Opinion: Let’s Stop Taking the People’s Money to the Casino

In light of recent events involving Solyndra, Governing Institute head Mark Funkhouser explains how government can have a role in job creation without being venture capitalists.
by | November 17, 2011

In light of recent events involving Solyndra, Governing Institute head Mark Funkhouser explains how government can have a role in job creation without being venture capitalists.

Rick: How can you close me up? On what grounds?

Captain Renault: I'm shocked, shocked to find that gambling is going on in here!

[a croupier hands Renault a pile of money]

Croupier: Your winnings, sir.

Captain Renault: [sotto voce] Oh, thank you very much.

[aloud]

Captain Renault: Everybody out at once!

-From Casablanca, 1942

In the latest twist in the Solyndra saga (which has gone on, and will go on, for months) the Republicans, like Captain Renault, are shocked at the appearance of political manipulation in the timing of the news of layoffs at the solar energy company. Spare us. No one believes that they would never have done such a thing.

Secretary of Energy Steven Chu is expected to mount a vigorous defense of $528 million in loans the federal government gave the now-bankrupt solar energy company Solyndra when he appears before Congress this morning. The congressional overseers will be at least as full throated in their questioning of the circumstances around how federal loan guarantees were used in this case.

The larger lesson of Solyndra -- lost on both sides -- is that governments should not be venture capitalists. The major themes of the hearing have been rehearsed in public since word of the collapse first broke in late September.

The first is to assess blame. The Washington Post reported that U.S. Rep. Cliff Stearns (R-Fla.) asked, "Why was the leadership at DOE ... ignoring every warning sign that Solyndra was a bad bet?"

The second is to defend process. An ABC News/Yahoo News interview displayed what President Obama provided what has become the core of the Administration's defense, "Now there are going to be some failures. Hindsight is always 20/20. It went through the normal review process and people thought this was a good bet."

The key word in both quotes is "bet." The purpose of government does not include taking public money to the casino, but the Republican position is not that the President shouldn't have bet the public's money, but that he should have been a better gambler.

In America today, it is probably true that every state, every county, and every city of any size at all has a department of economic development of some kind. These agencies are nominally in the business of creating jobs by "growing" the economy of their jurisdiction. They attempt to do this by competing with other jurisdictions in giving tax incentives and other financial rewards to attract businesses to their community. Many also use public funds to establish various types of "incubators" to foster entrepreneurship and small businesses development.

Economic development is a huge industry, with courses in universities, thousands of professional practitioners, a steady stream of media coverage and annual conferences of every kind. This is true despite the fact that there is scant evidence that this stuff actually works to create wealth and income for anyone other than the eco-devo professionals themselves and the companies who get the incentives. There is a great deal of evidence, from academic studies and from hundreds of individual debacles like Solyndra, to show that it does not work.

But still we keep doing these deals. And the damage from them accumulates, sapping not just the financial resources of our governments, which could be used for something constructive, but the morale, and confidence of our citizens as they see the continued decline of the economy and the scandalous results of our politicians' attempts to do something about it. Why do we keep pursuing a path toward economic development that is about as effective as the bleeding and purging done by physicians of a bygone era?

Politicians want to be seen as creating jobs and they need to be seen as doing so in a few short years. They are desperate to do this; indeed their political survival largely depends upon it. And so, they are compelled to ignore the simple fact that governments do not -- cannot -- create jobs. Markets create jobs.

But here is the critical point -- markets cannot exist without governments. Governments are needed to, among other critical tasks, organize and fund the huge transportation networks that allow for efficient passage of goods and people; provide the legal structure that allows for contracts and private property; provide the public safety, stability and order that trade and commerce require; and provide for a public education system that assures both an adequate labor force and the level of informed citizenship essential to order and stability in a democracy.

While we've been pursuing the false promise of job creation by direct government action, we've neglected the real work of governments that is needed to assure a strong economy. If we want a country for our children as good as the one our parents created for us, we need to create a space that allows a few brave politicians to begin the patient, slow work of good government, making the investments in education and infrastructure that allow markets to thrive -- and jobs to be created.

Mark Funkhouser  |  Director, GOVERNING Institute
mfunkhouser@governing.com  | 

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