EVERY FEW years, Congress treats the public to the cringe-inducing spectacle of someone “taking the Fifth’’ on Capitol Hill. When Solyndra Solar defaulted on $527 million in taxpayer-guaranteed loans, its management team got the call. Shell-shocked before the House Commerce Committee, they refused to answer questions “on the advice of counsel.’’ Like executive zombies, they repeated the phrase without emotion. But inside, they must have been screaming, “How did I get here?!’’ The truth would surprise them: If not for the lure of government money, they’d probably still be gainfully employed.
Congress asked plenty of questions at the hearing: Did the White House give you special treatment? Did you mislead investors? Did you know the company was failing when you pushed for more money? With taxpayers on the hook, these questions make sense - and should be answered. But a more important question should have been asked six years ago: Why should taxpayers back loans to private companies in the first place?
Government guarantees for synthetic fuel companies lost billions in the 1970s and ’80s, something that more recent policy makers either forgot or ignored. Federal guarantees entered new territory - both in size and scope - when the 2005 Energy Act authorized $18 billion in loan supports for nuclear power. I voted against that bill. (In 2003 I held up an energy bill until nuclear loan guarantees were stripped out.)
Once upon a time, more Republicans would have opposed direct intervention in a mature sector of the economy, but frustration with regulatory delays and fear of $3 gas pushed principles aside. When several pro-nuclear conservatives started pushing guarantees again in 2005, the die was cast. Their rhetoric provided ammunition to extend the same treatment to clean coal, wind, and solar. In short, the parties cut a deal backing billions for big ticket “clean energy’’ projects of all kinds.
The 2008 farm bill created more of the same - over $1 billion in loan guarantees for ethanol plants. In the 2009 stimulus, Democrats returned serve with $18 billion more for “green’’ energy. By pledging their commitment to “green jobs’’ and “energy independence,’’ large corporations gained access to a new world of government subsidies. The line for handouts formed quickly. Liberals saw the guarantees as a way to micromanage the economy and allocate resources to support favored industries. Conservatives viewed them as a way to achieve policy objectives without violating their stated support for free markets.
The only problem was that the rhetoric ignored economic reality. Loan guarantees are subsidies; for every winner there are many others competing for capital that are placed at a disadvantage. If private sector funding is available, the government should get out of the way; if not, there’s no reason taxpayers should take the risk.
As competition rendered Solyndra’s product design hopelessly uncompetitive, their executives ignored the need for a sensible business model. Like the underpants-collecting gnomes on “South Park,’’ they simply assumed that their activities would somehow end in profits. Fortunately for them, they were dealing with the Department of Energy. Not only did it buy Solyndra’s story, but it agreed to let other investors be paid back before taxpayers in the event of a bankruptcy.
And still, none of this has deterred the Department of Energy, which doubled down last week with $1 billion in new loans for two more big solar projects. Taxpayers are now backing something called SolarReserve for $727 million. It just happens to be developing a project in Nevada, an early primary state and home to Harry Reid. Investors include some of the same names behind Solyndra - as well as a firm where Nancy Pelosi’s brother-in-law is an executive.
Which bring us to the questions raised by the House hearing about cronyism, political favors, and sharp-elbowed lobbying. Unfortunately, these are merely symptoms of bad policy. Loan guarantees for private competitors bestow dramatic benefits on a selected few and create incentives to curry favor and oversell. How could an executive in a chosen industry not pursue such an advantage?
Winning that $527 million in taxpayer-backed financing enabled Solyndra to pursue an ill-advised plant expansion that helped sink the company. Without it, however, they might still be muddling along as a niche player in a niche market. That might not get you on TV with the president, but it’s better than being on TV with your lawyer.
John E. Sununu, a regular Globe contributor, is a former US senator from New Hampshire.
