Don Cardon, the CEO of the Arizona Commerce Authority, recently lectured Rep. Ben Quayle that conservatives should wise up and drop their objections to government picking winners and losers in economic development.
Cardon is Arizona's picker-in-chief, so his outlook isn't that surprising. He and his fellow deal closers have been particularly active in recruiting solar firms to our area. Before they go much further, they should make a careful case study of Solyndra.
You've probably heard of Solyndra, a California-based manufacturer of solar panels that was Washington's darling two years ago. It was innovative, it was green, it was a lock to succeed. In addition to the basket of subsidies and tax credits available to all solar businesses and their customers, Solyndra was awarded loan guarantees exceeding $500 million by the U.S. Department of Energy.
Tulsa oilman George Kaiser, a major Solyndra investor, just happens to be a key Obama fundraiser. Some see a link here, but Kaiser adamantly denies that political influence was used to obtain the loan guarantees. Whatever.
President Obama visited the firm in May 2010 to tout it as an example of his green jobs agenda. He wanted those uninformed skeptics out there to know that "the promise of green energy isn't just an article of faith. It's not just some abstract possibility... The future is now."
But Solyndra's future soon met the concrete wall of economic reality. By the end of last year, Energy Department officials were informed that Solyndra was in financial trouble, but they pooh-poohed it and offered additional help. Energy Secretary Steven Chu in May declared there was little chance of default. Now the company is shuttered and 1,100 green energy workers are unemployed.
Fortunately for Kaiser and the other owners, the Energy Department had restructured the deal so that private investors will get paid in bankruptcy proceedings before the guaranteed loans. Taxpayers are unlikely to ever see their money again. Unlike the GM bondholders, who were stripped of their legal rights to recovery, Solyndra's investors were granted additional rights in this bankruptcy. It's nice to have friends in high places.
But the Solyndra experience in many ways is typical. It is one of three major solar manufacturers that have gone bust this year alone. The Obama administration has put down tens of billions of our dollars in bets to create jobs in the solar industry. Many of those companies aren't looking so good now. It is unlikely that the 60,000 promised jobs will materialize and those that do will cost several hundred thousand dollars each.
Why do government planners make such lousy venture capitalists? The short answer is that they invest for mixed political reasons rather than the hard economics favored by investors spending their own money.
In the Solyndra case, the White House tried to rush the application review process so that Vice President Biden could announce the loan guarantees at the gala ground-breaking ceremony. The reason a solar company was selected in the first place was to advance a policy agenda. And then, when trouble loomed, the government moved to assure that the taxpayers would take the hit. That's not normal investor behavior.
There's a reason private investors are wary of solar businesses while government plunges ahead. Unsubsidized solar energy still costs almost three times as much to produce as energy from conventional sources. Unfortunately, you can't make a process more efficient by subsidizing it. In fact, protection from competition probably has the opposite effect.
Politicians love targeting specific enterprises for subsidies. They get lots of credit. They get ground-breaking ceremonies, newspaper headlines and awards dinners. What they don't get is economic growth. Taking taxes from existing firms to entice new entrants isn't a winning strategy.
Recent studies have confirmed that growth comes from low, broad-based taxes and a business-friendly regulatory and litigation environment that gives all competitors an equal chance at success. Rep. Quayle should ignore Cardon's gratuitous advice.
• East Valley resident Tom Patterson (firstname.lastname@example.org) is a retired physician and former state senator