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Reason On How and Why 38 Studios Went Bust 227

Posted by timothy
from the other-people's-money dept.
cathyreisenwitz writes "The 2012 bankruptcy of Rhode Island-based video-game developer 38 Studios isn't just a sad tale of a start-up tech company falling victim to the vagaries of a rough economy. It is a completely predictable story of crony capitalism, featuring star-struck legislators and the hubris of a larger-than-life athlete completely unprepared to compete in business." Reason makes no bones about its view of this kind of public-private "partnership."
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Reason On How and Why 38 Studios Went Bust

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  • by Anonymous Coward on Thursday January 03, 2013 @02:19PM (#42464637)

    Reason, a libertarian magazine, is probably the most pro-capitalism publication currently available. The article is about how taxpayer-funded loans are almost always a bad idea. Schilling was unable to find private sector investors - which usually means that the business model is not very good. Crony capitalism is not capitalism, it's a corruption that wastes a whole boatload of our tax money.

    Short story: Leave investing to investors and stop risking taxpayer money on ventures that will most likely not succeed.

    Come on, son.

  • by nitehawk214 (222219) on Thursday January 03, 2013 @02:19PM (#42464641)

    Neither the article nor the summary says anything that could even be remotely interpreted as an attack on capitalism. And you know it.

    Strawman arguments are lies.

    Not to mention that this entire deal had nothing to do with capitalism. Government guarantees a giant loan to a business driven by nepotism, greed and lies in an erratic industry headed by a former sports star with no management experience whatsoever? How is that capitalism?

  • by Hatta (162192) on Thursday January 03, 2013 @02:23PM (#42464691) Journal

    Crony capitalism is not capitalism

    Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

  • Here's how... (Score:5, Insightful)

    by MikeRT (947531) on Thursday January 03, 2013 @02:31PM (#42464801) Homepage

    Crony Capitalism is when you use the state to get unfair private advantage. It's not like a builder who gets the state to "smooth things out" when building something for public purposes (ex. police station, highway, etc.). There are times when the government needs to help facilitate the work of private parties. This was not one of them. It was the government doing something with a marginal public purpose (the nebulous "it'll create more jobs" excuse).

    Put another way, this is precisely the same sort of crap we saw Bush and Obama do with the banking sector (using public funds to secure private losses that were not incurred due to a public purpose). In either case, the government stepped in to do what the market should have done in an otherwise private transaction with minimal to no public purpose.

  • by crazyjj (2598719) * on Thursday January 03, 2013 @02:53PM (#42465073)

    How is that capitalism?

    Because Shilling was a Republican, of course. That makes him a champion of free market capitalism and all that (until *he* needs a handout from Uncle Sam, of course).

  • by bobbied (2522392) on Thursday January 03, 2013 @02:53PM (#42465075)

    Crony capitalism is not capitalism

    Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

    In which real world?

    It may have its problems, but capitalism is the best system ever devised for creating wealth and a higher standard of living for a population. Depart from it at your own risk.

    Tax payer money was wasted by loaning it to a business nobody else would touch. When you depart from Capitalism, you reap the reward of inefficiency.

  • Re:Here's how... (Score:4, Insightful)

    by Caffinated (38013) on Thursday January 03, 2013 @03:11PM (#42465317) Homepage

    Put another way, this is precisely the same sort of crap we saw Bush and Obama do with the banking sector (using public funds to secure private losses that were not incurred due to a public purpose). In either case, the government stepped in to do what the market should have done in an otherwise private transaction with minimal to no public purpose.

    To be fair, there's a strong public interest in the banking sector not melting down, so while we might have wanted to go about it differently, ultimately the public was going to have to stabilize the banking system and that was going to take money. The cronyism in the bailout was that we didn't then make the "guilty" parties pay for their damage or significantly fix the system.

    The loan guarantees for 38 studios were just worse than usual example of local/state business "incentives" which are unfortunately quite common. They're not cronyism exactly since businesses can (and do) compete without these sorts of things, but they're typically needless giveaways of taxpayer money regardless. That being said, there are certainly areas where government investment makes sense, but this isn't one of those cases

  • by stenvar (2789879) on Thursday January 03, 2013 @03:17PM (#42465391)

    Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

    Well, yes, in the sense that crony capitalism is what happens when various people try to "fix" capitalism by "protecting jobs" or "attracting business" or whatever, and politicians (both on the left and the right) have delusions of grandeur of being able to do this.

    The solution, however, is not to get rid of capitalism, but to get rid of attempts to tinker with it. Let businesses fail and don't have the government "invest" in companies, period.

    I mean, what alternative did you have in mind? If you don't like markets deciding where to put money and resources, and giving the responsibility to government leads to cronyism, who is left to make those decisions?

  • by Archangel Michael (180766) on Thursday January 03, 2013 @03:17PM (#42465397) Journal

    And the folks running Solyndra et al were committed Democrats. Selectively portraying only (R) as being greedy evil capitalists is disingenuous at best. BOTH The (D) and (R) parties are corrupt beyond repair. Government should not be making loan guarantees for businesses, period.

  • by geekoid (135745) <dadinportlandNO@SPAMyahoo.com> on Thursday January 03, 2013 @03:30PM (#42465535) Homepage Journal

    Wrong.

    The regulation we applied to capitalism made higher standard of living for a population.

    You might want to actually read up on capitalists.

    "Tax payer money was wasted by loaning it to a business nobody else would touch."
    while true with studio 38, usually that isn't true.
    In fact, a lot of case it as helped. but success in government isn't really reported. You know why? it's not unusual.

  • Re:Summary (Score:4, Insightful)

    by VortexCortex (1117377) <VortexCortex.project-retrograde@com> on Thursday January 03, 2013 @03:34PM (#42465587)

    TL;DR: Big shot "idea man" makes the most common rookie mistake by trying to make some huge MMO as his first project. These always fail, no big surprise.

    They should have made some smaller less financially risky games first to get some experience, but since he already had money he was able to make it further than most 1st time game devs with stars in their eyes do. You wouldn't believe how common it is to see this same "idea-man" BS anywhere newbie game devs gather: "Guys, I have this amazing idea for my 1st game, it's going to be a MMORPG that blah blah blah" The most common response is: "Can you make a match 3 game yet? Block dropping game? How about a Chase-Maze game? A pixelated platformer? If not, do those first. Put the huge game on the back burner kid until you know how much work that's going to be."

    What's ridiculous is that EVERYONE in the game industry but newbs knows that doing something as big as a MMO or Tactical FPS as your first project is folly. Seems to me the Rhode Island investors didn't ask ANYONE with experience in games if they thought it was a good idea to invest. That's the point about "Crony-ism" I'd be driving home. Protip: Don't fund a Kickstarter made by folks with no prototype to show -- a working demo if it's their 1st game; Famous folks are a different story, but only if they got famous doing the kinds of things they want you to fund.

  • by MarkvW (1037596) on Thursday January 03, 2013 @03:44PM (#42465705)

    "Real Conservatives" are lower middle class Americans who have been convinced that conservatism is the reason to vote for candidates who support the very rich.

    The very rich are crawling over one another in an attempt to seek individual advantage from the government. They're playing their conservative supporters for suckers.

    A whole bunch of selfish people want stuff. The "liberals" want their money from the government and the "conservatives" want laws (and police) paid for by the government to protect and support their businesses. There isn't much difference, when you get down to it--both liberals and conservatives are clamoring for resources.

    Give up the liberal-conservative bullshit, and start thinking for yourself--problem by problem. It's hard and you are going to look stupid at times, but fuck it. America is at its best when people of goodwill come together and compromise.

    Realizing that the people running things aren't all that much smarter than you is helpful.

    When you see the politics of polarization employed (either by that scumbag Jesse Jackson or that scumbag Rush Limbaugh), you are witnessing selfish people trying to sell you a load of crap.

    It's all about compromise and working together.

  • by whoever57 (658626) on Thursday January 03, 2013 @03:59PM (#42465875) Journal

    Not to mention that this entire deal had nothing to do with capitalism.

    You are correct, this isn't capitalism, it's crony capitalism, which is what the summary identifies it as.

    Well done missing out the key word ("crony") and writing your own strawman.

  • by thoth (7907) on Thursday January 03, 2013 @04:01PM (#42465905) Journal

    capitalism is the best system ever devised for creating wealth

    I can agree with this part of your sentence

    and a higher standard of living for a population

    But not so much this part. Think mid-19th century industrial revolution, where people worked long hours, with no benefits, no labor restrictions (rampant child labor), no concern for safety, etc. Unrestrained capitalism isn't so great for the workers. It leads to sweatshop conditions we see in other countries.

  • Re:Here's how... (Score:3, Insightful)

    by Q-Hack! (37846) * on Thursday January 03, 2013 @04:20PM (#42466149)

    "Bush and Obama do with the banking sector"
    sigh, No. THAT was do to lack of regulations and then needing to save the economy.

    Sadly, this tends to be the on going idea popular with the mainstream media. It is, however, incorrect. It was the regulations of the banking sector that caused the banks to look for new ways to make money. ie. sub prime loans. Had the government not regulated banks they would have used the standard model of intrest rates and fees to make money. Instead, the government decided that part of the population that is high risk, needed to be given loans to purchase a home. It was the action of forcing banks to provide those loans that removed the risk to banks and placed it on the tax payers. It wasn't the lack of regulation, but rather the added regulation that put us into the situation that then required a bailout.

  • by HeckRuler (1369601) on Thursday January 03, 2013 @04:21PM (#42466175)
    Aye, a horrible system, but the best we have. Under certain conditions it works great.
    And that condition is a free market. One with rational informed agents.

    But guess what late-stage capitalism looks like? Feudalism. Someone starts to WIN. They own their turf and dictate what happens there. When there's just one guy in a market who bought out everyone else, that's a monopoly. The market is no longer free. It's owned. Sometimes bigger fish try to invade and take over their markets, and everything gets ugly. Now, since monopolies have been an obvious problem, they don't do that anymore. A group decides they're going to kinda-sorta compete and pay lip service the free market because otherwise uncle Sherman whips out his trust busting hammer. But if any of them get rich enough and/or powerful enough you're looking at regulatory capture.

    But hey, where there's competition, low barrier to entry, a lack of natural monopolies, and moderately sane customers... yeah capitalism is great.
    For everything else, there's regulation. To varying degrees.
  • by buybuydandavis (644487) on Thursday January 03, 2013 @05:25PM (#42467305)

    Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

    Crony capitalism is what happens when socialists gain government power over a capitalist economy.

  • by HeckRuler (1369601) on Thursday January 03, 2013 @05:39PM (#42467525)
    The EPA has helped the smog levels in a lot of cities. They saved the bald eagle. And while I still wouldn't drink it straight, the Cuyahoga river isn't going to be set on fire again any time soon.
  • by Kelbear (870538) on Thursday January 03, 2013 @06:37PM (#42468313)

    This is what the parent poster is talking about, the picture isn't being missed. In theory, capitalism utilizes self-interested parties to direct scarce economic resources towards their most productive uses.

    However, in practice, self-interested parties use any means available to get ahead, and that means if they can pull in government money to back their risky investment instead of having to get others to front their money, they'll do it.

    In reality, economics, politics, and society are inseparably inter-linked. Changes to any one of these factors means changes in the others. Capitalism is useful as an economic theory for debate, but the undesirable side effects that pure capitalism has in practice means that society gets pissed off by the fallout, and invokes politics to restrain unbridled capitalism's effects. Pure free market capitalism isn't really used anywhere in the world because reality naturally invokes society and politics to bring the system to find an equilibrium, thus we find ourselves with the many different implementations in different countries and markets.

    Excess government waste also pisses off society, and politics gets used to cut back on the policies that led to such waste. It's not a foolproof system, but you can be sure that the current local government officials are not in a hurry to fund another 38 studios given the recent backlash. They will abstain for the time being until public outcry dies down a bit.

    TL;DR, parent poster is indeed getting the big picture, capitalism naturally manifests as crony capitalism in the real world. They're inseparable.

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