U.S. Government Should Take a Lesson from Dubai: Leave Venture Capital to Capitalists

The U.S. government is becoming Daddy Warbucks to an increasing number of firms. According to the Wall Street Journal:

… the government has become the nation’s biggest mortgage lender, guaranteed nearly $3 trillion in money-market mutual-fund assets, commandeered and restructured two car companies, taken equity stakes in nearly 600 banks, lent more than $300 billion to blue-chip companies, supported the life-insurance industry and become a credit source for buyers of cars, tractors and even weapons for hunting.

In his recent Beacon post , “Boeing and the Higgs Effect,” Peter Klein outlined the ratchet effect of corporations getting well gummed up in government largesse. And even that “all-American” company, GE, has shifted its strategy to tie its fortune to seeking up to $192 billion from stimulus projects over the next 4 years.

In fact, in a current series, “USA Inc.,” the Wall Street Journal is chronicling a depressing picture of a corporate landscape almost totally given over to the kind of crony-capitalism one used to think reserved for banana republics and former iron curtain strongholds, crowding out private investment and making political savvy the new currency over actual business acumen.

Yet if there’s one lesson that can be drawn from the spectacular failure of Dubai World, it is that the State is not very good at picking good investments. The U.S. government ought to learn that lesson before it follows Dubai into bankruptcy (newly legitimized there, handily enough).

But then again, with the Obama administration’s first-year record deficit of $1.85 trillion piled on top of Bush’s before him, and pushing up against the current debt “ceiling” of $12.1 trillion (against an estimated total U.S. GDP of $14.4 trillion), can bankruptcy be far on the horizon in any event?

Mary L. G. Theroux is Senior Vice President of the Independent Institute. Having received her A.B. in economics from Stanford University, she is Managing Director of Lightning Ventures, L.P., a San Francisco Bay Area investment firm, former Chairman of the Board of Advisors for the Salvation Army of both San Francisco and Alameda County, and Vice President of the C.S. Lewis Society of California.
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