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Reason On How and Why 38 Studios Went Bust
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."
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.
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?
I'm a good cook. I'm a fantastic eater. - Steven Brust
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.
Give me Classic Slashdot or give me death!
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.
Insofar as the governor making the call was a (R), and the ceo of the company involved was a notable (R) campaigner (and there was serious talk of him running as (R) for senate a few years back, for the seat Scott Brown won)... it did indeed smell of "politically motivated favor to a friend of the political party" at the time.
At a minimum, Curt probably had a leg up over other CEOs in getting in to see the governor and talk about his great company, even if the decision itself wasn't biased -- even those who are trying hard not to bias decisions directly have a hard time not having a serious bias in that they talk to their political allies a lot more than their political foes.
The article doesn't go very deep into that aspect of it though.
(disclaimer: I worked at 38, and I disagree with some aspects of the article; in particular, it fails to mention that the new (D) governor of RI jerked the company around by cancelling payments to the company which _caused_ the sudden cash crunch that pushed it off the cliff, as revenge for the above... What the crony giveth, the anti-crony taketh away. But the original deal did smell funny, and management was surely also at fault for dancing so close to the edge of a financial cliff that one failed payment from the state could push them over, so the article isn't too far off the mark.)
Crony capitalism is different than capitalism. Crony capitalism means a company gets special favors from the government that give it an advantage over their competition. Crony capitalism is why, despite a 35% corporate tax rate, some corporations (like Whirlpool) paid no or negative taxes last year. Arguably one of the best things Reagan did was to simplify the tax code to get rid of a lot of crony capitalism (to be fair the idea was being heavily promoted by a democrat before being picked up by Reagan).
In general, crony capitalism==bad. Capitalism==good. This is something agreed on by both parties: both sides hate the crony capitalism of the other side, but tolerate it.
"First they came for the slanderers and i said nothing."
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.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
Looks like baseball player Kurt Schilling (who apparently was very good at baseball) decided to start a video game studio, who knows why.
He tried to raise $50million from private investors, but they didn't think he could make money.
He went to the governor to get some money, but the governor didn't think he could make money.
A new, naive governor was elected in Rhode Island, and desperate to improve the economy of the state, he approved some $75million in loan guarantees.
They hired some people, built the game Kingdoms of Amular: Reckoning, and did a surprising number of things right considering a baseball player was the founder.
It turns out that in making a modern game, one of the hardest things is getting good developers in the right places, and the game turned out to be buggy. Very buggy. And they didn't have a good level designer, so the levels were kind of boring. These things combined to sink the game.
So, the company failed. And taxpayers now have to pay back the loans.
"First they came for the slanderers and i said nothing."
What we made:
1) A console game -- Kingdoms of Amalur: Reckoning. Published by EA, you should still be able to buy it even with 38 gone (and it's been a year, it is probably discounted at this point; available for xbox360, ps3, pc, though if you play on a pc you should go buy an xbox controller because the keyboard/mouse control isn't that great). Got mostly good reviews, sold pretty well. It's an action-heavy-RPG, think the combat of God of War with a crunchy MMO inspired "gather piles of loot, explore a big world, do quests for lots and lots of people..." backing.
2) The Big Project the company was working on was an MMO, just titled Kingdoms of Amalur, set in the same world long afterward; you could think of Reckoning as a kind of teaser to get people excited about the world and story to lead them into the MMO. Think WoW, but with a very different art style (I can't really describe it in text, you can search for the screenshots if you care), and lots and lots of refinements. It was approximately a year from release when the company went foomp.
3) Assorted tie-ins. Yeah, just like you can get the WoW novels and comic books and action figures, there were plans for that stuff too. Obviously, those things don't get launched til after the MMO does, so they were in early-planning stage.
Technical and software issues: MMO software is big, and we were chasing a moving target. With an MMO... it's not hard to write an MMO that's better than what WoW was at launch, lots of people have done that. But to make any headway at all in the market, you've got to make something that's better than WoW is Right Now, because to attract a gamer of an inherently social game, you have to pull them not just away from the gameplay of their current game, you have to also lure them away from the circle of friends in their current game. You don't yet have a raiding guild in our game, so our gameplay/art/story/etc has to be enough better than WoW (or LotRO, or DDO or FFXIV or EVE, or whatever you are currently playing that we're trying to convince you to turn off long enough to try our game), that we can convince you to try us for long enough to get a guild going and establish those friendships in our game. That's a high bar, and in a multi-year development cycle, you have to go back several times, look at the new games and expansion packs coming out, and say "hey, WoW just came out with kung-fu panda expansion... is there anything in there that is really compelling? Is there some new piece of gameplay or UI that is good enough that we ought to match it, or is something that we can see how to do better?" If you compare the WoW UI of today to the UI of three or five years ago, there is a world of difference in usability. You don't notice it at the time, since it's growing in bits and pieces, but if you've played an MMO of today, you'd never go back to one of three years ago. Which means... Those design docs from when 38 studios first formed had to go through a lot of revision. Systems written early, we'd go back and say "oops, this needs to be seriously expanded, otherwise we'll look bad by comparison".
The last week, for example, as we watched the financial axe fall, we were running our one functional raid between sessions of watching the idiot governor holding press conferences about us. And then we'd post-mortem the run, say what was fun, with a lot of comparisons to other MMOs -- "here's why X was more or less fun than it would have been in game Y". That generated a lot of new feature/bug requests; it's often hard to tell what is going to be fun until you actually are running around in the world flinging fireballs... which is great, and very "agile", but unfortunately wrecks havoc with scheduling. In hindsight... Build in more slack in the budget/schedule to pay for revision passes, because with a game (or with art in general I guess), you're likely to do something, look at it, and see a way to improve it. Unless your goal really is to pu
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?
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.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
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?
Capitalism is the private ownership of the means of production.
When the VCs took a look at Schilling's plan said it sucked balls, that was capitalism in action.
When the RI governor went to lick Schilling's schlong and suck his balls, that was definitely NOT 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.
The real "Libtards" are the Libertarians!
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.
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.
No, that is not a free market at all. That's an extremely well-regulated market. Think of the term "free" as anarchistic in that anything goes barring violence and perhaps that as well. Free markets can't exist because people will go one of two ways, cheat to raise their own profits as an individual or use a trust-like syndicate to protect their interests against consumers. The race to the bottom in prices almost never occurs because the boom-bust cycle eventually plays out to a few huge players who inevitably dominate the market. It happened in trains, steel, the agricultural world, and even consumer electronics.
Regulations when used correctly create a more competitive playing field. There are those who argue the opposite but they base ir on unbending human greed which is a bad argumentative stance as it is a volatile subjective ideal.
"Solyndra got their loans under Pres Bush and a republican house."
Bullshit. The program that Solyndra got there money was started under Bush in 2005 but the credit committee voted against the loans on Jan 9 2009, before Obama took office. The Obama admin reversed this and granted the loans.
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.