Solyndra: Lessons on Incentives & Private Capital

Incentives in investmentsAt the stroke of midnight on Friday September 30, the Department of Energy program that funded the now-defunct solar company, Solyndra, ceased to exist.

But, before the program ended, government officials approved ANOTHER $4.7 billion in loan guarantees to four more clean energy projects: SunPower Corporation, Project Amp, Antelope Valley Solar and Desert Sunlight.  Because the U.S. taxpayers are solely at risk in financially backing their efforts, let’s hope these companies fair better than Solyndra.  But let’s also learn an important lesson going forward about venture capital and the roles of government and the private sector.

The Best Qualified to Make Those Decisions?

The fundamental lesson is to understand the diametrically opposed positions of the venture capital marketplace and the federal government.  The venture capital marketplace is a very risky and tough place to conduct business.  The federal government is generally risk-averse.  Moreover, U.S. policymakers are not acclimated in the world of business and finance. This was demonstrated in the recently released report by the  Employment Policies Institute (EPI) showcasing that only 8% of lawmakers majored in economics or a related field, and just 14% studied related courses in business or accounting.

The role of the U.S. government should be to improve and maintain a strong economy by intermittently (when needed) stimulating and continually supplementing the flow of private equity capital into the marketplace.

Tax Payers at Risk… Again.

As opposed to federal programs that pick winners and losers and potentially leave taxpayers solely at risk, the best way for U.S. policymakers to quickly stimulate the economy, create jobs and continue reducing the U.S. deficit is through reforms to the U.S. tax code. The Federal Reserve recently reported that corporate businesses maintain $2 trillion in liquid assets which are sitting on the sidelines.  Appropriate tax incentives applied to such investment capital will likely unleash portions of these assets.  The longer such tax incentives remain in place the more certainty exists, sustaining longer term economic growth.

As an example, if the U.S. tax code were written to provide an 8% annualized return on investment and the entire $2 trillion in liquid assets held by American corporations were invested this would cost U.S. taxpayers roughly $160 billion each year.  This amount is roughly one-third of the cost of the 2009 Stimulus package and under one-quarter of the American Jobs package currently under consideration in the U.S. Congress.

Policymakers should make it more attractive for investors to take risks (and receive rewards) instead of guaranteeing loans to businesses and leaving the U.S tax payers on the hook for $535 million, as in the case of Solyndra.

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Cansler Consulting is an experienced lobbying firm in budgeting, agriculture, rural healthcare, and energy policies and through our Congressional relationships we can help you influence the policy makers on Capitol Hill. You can contact us at info@canslerconsulting.com or at (202) 220-3150.

Tim Cansler
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