Government spending on health, education and insurance is the path to riches. And not one of many paths – if a nation isnt lucky enough to sit atop a fortune of mineral wealth, it’s the only pathway by which modern countries have ever grown rich. And there’s ample evidence that public investment in other sectors is a must for economic development too.

For conservatives, “Solyndra” has become the poster-child for the inevitability of failure whenever government wades into the marketplace. Mitt Romney wasnt content to mention Solyndra in every other speech – in May 2012, he journeyed to its Silicon Valley headquarters, to have the shuttered building in the background as he railed against the evil of public meddling in private enterprise. Solyndra’s failure was indeed spectacular – taking with it more than 500 million taxpayer dollars when it went bankrupt in 2011.

But in the three years since Solyndra’s bankruptcy, the government program that funded it has kept right on doing what it’s been doing all along: helping out young, green-energy firms going through rough patches. And a funny thing has happened: the numbers on the government’s balance sheet have gone from red to black. The Department of Energy, which administers the program, reports that they expect it to return a profit of some $5 to 6 billion over its lifetime, on investments totaling $32 billion. If you’re keeping score at home, that’s profits in excess of 10 Solyndras! And mind you: those are only the profits expected to accrue to the government itself, as it receives interest payments from companies paying back their loans. It does not begin to express the total economic value created for shareholders, or the green tech which will benefit all of humanity, or the tens of thousand of jobs that have been created at less-than-zero cost.

Government involvement in the marketplace has a long, storied past, in the US and abroad. Countries such as Singapore, Taiwan, South Korea and Israel – among the greatest exemplars of rapid economic growth of the past sixty years – all have had governments deeply involved in decisions on capital allocation. Government support has been indispensable to numerous industries throughout US history, from railroads and agriculture, to education and aviation, to the internet and drug research. Looking only at the iPhone, government investment facilitated advances in microchips, cellular, touch screens, GPS and voice-recognition – not to mention the $500,000 government-backed small-business loan that helped Apple get off the ground in 1978.

With her book, The Entrepreneurial State, Professor Mariana Mazzucato of Sussex University has emerged as an authority on the importance of public investment for economic growth. Simply put, companies are leery about long-term investments. Even guys like Steve Jobs knew how the game was played. Apple has done well tying together existing technologies into consumer-friendly packages – and is often more interested in stock buybacks than R&D. Their achievements are not to be downplayed – but the business model only succeeds with a robust public sector targeting certain industries and technologies for development.

Government isnt crowding out private investment – it’s picking up the slack in areas that private investors neglect. Companies tend to have short planning horizons when it comes to research and development. Even large companies who can afford long-term investments are rarely eager to test their shareholders’ patience with projects whose returns may take ten or fifteen years to realize. And the days of Bell Labs and Xerox PARC are also long gone – when tech firms collected scientists, and funded them in academic-like settings, content to wait and see what their research produced.

There will always be Solyndras. In new fields, failure always outnumbers success. But dont hesitate to let conservatives know that in the final accounting, the value of the Teslas outstrip the Solyndras by a wide margin – and always have.

 

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Refs:

http://www.bloomberg.com/news/2014-11-13/solyndra-program-vilified-by-republicans-turns-a-profit.html

http://thinkprogress.org/climate/2014/11/13/3592107/doe-loan-program-profit/

http://thinkprogress.org/climate/2013/05/07/1977001/loan-program-20000-jobs/

http://thinkprogress.org/climate/2012/09/06/805001/five-things-you-should-know-about-solyndra-during-the-2012-campaign/

http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit

http://www.washingtonpost.com/politics/mitt-romney-visits-solyndra-headquarters-knocks-president-obama/2012/05/31/gJQAAnge5U_story.html

http://www.huffingtonpost.com/william-lazonick/nine-government-investmen_b_954185.html

http://www.forbes.com/sites/ciocentral/2011/01/31/why-the-government-needs-to-invest-in-innovation/

http://www.slate.com/articles/health_and_science/new_scientist/2013/09/entrepreneurs_or_the_state_innovation_comes_from_public_investment.html

http://www.forbes.com/sites/bruceupbin/2013/06/13/debunking-the-narrative-of-silicon-valleys-innovation-might/

http://thebreakthrough.org/archive/american_innovation

http://www.economist.com/news/business/21584307-new-book-points-out-big-role-governments-play-creating-innovative-businesses

http://www.nytimes.com/2014/03/24/opinion/americas-underappreciated-entrepreneur-the-federal-government.html