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Will the real robber barons please stand up?

By Helen Cochran.

At the April 13th meeting of the Wichita City Council a request from downtown developer Real Development will be made for an additional $2.2 million taxpayer subsidy for its condo project Exchange Place, located at Douglas and Market. With two weeks to go before this public hearing there is still time for council members to read The Myth of the Robber Barons by Burton Folsom. Folsom’s easy-to-read 134-page narrative lays out the case for entrepreneurship in America and can be read in one evening. It’s a history lesson worth reading by all.

Folsom highlights two kinds of business developers: “political entrepreneurs” and ‘market entrepreneurs.” And while Folsom focuses on the larger-than-life entrepreneurs of the nineteenth and early twentieth century, the lessons gleaned have far reaching implications and relevance, even on a local level.

According to Folsom, “political entrepreneurs” are those that seek government/taxpayer subsidy, public private partnerships, protective tariffs, special privileges, etc. Folsom makes a sound case that economic development fueled by political intervention invariably fails and undermines the very ideology it purports to serve.

On the other hand “market entrepreneurs” are those that obtain their successes by producing a product that is better and of more value to the consumer, unbridled by the government controls and restrictions that come with subsidy. No one can argue that it is the market entrepreneurs that create the wealth in this country.

Despite the anti-business rhetoric spewed by most historians and reinforced in school curriculums across this country, Folsom offers concrete evidence that the likes of Commodore Vanderbilt, John D Rockefeller, Andrew Mellon, the Scrantons of Pennsylvania, James J. Hill, and Charles Schwab should be revered because of the consumer benefits achieved when free markets are allowed to flourish without government involvement. Folsom contrasts these successes with failure-after-failure of those in the same respective industries that received government subsidy. Government cannot do it better and most certainly cannot do it cheaper.

In Wichita, Real Development is one of several downtown “political entrepreneurs.” What was originally a $27.8 million project with an approved $9.3 million subsidy from the City of Wichita is now a $51.5 million project seeking an additional $2.2 million subsidy from the City. Real Development boasts that with approved additional City subsidy they will be able to qualify for a $30 million loan from the U.S. Department of Housing and Urban Development — a government guaranteed loan. This “guarantee” is none other than you and me. Our taxpayer dollars are lost if this project fails.

According to Goody Clancy, the City’s downtown development consultant, there is a market for downtown development in Wichita. Specifically, Goody Clancy consultants found that downtown Wichita demand for residences is 1,000 units over the next five years.

If such a market truly exists where are the market entrepreneurs and why are they not clamoring to develop? Why are local banks not willing to loan these political entrepreneurs money without a government guarantee? Michael Elzufon, one of the principals of Real Development, states this is a “low risk deal.” Yes, it’s a low risk deal for Elfuzon but I suggest it is a very high-risk deal for the taxpayer.

The Wichita City Council, as with as many city councils nationwide, continues to insist that economic development in downtown Wichita requires government subsidy. Fear mongering becomes a tactic used when justifying subsidies offered to private enterprise to locate or expand here: “Everyone else is offering them” or “If we don’t subsidize, Company X will go elsewhere or relocate” or “Without subsidy this won’t happen.” Millions of taxpayer dollars have been invested in the name of economic development or downtown revitalization and when projects fail, millions more are spent in an attempt to salvage the project.

Development succeeds when market entrepreneurs perceive a need and are willing to risk their own capital for success. Anything short of that has historically failed.

The Myth of the Robber Barons is a must read for anyone interested in the writing on the wall but especially for those with the power to commit taxpayer money to projects that are better left to market entrepreneurs.

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6 Comments

  1. joelweihe March 30, 2010

    Go Helen. Another good book that talks about Robber Barons, government subsides, Government endorsed Monopolies and how they are harmful is “How Capitalism Saved America” by Thomas DiLorenzo.

  2. LonnythePlumber March 30, 2010

    I think we will continue to need both. There are some situations that serve the public that is not attractive for a new business. They may need a higher margin than a business plan without assistance offers.

  3. RDtenant March 31, 2010

    Many of the members of RD HOA are suing these developers both in district and federal court, but the media is not looking into the issues nor are they interviewing any of the tenants.
    Those who invested in Wild World lost their money, but in Wichita, the City Council will lose the taxpayer’s money.

  4. Jimmy J March 31, 2010

    These tenants or a representative of these tenants need to appear at the April 13 public council meeting. If you don’t bring this to the Council’s attention how are they to know?

  5. Wichitator March 31, 2010

    Why doesn’t the eagle look at this small group of political finnaglers?

  6. CarlosMayans March 31, 2010

    An owner also contacted me about how the developers are collecting the rents from the tenants and not paying the owners until they agree to certain things. In addition, the owners feel that if they come forward the developers may not get the additional funding from the City and without the additional funding this “house of cards” will come tumbling down and they will lose everything. In their opinion, if the City gives the developers more money, then perhaps, they will stay in Wichita long enough for them to recuperate some of their money. Either way, it appears to me that the taxpayers are going to suffer.

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