crony capitalism | solyndra
The bankruptcy of solar-panel maker Solyndra neatly encapsulates the economic, political and intellectual bankruptcy of Barack Obama’s Big Idea. It was the president’s intention back in 2009 to begin centrally reorganizing the U.S. economy around the supposed climate-change crisis.
To what end? Well, Obama claimed his election would mark “the moment when the rise of the oceans began to slow and our planet began to heal.” But that was just the cover story. At its core, Obamanomics is about the top-down redistribution of wealth and income. Government spending on various “green” subsidies and programs, along with a cap-and-trade system to limit carbon emissions, would enrich key Democrat constituencies: lawyers, public sector unions, academia and non-profits.
Oh, and Wall Street, too. Who was the exclusive financial adviser to Solyndra when it was trying to secure the $535 million loan from Washington? Goldman Sachs. And had the cap-and-trade scheme been enacted, big banks stood ready to reap billions from the trading of carbon emission credits.
No wonder many Democratic strategists predicted their party’s 2008 landslide win would usher in a generation of political dominance. Obamanomics, essentially, would divert taxpayer dollars to the Green Lobby – and then into the campaign coffers of the Democratic Party. This is what crony capitalism is really all about: politicians enriching favored businesses, who then return the favor. Or maybe it’s the other way around, Who cares, really. It’s an endless, profitable loop for both.
And Obama almost pulled it off. The Great Recession conveniently allowed the president to start the spendathon under the guise of economic stimulus. (“You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before.” – White House Chief of Staff Rahm Emanuel, 2009). As it turns out, the $38.6 billion loan program for clean energy firms that Solyndra benefited from has created just 3,545 permanent new jobs after parceling out half its dough. That works out to around $5 million a job.
Unfortunately for the Obamacrats, the financial meltdown also undercut political support for cap-and-trade on Capitol Hill. Voters worried the scheme would slow growth and cost jobs. But without permanently and continually raising the price of carbon-based fuels, many green businesses can’t make the numbers work.
As Peter Lynch, a New York-based solar energy analyst, told ABC News:
It’s very difficult to perceive a company with a model that says, well, I can build something for six dollars and sell it for three dollars. Those numbers don’t generally work. You don’t want to lose three dollars for every unit you make.
Unless, of course, American taxpayers make up the difference — though in the case of Solyndra, even government’s thumb on the scale wasn’t enough to save it. And it often isn’t enough when an investment’s goals are a fat political reward rather than a financial one. Indeed, studies of similar government investment efforts around the world show they’re usually a bad deal for taxpayers. An analysis of Canada’s government-backed venture capital fund, for instance, found the recipient firms “underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents.”
Even after getting the loan, Solyndra spent $187,000 on lobbying efforts, according to Bloomberg, including trying to get the White House to push government agencies to install its panels on the rooftops of federal buildings and extend “buy American” rules that favor U.S. companies. Instead of revenue seeking, Solyndra was “rent seeking,” which means trying to make money by manipulating government .
And when the White House was trying to determine whether to sink another $67 million into Solyndra, its calculus was political not financial (via The Washington Post):
“The optics of a Solyndra default will be bad,” the Office of Management and Budget staff member wrote Jan. 31 in an e-mail to a co-worker. “If Solyndra defaults down the road, the optics will be arguably worse later than they would be today. . . . In addition, the timing will likely coincide with the 2012 campaign season heating up.”
That’s not how the private sector makes investment decision. But it’s routine for government where the stakeholders are politicians, bureaucrats, lobbyists and favored constituencies. The takers, not the makers. That’s whose side Obamanomics is on.
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37 comments so far | Comments RSS
Sep 16, 2011
2:21 pm EDT
This is *REUTERS* publishing this stuff?
Fantastic piece, but where were you three years ago?
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