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In defense of failed public investments

at 05:33 PM ET, 09/02/2011

I don't know all the specifics behind Solyndra, the solar-power company that the White House touted as a successful renewable-energy investment but which went belly-up this week. For a good overview of what went wrong, this post by Mark Muro and Jonathan Rothwell is the place to start, and for a look into the irregularities in the process that led to Solyndra getting its loan guarantees, this article by Joe Stephens and Carol Leonnig will give you the scoop. I would need to do more reporting before I said whether the initial investment made sense or not.

But as a general point, it's entirely possible for the initial investment to have made sense and for the company to have eventually failed. If we're going to try to support young companies doing risky things in sectors that we're hoping to dominate, we're going to have to be prepared for some of them to fail. In fact, we should be hoping some of them fail. If our success rate is too high, it means government is making bad investments.

Technologies and companies that are sure things can raise money on their own. They don't need government support. It's companies making big, risky bets with a huge upside but a high chance of failure that have a case for public support. What we're looking for in those investments isn't a perfect success rate, but the occasional big success. When we look back at past government investments, we talk about the ones that paid off, like microchips and the Internet and radiotelephony and nuclear power. But there were a lot of efforts that totally failed. And that's fine. If we hadn't been willing to fund some of the duds, we would never have groped our way to the breakthroughs.

If the process that led to Solyndra's funding was tainted by personal connections or donations, then that's a real problem. But the fact of failures isn't, in and of itself, a problem for government investments. If we weren't seeing some failures, we would know we had no chance of seeing real successes.

 
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