Our new race for Oakland’s Mayor could be a fight over who is less ignorant of microeconomic development.
While I have thrown my support to Mr. de la Fuente, I am concerned that both he and Mr. Dellums have a history of casting our problems as insufficient government subsidies of local business.
We rarely consider the possibility that the City of Oakland’s subsidies are the problem. . . .
Whenever the City of Oakland pours a subsidy into a pet projects – the ice rink, the uptown development, Flower Mart, Tech Cluster, Housewives’ Market, Old Merritt College, the Raiders, Preservation Park, City Center, Leona Quarry, and on and on – we fail to consider that the premise is that the project is fundamentally uneconomic (as determined by the private sector). City officials justify regular excursions into thinly-veiled graft, corruption, nepotism and political patronage on the basis that no private investors are stepping up to the risk and return truly present and therefore it is the City’s responsibility to do so.
I, for one, do not know: it may be that the reason private investment does not flow into Oakland is that it is uneconomic to do so. Certainly this is the basis for the subsidy. But one has to wonder: why is it uneconomic for a private investor, but makes perfect sense that the taxpayers instead should bear the economic risk and burden of performing what has historically been the purview of the non-governmental marketplace? The City of Oakland’s taxpayers ought to receive better than a guaranteed high-risk-low-return proposition. On second thought, perhaps we are getting what we deserve.
Remember that it was our City that was founded on the principles of public resources for private gain. Horace Carpentier, for whom we have now dedicated a tongue-in-cheek award ceremony, founded this City by patching together a quiltwork of East Bay villages to permit him to finance his publicly-funded development of the Oakland waterfront (the rights to which he had acquired for $1 per year). Were it not for taxpayer-funded subsidies, Mr. Carpentier would not have accumulated such vast sums of wealth to later donate to his East-Coast causes.
Certain candidates, casting themselves as “progressives,” seem to reason from the unstated assumption that no private investor in their right mind would invest in the Oakland flatlands and thus it makes perfect sense for the City to do so. Instead of trying to address that point (the reasons for Oakland’s anti-business climate, poor investment options, high rate of crime, theft and vandalism), which seems like the real problem to the rest of us, spendaholic candidates argue that this problem can and should only be solved by more taxpayer subsidies to support economic development.
Perhaps one reason we might balk is that there is no real investor at risk and there is therefore no guarantee (indeed no motivation) that anyone will be paying attention when the money is, as inevitably occurs, squandered through various unmet promises and unfulfilled obligations by the vendor-recipients (or worse, City Departments) of these funds. City staffers will be left to sort it out, assess blame, pass the political buck to the then-unfavorable party, and move on to the next scam – er, “redevelopment project.”
There is no doubt that parts of the Oakland flatlands vastly need redeveloping. I wholeheartedly agree that when left alone, people will find ways – legal or otherwise – to eek out a subsistence. To this end, various politicians and interest groups have supported projects that do not require taxpayer money but rather generate revenue – billboards and casinos by way of example. Oddly, when staring such privately-funded projects in the spreadsheet, our City Council leaders demonstrate surprising creativity in inventing reasons why not to develop Oakland, why these projects (which are controlled by others than themselves) will lead to “bad” economic development, while their subsidies will somehow further the cause of education and opportunity for flatland Oaklanders.
Unless one believes that the development of graft, corruption, political patronage and nepotism are a viable, growing industry that can support further economic development suitable for export, one cannot support the infusion of public money into flatland Oakland. Such a giveaway will not replace the kind of infrastructure – education, self-reliance and independence from inefficient bureaucracy -- that we have never received from our City and that we actually need. Growth of our regional economy in the 21st Century may occur in spite of our City officials, but certainly not because of them. While blackmail has created a temporary economic infusion for growing corrupt regimes at different points in history, we have never seen a sustained regional economy built upon such science (outside of possibly Washington, D.C.).
What Oakland politicians need to “do” in Oakland is to stay out of the way of the fledgling private businesses beginning to operate here. Start by exempting flatlands businesses from business taxes and filings. Provide a “State and Federal Regulatory Compliance Center” at Eastmont Mall. Support volunteers who can teach residents how to fill out a loan application, read a spreadsheet, or compile a simple business plan.
Several years ago, a partner and I taught an eight-week course to probationers (in what is now known as the Crossroads program) who learned for the first time what a loan application and a spreadsheet looked like. We were volunteers and they were there because they wanted to be. There was nothing deficient about their desire to learn and earn. They appeared mostly surprised that anyone would be so bold as to believe in them and their ability to become a success without some program from downtown administered to foster their dependency.
Any business-owner in the City can attest that opening a “regular” business here (not one of those businesses that is built on public money, but one that is built on the sweat and tears of real people earning real paychecks), Oakland is a bureaucratic nightmare. Ample numbers of our clients and small-business colleagues can attest that the climate here – the registration, regulations, taxes, and particularly the attitude of public “servants” – makes Kafka’s Eastern Europe look like a predictable, stable set of understandable and rational laws. Oakland still does not seem to understand that wealth is created outside of government, and that government serves its people – not the other way around.
By way of recent example, many of our local businesses, sometimes homeowners with mailboxes or home offices, have received notices of various business taxes, penalties, and late filings from our assessor. In a normal world, where results can be fairly predicted by a set of rules that are regularly followed and implemented, the business-owner might be inclined to consider it his or her duty to support governmental infrastructure. “Oh well, I didn’t know about this requirement – I’ll just pay the tax, penalty and interest.” But when one hears that the money is going to be spent on any number of pet political projects (e.g., $25 million for the E. 14th Street corridor) for reasons that are at best unpredictable, it is time to consider throwing tea into the harbor.
Many small businesses in Oakland have fought the appeals board over these assessments in recent months. It appears that the Oakland Assessor suddenly discovered the existence of the tax and the existence of small businesses. That sudden discovery comes without political or economic cost to the Assessor; not so for the small business. These are not scam businesses, but businesses such as music teachers, day care centers, craftspeople, and mom-and-pop service and retail businesses. With unusual zeal, City auditors have been cracking down on this “abuse,” and their focus has been especially vigilant against people who simply did not know the law (and the particular tax) existed. The smaller and less powerful the taxpayer, the greater the penalty, and the deeper and more painful the Star Chamber.
In Oakland, our City looks to receive taxes from politically disfavored businesses to subsidize politically connected businesses - real estate developers, technology clusters, football teams, ice rinks and the like. How exactly is this benefiting the public good? It does nothing but further distort already difficult economic conditions in places such as flatland Oakland.
Oakland is a place of many geographical advantages – its waterfront and hills, its proximity to San Francisco, its position as the hub of multiple regional transit systems and highways, its airport, and its beautiful aquatic centerpiece. Leveraging these resources is the obvious key to economic development. Instead, we look to subsidize uneconomic projects for political reasons. The best thing politicians can do is address the horrible crime problem (which actually is the public mission of the City) and then just get out of the way.
Oakland politicians are unable to see that the lens through which their solution seems so clear comes with a price tag: credibility. Small (and some large) business does not believe the Government of Oakland has any real interest in allowing the natural economies of our place to develop. The lens through which our leaders see “redevelopment” is distorting the economics of what risks are truly worth bearing, and shifting the risk of enterprise from investors to taxpayers. This has never been a viable foundation for economic growth and there is no reason to believe that history will make an exception for Oakland.
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