Infrastructure Follies: Railroads, Cleantech And Crony Capitalism
It was more fitting than President Barack Obama could have imagined when he invoked the memory of Abraham Lincoln’s backing of the first transcontinental railroad in his bid to boost his latest infrastructure spending stimulus. It’s surprising that his speechwriters let him do it coming fresh on the heels of the Solyndra bankruptcy, subsequent FBI investigation and the campaign donor scandal that is rapidly gathering steam.
Perhaps that’s because no one in the administration ever got past fourth grade history and the driving of the golden spike at Promontory Summit. If they did, they would have known that the Union Pacific Railroad, organized by an act of Congress and backed by millions in government 30 year bonds, went bankrupt not once but twice. The story of graft, corruption, land grant shenanigans, and outright bribery of U.S. Congressmen went on to consume the Grant administration. And the folly of paying track-mile subsidies led to the construction of an artificially tortuous route that maximized pork at the cost of operating efficiency. That boondoggle stands in direct contrast to the tremendous success of the Great Northern Railroad.
Never heard of the Great Northern? That’s because they don’t teach about it in government schools. That transcontinental railroad, completed in 1893, was the only one built entirely with private money on privately purchased land, by a self-made railroad tycoon, James J. Hill. Not only that, but by building it in careful stages Hill kept the line profitable every step of the way. Many believe Ayn Rand got her inspiration for Taggart Transcontinental in her novel Atlas Shrugged from the Great Northern.
So we are repeating history in more ways than the stimulus spenders let on, with a gusher of money flowing into crony corporations promising a cleantech cornucopia. There is a difference this time, though. The outcome is going to be a lot worse. While the first transcontinental railroad was a financial disaster for both investors and U.S. taxpayers, the line continued to provide valuable service to customers even after going into receivership. That’s because no matter how badly the politicians and financiers screwed up or how much money they stole to line their pockets, taking the train still beat covered wagons and stagecoaches.
Can the same be said for Solyndra, Evergreen Solar, and SpectraWatt, once providers of 25% of American solar photovoltaic output and now on the bankruptcy scrap heap? Or the massive corn ethanol infrastructure resting on a mountain of subsidies temporarily shielded by protective tariffs? Or the struggling windmill business whose $2 billion in federal subsidies last year went largely to overseas manufacturers?
All of these cleantech companies are building not geographic monopolies for which few alternatives exist, but commodity conversion businesses, whose economic viability is exquisitely sensitive to shifts in both feedstock prices and energy alternatives across global markets. As we let politicians play venture capitalist with our money, can you think of any industry that offers more competitive alternatives than energy?
The cleantech collapse destined to come after the next election is going to be a spectacle to behold. As these turkeys go down you can expect a parade of horribles when investigators finally examine their books and follow the breadcrumb trails back into politicians’ pockets. Having dodged that bullet myself I can tell you exactly how the baksheesh machine works.
Several years ago, while sitting on the board of an internal combustion engine startup, I had to nix a proposal to seek a cleantech earmark. The respected K Street lobbying firm pitching us gave us chapter and verse on how you can rent congressmen and senators to gain multi-million dollar earmarks, complete with names and price lists. Ten thousand dollars bought the support of a congressman; twenty thousand bought a senator. These were campaign donations, of course, split into $2,000 checks written by officers and directors so as to dodge campaign finance laws. I was aghast at how open the whole process was, right down to the commissions paid to both the lobbying firm and the federal agency through which the funding was directed.
How many other directors of cleantech companies said yes? How many scandal time bombs are sitting there ticking, ready to go off when these companies go down? How much more crony capitalist corruption are American voters going to put up with before they say No Mas?
We have fourteen months before we find out.