Visionary Musk: Great at Grabbing State Favors
|February 19, 2014||Posted by Staff under Subsidies & Waste & Public Debt|
This 2014 excerpt of Seeking Alpha, Feb 16, is by Craig Pirrong.
Elon Musk is the founder of PayPal, Tesla Motors, and SpaceX (space exploration). All of his companies were heavily dependent on government subsidies and support. This support socialized the potential losses, and allowed Musk (and other major investors, notably Goldman) to capture the upside.
If his products and business models were so great, visionary Musk could succeed on his own, by attracting private capital.
SpaceX is dependent on government contracts, given that a very large fraction of space launches carry government payloads. This is something different from Solar City and Tesla, where the government is providing subsidies but not receiving any product or service in return. But still, it means that Musk depends crucially on cultivating government support.
A firm does not succeed or fail at winning big ticket contracts on the basis of the superiority of its product, but instead on the basis of its ability to influence politicians and bureaucrats. And a lack of scruple is often a feature, not a bug in that regard.
SpaceX was looking for a commercial launch site, and seeking state subsidies in order to build it. The company has been playing states off against one another, looking for tax benefits. Musk focused on one of the poorest parts of Texas – Brownsville – and dangled the prospect of a mere 600 jobs, in exchange for $20 million dollars or so in tax benefits. Some of which will come from the taxpayers of that very poor community. The state legislature has succumbed.
Ed. Notes: There’s long been a refrain in economics and business: The way to make a fortune is to rake in the public’s money and to slough off your costs onto the public. Don’t pay for your pollution; let others do that. And, classically, capture the socially-generated rental value of land, while unconscious society sits idly by not even aware of what they’re losing.
Ordinary people will fight each other over wages and jobs but not over locations and their rents (only the elite know enough to wage those battles). In this regard, regular people are much like the species of lizards that live on the cliffs of South America overlooking the Pacific Ocean, but in reverse. The lizards fight each other over nesting spots but when a seagull comes and eats the eggs, the lizards don’t defend their own offspring; they just blithely sit there watching the next generation go down the gullet of the seagull. The lizards are not evolved enough to understand what’s happening to their progeny, to their species.
Similarly, humans are not hardwired to be able to see the flow of rent, to see their loss of rent, to see who captures it, to see how social conventions like property, mortgages, subsidies, and tax breaks direct the flow of rent into the pockets of favored insiders. Hopefully, humans will acquire the ability to become conscious of rent out of innate curiosity and a sense of justice without having to wait for evolution to deliver the needed new neural connections in the brain. Which is the mission of this site, to somehow make rent and geonomics obvious to the curious and caring.