The Mamtek fiasco evokes boondoggles of the railroad-building era
E. Thomas McClanahanPoliticians are ever-eager to stand in front of a building site and turn the golden spade or cut the ribbon on a new factory. But the pitfalls are obvious: All too often, overuse of development subsidies or the extension of public credit for private purposes comes to grief.
The story of Mamtek U.S., the plan to build an artificial sweetener factory in Moberly, is a case in point. Moberly approved $39 million in bonds for the project, expected to create 600 jobs. But Mamtek failed to make its payments and the city had to defualt. Now its credit is degraded and its citizens will face higher interest costs for future debt.
This story has been repeated in various iterations for generations and a striking case in point is Missouri’s experience during the railroad-building era.
After the Civil War, the legislature, with many members apparently bought off by the railroads, approved millions in bonds for various railroad projects. Many cities and counties did the same. They mortgaged their taxpayers for the promise of prosperity that would come with the steel rails.
But the results were modest at best and in many cases the railroad proved a bitter disappointment. Shippers in isolated towns expected good freight rates. They were gouged instead.
As the late historian Paul Nagel wrote, “The debts and the skepticism left by the railroad disgrace haunted later generatins in Missouri, making it especially difficult for those who urged that the public should support highways, education, and various humane projects.”
The state’s railroad bonds weren’t paid off until 1903. Local debts weren’t resolved until 1940.
The experience contributed greatly to Missouri’s natural “Show Me” skepticism. It’s one thing to encourage enterprise and development with low tax rates, efficient government and minimal and effective regulation. But alarm bells should ring when politicians seek to conscript taxpayers as investors, and force them to assume risks that developers are trying to shed.
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