NY Times: Thrown for a Curve in Rhode Island

It may be hard to understand how all of this happened without understanding the ancient, one-sided rivalry that exists between Rhode Island, a state of just 1,000 square miles, and Massachusetts, which squeezes Rhode Island on two sides like a vise. Massachusetts is the land of the Red Sox and the Kennedys; Rhode Island makes do with the Red Sox’ Class AAA affiliate in Pawtucket and has a history of rampant political corruption.

Going back to the 1980s, Massachusetts developed a high-tech corridor near Cambridge that enabled it to transcend its manufacturing roots. Rhode Island remained stubbornly wedded to its textile makers and jewelry factories, most of them now long gone or crumbling.

So when Curt Schilling came courting in the weeks after his encounter with Mr. Carcieri, it wasn’t just the promise of jobs that caught the attention of the state’s political establishment. Here was one of Boston’s greatest living legends, a proven winner who had sunk something like $50 million of his own fortune into his company, and he was looking to build it not in Kendall Square of Cambridge, but near the old Jewelry District of Providence. If ever there was a way to show up the Bay Staters next door, this had to be it. [...]

If there’s a lesson in all this, it probably has to do with the limits of what any government can — or should — do to bring about growth. Just about every state offers some kind of tax incentive or loan program for businesses looking to relocate. But Rhode Island went further than that; in its zeal to land Mr. Schilling, the state took on the role of venture capitalist, without having the expertise to do it well.

An actual venture capital firm would have been investing in many companies at once, to minimize its exposure, and it would have demanded a sizable equity stake. It would have taken a seat on the board so it could monitor the money closely and, if needed, restructure the company. Rhode Island, instead, threw most of its venture money into a single, highly speculative start-up, insisted that it more than double the size of its work force, and then walked away.