Brief thoughts on the government as angel investor

I’m listening to a Massachusetts politician talk about how exciting it is to be in a place like Massachusetts, with its diverse economy. This follows Governor Deval Patrick announcing that the state of Massachusetts will put $100,000 into a new business plan competition, the Mass. Challenge. The aim will be to draw entrepreneurs who are willing to base their companies in Massachusetts, boosting job creation.

I’m not against government trying to stir the pot — it’s a huge and successful funder of research and development, and government investment decisions, particularly in infrastructure, shape our economy in profound ways. Also, lots of small businesses live off government contracts and some of them occasionally get big. But in this case the money involved isn’t much, making it sound like a gimmick. Why move to Mass. for, say,  $50K or $100k when you can stay where you are and get much larger sums from the Small Business Administration?

Nor does this plan address the issues of the diverse economy in Mass. Having lots of small industries with no apparent ability to get bigger don’t make for a great economic future. Sure, Massachusetts doesn’t have the Detroit problem, of being too focused on a single industry. But it doesn’t have the Detroit advantage, either, of having an ecosystem that can drive industry growth and job creation, outside of perhaps the education sector.

I don’t see how acting as an angel investor changes that, even if the state turns out to be a brilliant investor.  At least it doesn’t offer a lot of potential for corruption.