NCInnovation would be just more crony capitalism

provision included in the Senate budget proposal would direct $1.4 billion in taxpayer funds to a project to subsidize select private businesses. 

NCInnovation is a 501(c)(3) nonprofit organization dedicated to increasing the amount of university research being commercialized by North Carolina companies. According to their research, North Carolina ranks 20^th in the country in terms of such innovation, a ranking they believe is too low. 

Every perceived problem, however, does not require a government solution, in this case forcing taxpayers to fund investments in companies chosen by political appointees. 

The Senate budget would set aside $1.4 billion in taxpayer funds to be handed over to NCInnovation. The funds, in no small part, would be used to invest in — or provide grants to — North Carolina businesses taking newly innovated products developed from university-based research to market.  

Stripping away the lofty language about innovation and cooperation with university-based research and development, this project is crony capitalism, plain and simple. It would involve an organization of political appointees using taxpayer dollars to pick winners and losers in the marketplace.  

Such a move would represent a further intrusion of government into our economy and go against free-market principles. Business investments should be voluntary choices of market participants who willingly risk their own capital. It should be these willing investors who determine which innovations are brought to market, and how much each receives in investment, not politicians or taxpayer-funded committees. 

According to the Senate budget bill’s language, NCInnovation’s 13-member board would include eight political appointees. They would be chosen by the House and Senate leadership. The remaining board members would be appointed according to the organization’s by-laws, and are supposed to have experience in areas such as research and development, entrepreneurship, and product commercialization. Curiously, no state employees are allowed on the board, meaning no representatives from the UNC System, an integral piece of NCInnovation’s mission, will be allowed on the board. 

Despite any good intentions, political appointees sitting on a treasure chest of more than a billion in taxpayer dollars will invite a lot of attention and have a tendency to lead to cronyism in which those with the best lobbyists and political connections receive funding. This creates a great recipe for corruption and favoritism. 

Locke President Donald Bryson already highlighted concerns with the governance of NCInnovation as provided for in the Senate budget. They include board composition (with eight appointments and none for the executive branch, the legislature would wield a concentration of power over the group) and transparency (NCInnovation would be exempt from open-meetings and public-records laws). 

But that’s not all

Beyond the government intervention and governance concerns surrounding NCInnovation, there exist still more troubling aspects. 

First, NCInnovation is organized as a nonprofit but will use taxpayer dollars to acquire equity in private companies. Such a move would certainly blur the lines between nonprofit and for-profit organizations.   

Second, part of the plan for NCInnovation is for the organization to use the returns from its investments to fund its continued operations, in order to avoid any further taxpayer appropriations. However, most startup businesses fail. What happens if the organization suffers losses on its investments? Would taxpayers be forced to bail them out?  

We should be reminded that Gov. Roy Cooper’s administration, along with Chatham County government, thought it a great idea to commit more than a billion taxpayer dollars over 32 years to VinFast, a startup Vietnamese electric vehicle manufacturer. Already, VinFast is showing signs of financial distress, and its latest car model is getting universally slammed in reviews, including “very, very bad,” “yikes,” and “return to sender.” Indeed, just late last month, VinFast announced that it will be recalling its entire first batch of 999 vehicles it shipped to the U.S. last year due to safety issues.  

There is a clause included in the Senate budget bill that allows the General Assembly to repeal NCInnovation’s charter or outright dissolve the organization. So if the group begins losing money, it could be dissolved. But when have you ever known a government program to be dissolved because of poor outcomes? If anything, they get rewarded with more money to try to “fix” them. In reality, politicians of any party will be loath to get rid of a massive endowment that enables their political appointees to direct taxpayer dollars to hand-picked companies. 

Third, JPMorgan Chase Chair and CEO Jamie Dimon voicing his support of NCInnovation should raise a red flag. According to the Senate budget bill language, NCInnovation will hire “an independent investment manager to handle activities related to managing State funds.” It’s easy to speculate that the leading contender to manage the $1.4 billion endowment may well be JPMorgan Chase. 

Recall this is the same JPMorgan Chase that received a $25 billion government bailout in 2008.  

North Carolina taxpayers should not be forced into becoming investors in businesses selected by politicians or their appointees.