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Reason Foundation

North Carolina’s Rural Economic Development Center Operates in a Crony Capitalist Manner

Victor Nava
July 18, 2013, 10:00am

A recent report from North Carolina's Civitas Institute has brought to light the culture of waste and crony capitalism plaguing the states nonprofits in charge of rural redevelopment. 

In an effort to spur economic growth, back in the 1980s the North Carolina General Assembly established a number of Special Purpose Nonprofits, some fully supported by millions in taxpayer money. There purpose is to create jobs, but what actually ends up happening is a perverse distortion of the capitalist system. The state government collects tax dollars and then forces rural entrepreneurs to go through the nonprofits to get a portion of that money back if they want to start a small business, and then to complete the cycle the state government collects taxes on the newly established small businesses.

Civitas highlights the case of The Rural Economic Development Center, one of the most egregiously crony redevelopment nonprofits in North Carolina. The Rural Center, which receives $6 million in taxpayer money annually, not only gets away with paying its president a salary of $214,000 per year (more than four times the median household income in North Carolina), but it also discriminates on the basis of race and gender. It engages in lending practices that favor certain groups over others in a way that no private lender would ever be able to get away with. 

It gets worse.

In 2012, The Rural Center had seven members on its Board of Directors either directly or indirectly received funding for projects for their own departments, businesses, colleagues, or organizations. A total of $1.2 million was allocated to these questionable projects.

As the Civitas reports points out, while it is not illegal for a government official to coax the government into giving tax dollars to a private firm, then sit on its Board of Directors and receive money from it, it is certainly a conflict of interest at the very least and a definite form of crony capitalism.

North Carolina though isn't the only state susceptible to this exact form of crony capitalism. In a recent Reason Foundation report the case of Enterprise Florida, a redevelopment nonprofit in Florida, was highlighted and bears a great resemblance to the case in North Carolina. Enterprise Florida has been accused of failing to meet its job creation objectives, having the appearance of a pay-to-play scheme, having conflicts of interests, and displaying clear favoritism toward certain companies and industries. Like The Rural Center, Enterprise Florida has provided contracts to corporations with ties to its Board of Directors and even corporations listed in its paperwork as "anonymous".

Creating nonprofits and then funding them with taxpayer money is not a great way at spurring development. In the cases of North Carolina, Florida, and many other places, what the state is doing is essentially diverting money away from local communities and into the hands of these nonprofits which, after skimming a nice chunk of change off the top for administrative costs, only end up giving a small portion of the money taken back to local communities.  The cases in North Carolina and Florida have proven that having a group of unelected and unaccountable bureaucrats in charge of millions in taxpayer funds is not a good way to bring about community development, and often leads to cases of waste, fraud, and abuse because of the crony capitalism inherent in the system. These sorts of crony capitalist government programs must end.

For more on community development cronyism see our Policy Brief, Crony Capitalism and Community Development Subsidies here

Also see our piece for the Heartland Institute here.


Victor Nava is Research Assistant


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