Photo: M.V. JantzenA couple weeks ago, I wrote a post about Very Serious Conventional Wisdom on energy. Last week, in an editorial on Solyndra, The Washington Post echoed that VSCW with eerie fidelity.
It begins, as so many vacuous editorials have, with the premise that the president isn’t upset enough. He needs to show us more upsetness, so we understand how upset he is. He’s just not nailing this scene. Once more, with feeling!
Then the CW, raw and uncut: government is a “crappy” venture capitalist that shouldn’t be picking winners. This is something all Very Serious People know. It is bolstered by plucking from the history of U.S. funding for innovation a few well-known failures like synfuels and corn ethanol. Of course, one could just as easily pluck a few spectacular failures from the history of private investment and conclude that private investors are crappy venture capitalists. In fact, government has a pretty good record on technology development. Read Fred Block’s State of Innovation: The U.S. Government’s Role in Technology Development.
More importantly, as Block’s book shows, we have a pretty good idea of what works in technology development funding. We can do it better or worse. Yet the neoliberal VSCW doesn’t conclude that it should be done better. It concludes that we should scrap it. No “picking winners” for us.
To be clear, this CW has not eliminated, nor even dented, existing U.S. industrial policy, which is active and robust, if not particularly coherent, and mostly supports carbon-intensive incumbent industries. Instead, the CW has the effect of directing suspicion and hostility toward new industrial policy, for new industries. Those are always the most visible and contested investments.
Why can’t government ever do this investment thing right? Because “bureaucrats … are generally not full-time investment experts and have no skin in the game themselves.” As it happens, the administration hired a full-time investment expert, Jonathan Silver, to run the loan guarantee program. He hired other investment experts. By all accounts he built a smart team and, in the words of George Frampton, a former chair of the White House Council on Environmental Quality, “put together a total portfolio you could be proud of.”
We are to believe, though, that since their own money was not on the line, Silver and his team of investment experts didn’t try as hard. They had no skin in the game, so their hearts weren’t in it.
It’s astonishing that we’re so casually willing to believe that about other people. It’s not only insulting, it’s woefully psychologically reductive. These venture capitalists are some of the most prideful, competitive people you will ever meet. They want to succeed, to be the best, to bet on the game-changing companies, to leave their mark on the world — they want status among their peers, not just money. The latter is only a means to the former anyway, at least the kind of money these folks make.
The reality is that investment decisions are made by human beings. The process can be more or less thorough, reliable, and informed, but it can never be free of risk. Plenty of private-sector investors bet big on Solyndra too. WaPo editors, whose expertise in venture capital is no doubt equal to their expertise on macroecnomics and geopolitics [cough], second-guess all these investors, saying that some other private-sector investors thought it was a bad bet. But that will be true for any investment in a bleeding-edge company.
Finally, the editorial concludes with a common if fairly obvious error of fact. It says that the $527 million in taxpayer money will simply vanish, it “now cannot be used for any good objective,” and the U.S. debt will grow by that amount. But that is nonsense. The money Solyndra paid its employees was spent on goods and services. The money it invested produced physical assets that will outlive it. That plant is still there. Bloomberg says taxpayers may be “stuck with it,” but it’s a huge, sophisticated manufacturing facility! It’s not worth nothing.
The company’s assets will be sold and taxpayers will get some of their money back. No one is sure how much — I’ve heard close to all, I’ve heard much less — but it won’t be $0. So the $527 million did not vanish into smoke. A great deal of it was pumped into the U.S. economy. And yes, it was deficit spending, but contrary to WaPo theology, that’s the whole damn point. That’s what economic stimulus is.
Aside from the details of this “scandal” being so hyped and distorted, the worst thing about all this is the lesson U.S. policymakers are likely to learn from it: Don’t take any chances supporting cutting-edge clean energy companies. WaPo editors and U.S. politicians do have a knack for learning the wrong lessons.