supreme Court Justice, recent campaigns to the contrary notwithstanding. A free ride is less likely now that impartial justice is in effect, because the money barrier for challengers is less daunting.

If a challenger appears and opts to take the public grant and Prosser does as well, both will have to run low media, high shoe leather campaigns consisting of face-to-face campaigning across the state to generate word of mouth support from thought leaders, lawyers, judges, and the like; visiting all the lives-at-five TV shows and other news outlets, up, or down, to and including the state’s weekly newspapers.

As an incumbent who has been on a statewide ballot and has had 10 years to make the kinds of appearances and contacts that are the essence of shoe leather politics, Prosser would have a major advantage, if indeed he has used his incumbency energetically.

If a challenger appears and opts out of the public grant which Prosser takes, the grant to Prosser will be increased to offset the challenger’s spending and the campaign will probably escalate to the media model created by Herb Kohl and emulated in whole or in part by everyone since he penetrated and blew away the dollar ceiling that tacitly but effectively restrained fund raising and spending in Wisconsin campaigns for anything and everything.

If Prosser and the challenger do take the public grant an independent campaign could be mounted by a third-party organization. WEAC comes to mind. Whichever candidate is the victim of the third-party’s attacks would get a compensating grant to offset WEAC’s spending.

If Prosser and the challenger do take the public grant they could come under attack in “phony” issue ads run by a third party of any description. WMC comes to mind. There is no provision in the impartial justice act to offset this kind of “free speech” spending by anyone.

The best and only recourse to this kind of activity is an enemies strategy which asks, “Who are these people, and why are they saying these awful things about me?”

It is possible that the Legislature will pass either SB43 or AB63, which would reveal the names of the people who put up the money for these issue ads in hopes that this will deter this kind of spending, but will surely expose the source of the money for it. This, in turn, will answer at least the first part of the enemies strategy question.

I know, I know, there is a sixth option. Prosser can take a pass on this first tiny, timid, tentative route that the Legislature has offered and opt for the status quo ante with its fundraising from unseemly sources, media-driven-deceptive advertising which has diminished the stature of the judiciary and its practitioners and made recusal a household world.

Impartial justice is what is offered. If we get more civil political campaigns and more restrained spending then so much the better. Justice Prosser will determine whether what the Legislature has wrought is worthy of the name. One can only hope.

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