The Real Solyndra Scandal

Published October 26, 2011

The unfolding collapse of solar cell maker Solyndra surely reflects poorly on the Obama administration and its drive to build a “green economy.” That said, many media reports have made both too much and too little of Solyndra. The real scandal is the general propensity of politicians to hand out subsidies to favored interests.

Any honest look at the facts reveals plenty of political blame to go around. The initial processing of the loan subsidies Solyndra received began when the Bush administration vigorously pushed for them just as it was leaving office in January 2009. The loan guarantee program Solyndra benefited from passed a Republican-controlled Congress and was signed into law by Bush.

Some large investors in Solyndra were Democratic donors who had high-level meetings and might have received favorable treatment as a result. The Obama administration also did a lot to promote the company. But some large investors in the company were Republican supporters who may have played a role in the Bush administration’s push for loan approval. In the end, the company’s collapse had much more to do with a deeply flawed business model than anyone committing a crime.

If Solyndra’s collapse in itself doesn’t rise to the level of Watergate for the Obama administration, the fact that the company and hundreds of other private, profit-making firms got subsidies should outrage just about everyone. Although they do good things by providing desired goods and services, profit-making companies exist for the purpose of producing profits for their shareholders, not to advance the public interest. The government can often benefit from contracting out services to private interests, but it’s unfair to use taxpayer money to directly help profit-making entities grow bigger and their owners become wealthier.

The problem with subsidies for firms like Solyndra extends far beyond simple unfairness. Having government bureaucrats pick economic winners and losers has not been an effective way to design useful products or create jobs. The last major effort to involve the government in developing energy technology before the Bush and Obama administrations occurred when the Carter administration created the giant Synfuels Corporation. Like the current loan guarantee efforts, Synfuels wasted millions of taxpayer dollars on supposedly “green” energy technologies that nobody wanted to buy or sell without the subsidies. After a series of Solyndra-like blowups, a mostly Democratic Congress and the Reagan administration put the boondoggle out of its misery.

Nearly every major subsidy governments have handed out to design a consumer product has ended in disaster. A Clinton administration “supercar” program to help U.S. automakers develop hybrid cars spent millions, but because it set unrealistic goals, it put the United States behind Honda and Toyota in bringing practical hybrids to market. A French effort at establishing a national network of computer terminals in the 1980s cost billions of dollars, but because the government insisted on using a dead-end 1970s technology, it essentially ensured the country got left out of the Internet boom. Tiny Finland now has more important Internet companies than France.

The numbers for “green” jobs are particularly dismal. A study of Spain–which has spent more per capita on “green jobs” than anyone else–found the overall economy lost 2.2 jobs for each green job created at a private firm.

Governments can play a valuable role in doing research that illuminates fundamental scientific principles. In some cases, government-sponsored research projects have had spinoff effects, such as the Internet, that bring immense consumer benefits. But the great bulk of the evidence shows government subsidies to private firms like Solyndra are both unfair and inefficient. Their existence is a scandal in itself.

Eli Lehrer ([email protected]) is vice president of Washington, DC operations for The Heartland Institute and national director of its Center on Finance, Insurance, and Real Estate.