WE LIKE Sen. Jim DeMint’s pithy new nickname for government efforts to select and subsidize industries: “venture socialism.” The South Carolina Republican, a Tea Party darling, coined it to describe the Obama administration’s failed $535 million loan guarantee to Solyndra, the bankrupt alternative-energy maker currently under federal investigation.
Here’s another example: the Emerging Technology Fund, a government-controlled pot of taxpayer money that has shoveled almost $200 million into 133 companies since its establishment in 2005. Among them is ThromboVision, a medical imaging start-up that absorbed $1.5 million — and then went bankrupt, just like Solyndra.
But the ETF is not an Obama administration boondoggle; it’s a pet project of Gov. Rick Perry’s Republican administration in Texas. His goal is to make central Texas “the next Silicon Valley.” As Mr. Perry explains in a statement on the ETF’s Web site: “In Texas, we understand that high-tech companies don’t just happen overnight but are a product of forethought, sound vision and planning, and strategic investments by both the public and private sectors. Through our Emerging Technology Fund, we are bringing the best scientists and researchers to Texas, attracting high-tech jobs and helping start-up companies get off the ground faster.” President Obama could not have summarized the theory of venture socialism better.
Solyndra looks bad for Mr. Obama because the company had ties to a campaign donor. But the ETF in Texas — which, like the federal Energy Department, steers some of its funds to solar energy, electric vehicles and other “green” technology companies — has also been plagued by appearances of favoritism, according to the Dallas Morning News and the Wall Street Journal.
In part, this is because the Perry administration doesn’t do very much to avoid such appearances: Mr. Perry himself is one of three elected officials who must personally sign off on every grant, contrary to the practice in most states that have similar funds. The governor has repeatedly said that a careful vetting process prevents any actual conflicts of interest. But one of ThromboVision’s investors was a Perry campaign donor, as are some of the members of the advisory committee. It’s true that not all of the fund’s beneficiaries have flopped, just as the Obama administration can claim that it has backed companies that have fared better than Solyndra, so far.
Mr. Perry’s campaign told us that the governor would not favor a federal version of the ETF if he were president but that he believes that if states want to compete for jobs by offering grants, loans and tax breaks to favored businesses, that’s fine. Perhaps the 10th Amendment allows each state to pursue its own path to a not-so-free market economy. But we think this approach to “economic development” is still bad for taxpayers.
Mr. Perry is not the only Republican who has played the game. As the new governor of Massachusetts in 2003, Mitt Romney took $24 million from a state renewable-energy trust fund and used it to subsidize alternative-energy businesses. Unlike in Texas, a professional manager decided how to dole out most of the cash. Mr. Romney’s campaign says that, as president, he won’t count on green jobs. Still, it’s hard to reconcile his program as governor with what Mr. Romney writes in his 2010 campaign book: “Government should not . . . attempt to pick winning ideas or technologies in which it would invest funds for development and commercialization.”
Before Mr. DeMint came up with “venture socialism,” this inefficient and politicized form of resource allocation traveled under other names: “picking winners,” “industrial policy,” “corporate welfare” and “crony capitalism.” Whatever the moniker, selective subsidies do not “create” jobs; at best, they shift them from one place to another. That’s a lesson both parties need to learn.