S.S. Badger
Lake Michigan Carferry's S.S. Badger celebrates its 50th year of cross-lake service.

Whichever way it goes, a decision soon to be made in Washington will have major implications for Michigan. Should a federal agency grant a government loan guarantee to help a Wisconsin company start a new ferry service across Lake Michigan? Simple fairness argues against it. Here’s the story.

Lake Express LLC, a company created by the very wealthy Lubar family of Milwaukee, Wis., wants to operate a high-speed ferry service from Milwaukee to Muskegon, Mich. Fair enough, that’s a legitimate entrepreneurial endeavor. But as everybody knows, every business enterprise involves risk — risk that it may fail for any number of reasons, including poor management, bad timing, reluctant consumers, and high costs.

In a free economy, entrepreneurs and those who invest in their endeavors bear the brunt of such risks. If they make too many mistakes, the market exacts a penalty in the form of low returns or even failure. That very threat prompts entrepreneurs to use their best judgment, keep an eye on costs, and please their customers. As Frank Borman, a former astronaut and CEO of Eastern Airlines, once observed, “Capitalism without bankruptcy is like Christianity without Hell.”

The flip side, of course, is that entrepreneurs who don’t make many mistakes can earn profits, which is what encourages them to take risks in the first place.

The problem with Lake Express LLC is that it doesn’t want to take the risk itself for the debt it expects to incur to run the business it proposes. It wants to fob off much of that risk to taxpayers — millions of whom will never even see, let alone ride, one of its ferries. The company is asking the U.S. Maritime Administration (MARAD) to give it a $17 million federal loan guarantee, which is much easier than asking each and every American taxpayer to co-sign for its debt, but amounts to the same thing.

Taxpayers have had to cough up cold cash for failed MARAD projects before. In 1999, the agency granted a loan guarantee to a company that wanted to operate two cruise vessels between the Hawaiian Islands. Two years later, the business flopped. Calling it “one of the most costly loan guarantees ever granted” by MARAD and a “horribly failed pork project,” U.S. Senator John McCain, R-Ariz., pointed out recently that over $187 million of taxpayer money had to be paid to cover the loan default.

What makes the prospects of a MARAD loan guarantee for Lake Express LLC all the more questionable is that a private, taxpaying, unsubsidized Michigan-based firm already provides cross-lake service. Since 1992, Lake Michigan Carferry (LMC) has operated a ferry service between its base in Ludington, Mich., and Manitowoc, Wis. It’s entirely possible that a federally subsidized competitor could not only fail itself, but put LMC in the drink as well.

This isn’t the first time that LMC has had to worry about unfair competition. Four years ago, the bureaucrats at the state-run Michigan Economic Development Corporation tried to sneak through a $650,000 subsidy to the city of Muskegon for dock work that would have benefited another proposed Wisconsin-based ferry service. The Mackinac Center for Public Policy helped expose the unfairness of that deal and under public scrutiny the subsidy was scuttled.

In fact, battles between private enterprise and subsidized competition have a long pedigree in Michigan and the Great Lakes. More than two hundred years ago, in 1795, Congress forked over huge public subsidies for a fur trading business to compete with John Jacob Astor’s private operation, the American Fur Company. The experiment was a financial disaster, and a thoroughly embarrassed Congress ended the subsidies a few years later — proof of the old adage that nobody spends somebody else’s money as carefully as he spends his own.

The U.S. Maritime Administration’s decision on a guarantee for Lake Express LLC is expected soon. Hopefully, reason will prevail and its officials will understand that bestowing advantages at public expense on particular businesses is bad policy. How refreshing it would be for the federal government to advise the folks at Lake Express LLC, “If you need money to make money, then go get it the honest way: Prove yourself to your investors and to your customers.”

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(Lawrence W. Reed is president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan. More information is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.)

Summary

Rather than run the risks every business must face in launching an entrepreneurial enterprise, Wisconsin-based Lake Express LLC is asking the U.S. Maritime Administration to give it a $17 million federal loan guarantee to start a ferry business across Lake Michigan. This would give the company an unfair advantage, at the expense of Michigan-based Lake Michigan Carferry.

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