Former Tesla Executive Questions “Green” Corporate Welfare

In a December 1 article in Wired, “In Role as Kingmaker, the Energy Department Stifles Innovation,” former Tesla Motors Chief Marketing Officer Darryl Siry critiques the federal government’s campaign of “green” corporate welfare for the American automobile industry (Advanced Technology Vehicles Manufacturing Loan Program). With the recent Climategate revelations that indicate that the stampede for mandated reductions in CO2 emissions is based on fraud and junk science, Sury’s comments are especially noteworthy.

Of all of the Department of Energy programs intended to advance the green agenda while stimulating the economy, the Advanced Technology Vehicle Manufacturing incentive to spur the development of cleaner, greener automobiles is perhaps the most ambitious. But it has a downside.

The energy department has approved direct loans to Nissan, Ford, Tesla Motors and Fisker Automotive totaling about $8 billion out of a budget of $25 billion. The magnitude of this program dwarfs other DOE campaigns like the $2.4 billion given to battery and electric vehicle component manufacturers and the $4 billion disbursed for “smart grid” projects.

To the recipients the support is a vital and welcome boost. But this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.

As Siry correctly points out, such policies cripple innovation and create enormous economic inefficiency. They are in fact nothing short of classic, national industrial policy or mercantilism or corporatism in which government officials try to plan and control economic development by selecting who wins and who loses.

Startup companies that enjoy DOE support, most notably Tesla Motors and Fisker Automotive, have an extraordinary advantage over potential competitors since they have secured access to capital on very cheap terms. The magnitude of this advantage puts the DOE in the role of kingmaker with the power to vault a small startup with no product on the market—as is the case with Fisker—into a potential global player on the back of government financial support.

As a result, the vibrant and competitive market for ideas chasing venture capital that has been the engine of innovation for decades in the United States is being subordinated to the judgments and political inclinations of a government bureaucracy that has never before wielded such market power.

However instead of proposing an end to such corporatism in order to restore free-market competition and innovation, Siry believes that such corporate welfare should be expanded and broadened for all companies to utilize:

A potential solution to this problem may seem counter-intuitive. The best way to avoid market distortion would be for the DOE to cast the net more broadly and provide loans and grants to a larger number of companies—which ironically means being less selective. Subject to the existing equity matching requirement, this would allow the private markets to function more effectively in funding a broader range of companies and driving more innovation. Several innovative companies with great potential have been in the DOE pipeline for many months. Perhaps it is time for the DOE to stop playing favorites and start spreading the love.

For superb examinations of the economic and social folly of such national industrial policy and corporatism, please see the following books:

Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity, by Robert Higgs

Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Robert Higgs

HT: Andy Cleary

David J. Theroux is Founder, President and Chief Executive Officer of the Independent Institute.
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