Sometimes business benefits from friends in high places, such as the White House.
With billions of dollars available for research, a president can reward campaign contributors or even jump-start new enterprises. For example, back in 1969, the Department of Defense funded an effort to find ways to link large research computers together. Voilà, under President Richard Nixon, the Internet began.
For the government to try to pick economic winners is nothing new. Often there are political reasons to support an industry. And sometimes it’s just bad judgment, says economist Sung Won Sohn, a professor of finance at California State University, Channel Islands.
“They think they know better than the market,” says Mr. Sohn. “Typically, politicians support losers rather than winners.”
Of course, sometimes government support works. The US automobile industry has gotten back on its feet after Presidents Bush and Obama agreed to provided it with federal loans – a move that Romney opposed. In this case, the support was probably justified, says Sohn. “To me, it is one of those national priorities that we as a nation should have an auto industry,” he says. “If General Motors and Chrysler were to close down, we would be like the United Kingdom, which has no auto industry that is not owned by foreigners. It would not be very good for the economy and national security.”
But the auto sector is not the only industry that Obama has supported. He has put billions of taxpayer dollars into green technologies. The Department of Energy has been heavily investing in new battery technology, wind turbines, and solar generation of electricity. For example, some $3.9 billion in federal grants or financing went to 21 companies that had some link to Obama staffers and advisers, according to a report by the Washington Post.
But, sometimes trying to pick winners results in ... losers.
In 2010, Obama visited a Fremont, Calif., company by the name of Solyndra, which was going to make cylindrical solar panels. In 2009, the company had received a $535 million federal loan guarantee in addition to investments from private investors. But the plummeting price of solar panels doomed the company, and in two years it declared bankruptcy.
Conservative groups jumped all over the failed loan. "The crony capitalism involved in the Solyndra case demonstrates that the government shouldn’t pick industrial winners,” said the Manhattan Institute in a July 19 report entitled "Solyndra and the Perils of Green Industrial Policy."
In mid-2012, Romney visited the empty Solyndra plant to highlight the failed investment. However, Romney himself, when he was governor of Massachusetts, personally handed state money to several solar-energy firms, including Konarka, which declared bankruptcy in June.
In case of both Konarka and Solyndra, the process to get federal and state monies started under different administrations.
More recently, Romney, a supporter of the coal, oil, and gas industries, also announced his backing on Aug. 23 of the Renewable Fuel Standard, which mandates that an increasing amount of ethanol be used to make gasoline.
The RFS is especially popular in the Midwest, where most of the corn used to make ethanol is grown. However, with the drought in the Corn Belt, the price of corn has been rising.
Refiners oppose being told what to use to make gasoline. Higher corn prices eat into their profit margins.
“It is the opposite of the free-market approach,” says Charles Drevna, president of the American Fuel and Petrochemical Manufacturers in Washington. “If it is allowed to stay as law, the Renewable Fuel Standard will make the American consumer a loser.”
For a full list of stories about how Romney and Obama differ on the issues, click here.
