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Government: A lousy venture capitalist

November 4, 2014

When state legislatures reconvene in January, a priority for many will be passing some kind of “jobs” bill. What form that might take is open to debate, but there are already lessons to be learned on what not to do.

In 2009 the Arizona legislature, like many other states, passed a bill providing “tax incentives” (AKA subsidies) for renewable-energy industries. The legislature partly responded to pressure from those who thought they’d found the next big thing in “green jobs.” It also followed on the heels of a new solar panel factory in Tucson, Arizona.

Now that solar panel factory is closing only three years into its tenure. And it’s not alone. Another plant in Massachusetts has closed. Especially notable, a company called Solyndra, with a half billion dollars in federal loan guarantees, has declared bankruptcy.

That’s not a great track record, and it proves a point: Government makes a lousy venture capitalist.

Venture capitalists lose their money sometimes, but that’s the point: it’s their money. Government has no business risking taxpayer resources or disrupting tax systems to favor some businesses over others in an effort to directly create jobs.

Unfortunately, the Arizona legislature did it again in creating the Arizona Commerce Authority, with its ability to directly subsidize companies. The legislature would have doubled down on this bad bet with SB 1041 last session but for Governor Brewer’s veto.

Our legislature needs to rein in local regulation, create a more rational tax system, and free up the state’s natural resources. For example, cities require too many permits and take too long to issue them, we tax businesses too heavily, and public ownership of land ties up resources in too much red tape.

While not as sexy as attending ribbon-cuttings at solar panel plants, addressing such issues would have a more lasting, positive impact on the economy.

Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.

Learn More:

Institute for Energy Research: Solar Manufacturers Slowly Closing Up Shop In U.S.

Arizona Republic: Solar-panel plant to open in Tucson

Bloomberg: Obama Team Backed $535 Million Solyndra Aid as Auditor Warned on Finances



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