In September 2010, Michigan Gov. Jennifer Granholm celebrated a brave new chapter in “America’s clean energy future.” A123 Systems had built a 291,000-square-foot electric car battery manufacturing facility in Livonia and the second-term Democrat was on hand for the grand opening. Granholm called it “a powerful demonstration of the job-creating potential of clean energy” and a “success story” of the $787 billion federal stimulus package.
“You can see the pride in the faces of A123’s workers and hear it in their voices,” Granholm enthused in the Huffington Post. “They know they’re helping shape our nation’s clean energy future, and leading Michigan’s economic recovery. Half of the new hires at A123’s Livonia facility were previously unemployed.”
A report by the Mackinac Center for Public Policy paints a less rosy picture. “[T]he company has laid off 125 employees and had a net loss of $172 million through the first three quarters of 2011,” states a report on the free-market think tank’s website. “Yet, this month A123’s Compensation Committee approved a $30,000 raise for [Chief Financial Officer David] Prystash just days after Fisker Automotive announced the U.S. Energy Department had cut off what was left of its $528.7 million loan it had previously received.”
Despite A123’s financial woes, other executives also reaped the rewards of America’s clean energy future. Mackinac reported, “Robert Johnson, vice president of the energy solutions group, got a 20.7 percent pay increase going from $331,250 to $400,000, while Jason Forcier, vice president of the automotive solutions group, saw his pay increase from $331,250 to $350,000.”
The federal government gave A123 $249.1 million in grant money through the Department of Energy, while the state of Michigan supplied another $141 million in tax credits and other subsidies. All told, that is $390 million in taxpayer dollars for a company that is losing money, shedding workers, and giving its bigwigs big paydays. Fisker Automotive, the hybrid electric car manufacturer, buys lithium ion batteries from A123. Fisker had received $193 million from the feds before the Department of Energy decided the company wasn’t even doing well enough for government work and terminated the rest of its $528.7 million loan guarantee.
Another day, another Solyndra. Solyndra, of course, is the solar energy company that first attracted national attention to the green jobs fad’s darker hues. Solyndra received a $573 million loan guarantee from the federal government. It was considered the first major “public investment” of its type in alternative energy by the Obama administration. The White House originally estimated that government support would help Solyndra create 4,000 new jobs. Instead by September 2011, the company had largely ceased operations, filed for Chapter 11 bankruptcy protection, and laid off nearly all its employees. The U.S. taxpayer is on the hook to pay back the loan.
WHEN GOVERNMENTS TRY to pick winners and losers in emerging industries, they often swing and miss. Politicians and bureaucrats just don’t have the same batting average as the free market. But there is another problem inherent in such government interventions: the public largesse inevitably accrues to the politically connected. Solyndra’s case was no different. Roughly 35 percent of the company was owned by George Kaiser, an Oklahoma billionaire who just happened to be a bundler for Barack Obama’s 2008 presidential campaign. Each Obama bundler raised at least $100,000. The more than $500 million loan guarantee wasn’t just a random mistake and Solyndra’s fate was no unpredictable fluke.
“The economic reality is that Solyndra loses money on every solar panel it sells,” the Hoover Institution’s Peter Schweizer wrote in his book Throw Them All Out. “The company has never been profitable. The plan was simple, and has become a pattern with other companies: secure government money, go public, and get out.” A Solyndra investor memorably told the Wall Street Journal: “There was a perceived halo around the loan. If we get the loan, then we can definitely go public and cash out.”
And cash out they did. Kaiser and other Solyndra investors will be paid back before the taxpayer. But the recipients of these loan guarantees and subsidies don’t just get access to government money. Government backing serves almost like a Good Housekeeping seal of approval for other investors, helping businesses partially on the public dole raise more private capital as well.
“Crony capitalism” is the name given to corporate welfare for politically connected enterprises. But it has come to signify a broader departure from the free market in which profit remains private while losses are socialized. Incentives to self-regulate disappear. There is always Uncle Sam waiting in the wings to assume responsibility. This ugly distortion of capitalism predates the Obama administration: it undergirded the $700 billion Troubled Asset Relief Program (TARP) bailout and the 2005 energy bill, which gave Solyndra-style boondoggles their start, both of which were signed into law by President George W. Bush.
But by making green jobs and government investment in alternative energy such a large part of its economic stimulus strategy, the Obama administration is institutionalizing crony capitalism. There is no shortage of cronies. To cite just one example, Schweizer found that $16.4 billion out of $20.5 billion in loan guarantees under an Energy Department program went to companies run or primarily owned by Obama financial backers. “Their political largesse is probably the best investment they ever made in alternative energy,” Schweizer wrote. “It brought them returns many times over.”
In some cases, the people running the loan programs are also financial supporters of Obama. Bundler Steve Spinner raised about $500,000 for Obama in 2008 and, according to a Politico report, has brought in roughly the same amount for the president’s reelection effort. He was dubbed the campaign’s “liaison to Silicon Valley.” Spinner went from the Obama national finance committee to overseeing strategic operations for the Department of Energy’s loan program. When he later left the administration for the Center for American Progress, Spinner’s bio on the group’s website said he “helped oversee the more than $100 billion of loan guarantee and direct lending authority for the Title XVII Loan Guarantee Program and the Advanced Technology Vehicles Manufacturing loan program.” (Spinner left the Center for American Progress in October 2011.)
Spinner became something of a household name when he was ensnared in the Solyndra debacle. The government released emails showing that Spinner was, as the Huffington Post put it, “more actively involved in a loan for Solyndra LLC than administration officials have acknowledged.” According to the emails, Spinner pushed to have the Solyndra loan finalized before Vice President Joe Biden’s planned trip to the company’s Fremont, California groundbreaking ceremony. “How — hard is this? What is he waiting for?” Spinner complained. “I have the OVP [Office of the Vice President] and WH [the White House] breathing down my neck on this. They are getting itchy to get involved.”
The administration’s line has always been that the White House didn’t know the Solyndra investors’ names and Spinner wasn’t involved in the approval process for the loans. These emails, released to the House Energy and Commerce Committee as well as the media, aren’t exactly a smoking gun to the contrary. But they don’t give off an air of dispassion or neutrality either.
LAST YEAR, the Department of Energy gave a $737 million loan guarantee to a company called SolarReserve. SolarReserve is partnered with Pacific Global Group, which in turn employs Nancy Pelosi’s brother-in-law Ronald as a high-ranking executive. The St. Louis-based wind energy firm Wind Capital received a $107 million tax break. Wind Capital’s current chairman, former president and CEO, is Tom Carnahan-son of the late Missouri Gov. Mel Carnahan and former U.S. Sen. Jean Carnahan, brother of Congressman Russ Carnahan and Missouri secretary of state Robin Carnahan, and for good measure Obama’s chief fundraiser in the Show Me State.
“It’s increasingly hard to tell the government’s green jobs subsidies apart from the Democrats’ friends and family rewards program,” cracked the Weekly Standard‘s Mark Hemingway. Perhaps they might feel differently about this benevolence if Haliburton got into the green jobs act.
In February, the Washington Post reported that “$3.9 billion in federal grants and financing flowed to 21 companies backed by firms with connections to five Obama administration staffers and advisers.” This includes Sanjay Wagle, a venture capitalist who headed Clean Tech for Obama in 2008. After the election, Wagle joined the Energy Department right as the administration was planning a round of government investments in the clean technology firms.
Over the next three years, the department spent $2.4 billion in public funds on clean energy companies in which Wagle’s old firm, Vantage Point Venture Partners, had invested. The White House maintains that its venture capitalist advisers do not make these decisions, though some probes have found evidence of at least informal lobbying.
“To believe those quiet conversations don’t happen in the hallways-about a project being in a certain congressman’s district or being associated with a significant presidential donor, is naive,” David Gold, a venture capitalist critical of the administration’s energy investments who once worked at the Office of Management and Budget, told the Post. “When you’re putting this kind of pressure on an organization to make decisions on very big dollars, there’s increased likelihood that political connections will influence things.”
How could it be otherwise? Politicians have always done favors for supporters. Businesses have always spent money to try to influence the government. As the government’s role in the economy grows, so too will the nexus between private interest and public good, the K Street/Wall Street axis, even when the people involved have honorable intentions.
The dilemma of contemporary American liberalism is that its adherents decry money in politics-if you don’t believe me, Google “Citizens United“-while lionizing public investments in private energy enterprises. Liberals square the circle by maintaining steadfastly, as the Washington Examiner‘s Timothy P. Carney writes, “Conservative money is bad, and linked to greed, while liberal money is self-evidently philanthropic.”
In 2008, Robert Kennedy, Jr. wrote an opinion piece for CNN.com titled, “Obama’s Energy Plan Would Create a Green Gold Rush.” Sensing the gold in them there hills, Kennedy is the one of the speculators. The environmental activist is an investor in green technologies and was a partner in Brightsource, a company that received $1.4 billion in loan guarantees to build the Ivanpah Solar Electrical System. Whatever the merits of this project, philanthropy it ain’t.
DO YOU HAVE TO BE a Kennedy to play this game? Despite the president’s confident assurances that public investment in renewable energy will create numerous high-wage jobs for Americans that can never be transferred overseas, the green jobs concept remains a matter of considerable debate. A 2009 study by Gabriel Calzada, an economics professor at Juan Carlos University in Madrid, found that for every green job created with taxpayer money in Spain since 2001, 2.2 other jobs were destroyed. Worse, only a tenth of the new green jobs ended up being permanent.
An American report titled “The Seven Myths About Green Jobs” was released the same year. Its au-thors concluded that the special interests promoting green jobs programs often employed dubious assumptions bolstered by flawed economic analyses. As one of the co-authors, Andrew Morris of the University of Illinois, told me at the time, these reports seldom include “net jobs calculations” and instead extrapolate from “very small base numbers.” Morris argued that the green studies tended to assume “very large multiplier effects” when “all the experience we have suggests that these multiplier effects are exaggerated or overstated.”
Other economists disagree, of course. But there have been many high-profile failures among these initiatives. Consider the Chevy Volt. There was a controversial Super Bowl commercial narrated by Clint Eastwood citing the recovery of Detroit’s automobile manufacturers as a national success. Depending on your perspective, the ad was either a tribute to can-do American resilience or an apologia for using TARP funds to bail out the auto makers. But if General Motors’ hybrid electric vehicle is a victory, then perhaps we owe the designers of the Edsel an apology.
According to one estimate, taxpayers will shovel $3 billion in government loans, subsidies, tax credits, rebates, and grants toward the Chevy Volt’s production. The breakdown is roughly $2.4 billion in federal funds, plus another $690 million or so from the state of Michigan. (Jennifer Granholm must be seeing that bright clean energy future again.)
“But even with spectacular deals like these, GM has so far only managed to sell about 8,000 of their vaunted Obamacars,” writes Larry Bell in Forbes (Ford sold roughly 84,000 Edsels). “And despite another big gift we gave them in the form of a huge TARP bailout, the prognosis doesn’t look good at all.” As we went to press, GM announced a five-week suspension in Volt production due to low sales. MIT’s Technology Review characterizes it as “good news” when Fisker Automotive, the troubled electric car manufacturer, produces 1,500 cars and claims to have sold “hundreds.”
General Electric’s Shepherds Flat initiative in northern Oregon is another example of U.S. tax dollars blowing in the wind. The Manhattan Institute’s Robert Bryce has called it “America’s worst wind-energy project.” Bryce notes that the Department of Energy has given GE and its partners a $1.06 billion loan guarantee for the project, with the Wall Street Journal reporting that the Treasury Department will kick in a $490 million cash grant once things get going.
Given that the project is only supposed to create about 35 green jobs, the cash grant alone would come out to $16.3 million per job created. Forbes‘ Bell quips that taxpayers may find that price tag “just a little steep.” But Shepherds Flat has critics even within the Obama administration. An October 2010 memo attributed to energy policy czar Carol Browner and economic adviser Larry Summers, among others, complained that the project’s backers had too “little skin in the game.” Their investment was relatively small, the subsidy large, and the likely environmental benefit insufficient to justify the cost.
CRONY CAPITALISM has become an epithet on both the left and the right. Both Ralph Nader and Sarah Palin have condemned the practice. It is a concept that is as unpopular at Tea Party rallies as it is in the makeshift campgrounds of Occupy Wall Street, one of the few points of agreement between the powdered wig and the Birkenstock sets. “The American people do not like Friendly Fascism,” TAS editor-in-chief R. Emmett Tyrrell, Jr. writes in a forthcoming book. “They do not even like corporate cronyism.” Yet it is less clear what this stance means for most people in practice.
Most liberals still believe targeted government investment in renewable energies and other emerging technologies is both environmentally sound and essential to a positive, jobs-creating economic program. They don’t see how the corporatist intersection between government and big businesses like GE and GM, which they distrust, is related to the green jobs movement they think is a worthy public endeavor. Similarly, many conservatives still wrongly conflate a reflexive defense of business-no matter how dependent on government a particular business may be-with defending free markets.
On the right, government boondoggles undertaken in the name of national security often elicit insufficient scrutiny. On the left, such projects undertaken in the name of environmentalism attract almost nonexistent scrutiny. Many people across the political spectrum appear to believe that the solution to crony capitalism is to even further entangle government and business, described by the Wall Street Journal editorial page as demanding “capitalists to be more answerable to the politicians”-something that inexorably leads to more cronyism.
Crony capitalism isn’t an inherently liberal problem. But it is at best a design flaw and at worst a deliberate feature in the economic and environmental policies of this administration, supported by most liberals. In pronouncing the Obama White House scandal-free, the columnist Jonathan Alter argued that the greening of crony capitalism didn’t really count as a scandal. To paraphrase the late Daniel Patrick Moynihan, this seems like defining scandals down.
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