Soundings

William J. Stern
Coliseum on the Charles
Summer 1995

The State of Massachusetts and the City of Boston plan to waste $1 billion on a project with a name worthy of a Roman Caesar: Megaplex.

Its promoters advertise Megaplex, a combination domed stadium and convention center, as an economic-development candy mountain. During construction, they claim, it will produce profits for contractors, wages for their employees, and, of course, tax revenues for the state and the city. Once Megaplex opens, sports fans and conventioneers will flock in, boosting the profits of nearby hotels, restaurants, and other businesses—bringing, again, more tax revenues. The Megaplex, they say, will pay for itself, raising more than enough tax money to cover construction and operating costs.

This "multiplier" theory—that every dollar spent on such a project generates many dollars of additional economic activity—is familiar in New York, where political insiders made similar claims in 1979 to justify building the Javits Convention Center at city and state expense. But when politicians try to sell these big state-capitalist projects, they never consider the "de-multiplier." What if the tax moneys used to build these facilities were left instead in the hands of taxpayers, to save, invest, or consume as they saw fit? This would also produce profits, jobs, and tax revenues—to an even greater degree, since private entrepreneurs are better at seeing profit opportunities than government. But state capitalism blocks the opportunity.

In practice, the multiplier turns out to be a myth. Not only is the Javits Center now infested with organized crime; it has never produced a real operating profit, let alone begun to recover its capital costs. This is the common pattern: in a survey of 25 government-built convention centers, Edwin Mills, director of real estate research at Northwestern University's Kellogg School of Management, found that yearly operating losses averaged 42 percent of revenue. In 1989 the Washington, D.C., convention center was 98 percent booked—but taxpayers had to pony up $5.4 million to cover its operating deficit and another $9 million for debt service.

The governor of Massachusetts and the mayor of Boston should spend a day at Logan Airport talking with Harvard and MIT professors returning from their consulting stints in Eastern Europe, the former Soviet Union, and the Third World. The scholars would be able to tell the politicians what they've been telling foreign leaders: stop embarking on state capitalist projects and instead strive to create an environment where the market economy can flourish, generating real wealth.
 

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