Biomedical Innovation and Commercialization Initiative (BICI)

BICI: One Step Closer to a State Managed Economy

By Michael J. Chapman
Board of Directors, Maple River Education Coalition

February 14, 2002

Last year, Minnesota passed the BIOMEDICAL INNOVATION AND COMMERCIALIZATION
INITIATIVE (BICI). Billed as an "economic stimulus initiative," BICI
actually represents the STATE TAKE-OVER of a successful free-market
industry. Nothing like this has ever been attempted before. States have
always offered tax incentives and low-interest loans to attract businesses,
but this scheme redefines the role of government to be a "venture
capitalist" with our tax dollars. Profits will go to government; losses
will be passed on to the tax-payers! Similar ventures are being considered
for other industries, signaling the coming end of the FREE-market economy.

Last February (2001), the Minnesota Department of Trade and Economic
Development published a report justifying the need for BICI and explaining
how it would operate. The report is a diatribe of self-contradictions and
straw-man arguments. (see: www.minnesotatechnology.org/BICIReport.pdf)

MANAGEMENT THROUGH "APPOINTED REPRESENTATIVES"

According to the report, BICI is a new "for-profit" corporation formed "to
manage the commercial development of the [bio]-technologies it selects...and
licenses." Through BICI, taxpayers will "provide early stage seed
capital..." to the tune of $10 million! (p.2.) This Government-operated
business will be managed by an APPOINTED 5-member board that includes
"REPRESENTATIVES" from the State Department of Economic Security, University
of Minnesota, and from the BICI investment partners. (p.9.) The BICI
managers will determine which research ideas have "commercial potential" and
are worthy of tax-payer investment.

"Appointed Representatives" are never a good idea in a free republic; but
allowing government-appointed managers to risk tax-payer money for its own
benefit is nothing but "taxation without representation."

What are the bio-technologies BICI managers will select and influx with
taxpayer dollars? According to the report, "the term [biotechnology] is
employed in its broadest sense to encompass ALL discoveries related to human
and animal medicine and health. ...including, pharmaceuticals,
biotechnology, medical devices, hybrid devices, biomedical engineering,
diagnostics, and health care-related information technology." (p.3.) In
other words - biotechnology includes just about anything that has to do with the health-care industry.

FAILURE OF THE FREE-MARKET?

Wasn't the health-care industry doing okay without government managers?
"NO," says the report. According to the executive summary, BICI is
justified for three reasons: "There is a local market failure for commercialization
of technology. There is a long lag phase between initial investment and profitability,
and it is DIFFICULT FOR CAPITAL MARKETS TO ASSESS ACCURATELY
the risk associated with early-stage technologies. For these reasons, the private sector
under-invests in commercializing the results of basic research." (p.2. emphasis added)
In other words, the free-market has failed the health-care industry, so government is needed
to step in and save the day!

In reality, none of these reasons are true. In fact, the remainder of the
report contradicts these arguments. For example, if it's really difficult
to get the "private sector" to invest in medical technology, how can BICI
later claim that three-fourths of its investment capital will come from
ATTRACTING "private sector" investments? (p. 10. "investors")

Furthermore, if BICI's existence is necessary due to the "failure" of
free-market private investments in University research ideas, how can the
report later claim: "the UNIVERSITY HAS BEEN SUCCESSFUL in protecting its
intellectual property and licensing its technology to EXISTING COMPANIES"? (p.5.)

Contradictions abound in this report! None so absurd as claiming, "there is
a LOCAL MARKET FAILURE for commercialization of biotechnology" (which
includes "medical devices"). Yet, within the same paragraph, this failure
"is contrasted with the VERY SUCCESSFUL medical device industry in
Minnesota." (p.6) How is it possible to have a successful medical device
industry become the justification for government intervention in the
medical device industry? According to the report, BICI will "license"
ideas already patented by the University, then enter into a commercial
partnership agreement that gives BICI power over eventual start-up businesses.

TAXPAYER GUARANTEED SUCCESS!

But the BICI report claims government is not interested in long-term
management of new companies, only helping new companies get started. But
this too is smoke and mirrors wizardry. The BICI report spells out how it
will turn over its management of start-up companies to the private sector.
The report explains that BICI will be in charge of developing the "exit
strategy" in such a way as to "GUARANTEE an equity and/or cash return to
BICI Corp. to ASSURE its future operations." (p.8). As you will read below,
"future operations" means setting up the same scheme in other industries!
Furthermore, "The [BICI] Board will be required to determine how to best
partition the two sources of funding (public and private)..." (p.8). Not
only do BICI bureaucrats get to determine how to split up any
taxpayer-funded spoils, but "future operations" will be "guaranteed" by the
income from any successful ventures.

But there's more: According to the report, if the venture is successful,
"BICI management develops the management team for the new company." In
other words, the "appointed representatives" of BICI have the right to
APPOINT the start-up company's management board. The possibilities for
corruption and graft are obvious and endless!

But what happens if the venture goes bust? According to the report, "The
[BICI] board will decide when to seek additional BICI Corp. 'investments' to
sustain early market development funding capabilities." (p.9.) BICI knows
where to come get more "investment capital" - the same source from which
it's startup capitol came - the taxpayers!

What do BICI managers expect in return for their benevolent management of
our money? Only the cake and then license to eat it too. The BICI managers
claim this is not too much to ask. The report assures us that "The required
return on investment for the state is not high, MERELY a return sufficient
to maintain operations and proof of concept funding INDEFINITELY." (p.10)

If only the free-market could "merely" ask for as little!

Since we tax-payers are the ones providing the funding, the obvious question
is "what's in it for us?" The report states: "The earliest economic returns
to the state would be more in the form of TAX REVENUES than job creation.
OBVIOUSLY, the state could use these revenues for ANY legitimate purpose."
(p.11) Obviously. It's certainly comforting to know that the government
is risking MY tax dollars to make a profit for itself, so it may spend the
revenues on "any legitimate purpose."

MANAGING THE "LABOR-MARKET" ECONOMY

So, where did this idea come from? And why do they think "other" private
investors will have more confidence in government-managed start-ups than in
the free-market? The report reveals the answer: "The National Governors
Association Center for Best Practices (NGA) has recently evaluated
university-industry technology transfer. ...Among their
recommendations...[is] university-industry PARTNERSHIPS involving
state-based companies." (p.4.) In other words, this scheme came through the
same organization (NGA) that convinced the nation's governors to sign the
federal contracts that brought us Goals 2000 (G2000), School-to-Work (STW),
and the Workforce Investment Act (WIA). These federal bills must be
understood in order to see how BICI fits into, what has been called, "The
New Labor Market Economy."

What these three federal bills (G2000, STW, WIA) created was a three-way
public/private partnership between government, education, and the economy.
(see http://www.mredcopac.org/upda0219.htm).

Robert Jones, of the National Alliance of Business and former Undersecretary
of Labor during the Carter years, has referred to the overall system as
"managing the K-80, knowledge supply chain." He explains that schools are
really "human resource suppliers" for businesses ("customers") who represent
the "demand" side of a new type of supply-and-demand economy.

WORKFORCE DEVELOPMENT COMMITTEES TO MANAGE "TARGETED INDUSTRIES"

Workforce Development committees in every state and region of the nation are
set up to manage the "labor-market supply chain." They will coordinate the
"supply" to meet the "demand" for labor within "targeted industries." One
of the targeted industries established by the National Skills Standards
Board is -- surprise-- biotechnology. The BICI report hints that it will
take advantage of the new school-to-work training system for the purpose of
providing labor for its new start-up companies: "As new companies continue
to grow, there would be the future potential for companies to locate in
areas throughout the state where a critical mass of
technologically-appropriate employees could be recruited." (p.11.)

From where will the new companies recruit its "critical mass of
technologically-appropriate employees"? They will come from the
"labor-suppliers" otherwise known as schools. Next Fall, for example,
every Minneapolis 9th grader will be pigeon-holed into one of several
"career clusters" (called "small learning communities") that will focus
their "technologically-appropriate" high school training. It's no
coincidence that one of the areas available is health care (read: "biotechnology").

EXPANSION TO OTHER INDUSTRIES and OTHER STATES

According to BICI documentation, future plans include building "BICI"- style
corporations in other industries, including: "Agriculture, Digital Science,
Media Science, and OTHER AREAS with commercial potential." (p. 4. of BICI
Booklet). Whatever the justification for taking over these "other areas with
commercial potential," don't be surprised when they happen to match the
career-cluster choices offered to students under the new "education" system.

This idea is not unique to Minnesota. The BICI report offers further
justification by acknowledging the fact that Illinois, Indiana, Kentucky,
Pennsylvania, and Wisconsin, are also creating similar government-managed
venture corporations.

BOTTOM LINE:

BICI is not about HELPING the biotechnology industry; it is about taking it
over. Nor is BICI about helping jump-start the free-market; it is about
government abuse of power, bilking the taxpayers, and ending a successful
free-market system. The report is sprinkled with idealistic, socialist
motives. For example, the report admits: "The return to an innovating
company may not be as large as the returns to society,"(p.3.)
"Efforts...squarely address the need to...benefit the public." (p.4.) These
altruistic-sounding motives really state that the free-market should step
aside for what government deems the "common good."

Indeed, BICI brings Minnesota, and the nation, one step closer to a state-managed economy.