Rhode Island has $125 million which it plans on loaning to businesses.  The goal is to use this money to create jobs and improve the economy.  Those are great goals, although I'm concerned when the government is entrusted with money in the hopes of it doing the right thing.  A perfect example is the state's pursuit of 38 Studios, which is based in Maynard, Massachusetts.

     38 Studios is a video game company which is currently developing 2 games and one day hopes to have 400 employees.  They don't currently have a product for sale, no major assets to speak of, and they are fighting for survival in a highly competitive field.  Despite all these question marks, the state is planning on giving 38 Studios a $75 million loan guarantee, which would come out of a $125 million fund.  For those of you who skipped math class one too many times, that's 60% of available funds for one company with a risky future.  By the way, did I mention that Rhode Island tax payers would be liable for loan repayments if 38 Studios defaults?

     Why would Rhode Island officials be in such a hurry to commit so much money to a questionable company?  If you ask them, they will probably mention the promise of 400 jobs, fostering Rhode Island's tech industry, or creating a probusiness climate.  In my opinion, I think it boils down to them having stars in their eyes: 38 Studios was founded by former Red Sox pitcher Curt Schilliing.  I truly believe this proposal would have never gotten off the ground based solely on its financial merits if a big name hadn't been behind it.  I might be wrong, but I doubt it.

     Now, there is a chance that 38 Studios could end up becoming successful, creating 400 jobs, and contribute to a growing knowledge based economy.  It's certainly possible, but I don't think it's that probable.  The worst part is that Rhode Islanders will be responsible for any default, and current small businesses will be prevented from accessing inexpensive capital.

     Think about that last point again.  While Rhode Island is trying to lure a multimillionaire to the state, established small businesses who have made a commitment to growing here will be ignored.  How can that be?  Perhaps these small businesses owners could improve their chances if they had spent more time playing a child's game rather than working.