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Commentary By Diana Furchtgott-Roth

Federal Loans Are No Answer

The late Steve Jobs demonstrated how one person’s innovation and creativity can launch a company and an industry of previously unimagined products.

Apple Computers was based in the Bay Area, not far from Solyndra, the bankrupt solar panel company for which taxpayers face a $528 million loss.

Unlike Solyndra, Steve Jobs didn’t get government loan guarantees for his first Apple computer, or for the Mac, iPod, iPhone or iPad.

With Solyndra’s bankruptcy, surely September would have been a good time to halt the Energy Department’s loan guarantee program and understand why the government can’t pick winners.

But instead of pausing, the Energy Department recklessly issued another $8 billion of loan guarantees under the Energy Policy Act of 2005.

Twelve companies received loan guarantees last month, including First Solar ($2 billion), Sunpower Corporation ($1.2 billion), and Abengoa Solar (a second loan for $1.2 billion, following a first loan for $1.4 billion in December). This brings to $16 billion the sum of guarantees issued by the government under the program since 2009.

Which one will be the next Solyndra? Does anybody think one of these will be the next Apple?

Take 1366 Technologies Inc., located in Lexington, Mass., which received $150 million on Sept. 8. The company’s plan is to break ground on its factory in March and start shipping silicon wafers in 2013.

On its website, 1366 Technologies states, “The science is understood. The material is abundant. The products work. All that is left is to build the largest manufacturing industry in the history of mankind. This is what we intend to do.”

Then why can’t 1366 Technologies attract private financing? Perhaps because the schedule is unrealistic. Surely, the groundbreaking date is pushed back, since the loan was only just now approved. So, how can wafers start shipping in December 2013? It probably takes one year to build the plant. Then, three months to commence production. Of course, there is selling, delivery and finally collection of accounts receivable. That’s bumping up against two years.

The loan is interest-only for about two years. But 1366 still has to pay interest, so it will be under financial stress. This is very Solyndra-like.

Another Solyndra-type loan is POET LLC in Emmetsburg, Iowa, which received $105 million to make cellulosic ethanol on Sept. 23. Cellulosic ethanol, a fuel made from plant waste products, is still too costly to be commercially marketable.

Although cellulosic ethanol consumption is required by the 2007 Energy Independence and Security Act, no one knows how to make it in large enough quantities to succeed commercially.

POET’s prospects are similar to Range Fuels, a cellulosic ethanol plant in Soperton, Ga. It closed in January after receiving $156 million in federal grants and loans in 2007 and 2008 from the Bush administration, $6 million in grants from Georgia and $100 million from private investors.

We’re throwing billions of dollars at renewable energy, electric cars and high-speed rail because we’re concerned that China is getting ahead of us and stealing our jobs.

President Barack Obama said recently that if we want to compete with China, “We’ve got to make sure that our guys here in the United States of America at least have a shot.”

If we’re afraid of China’s growth, industrial policy is not the answer. We should improve economic growth through more efficient tax and regulatory policies.

China is more to be feared with government loan guarantee programs than without, because these slow our economy and make it less efficient.

America is more likely to best China without government help. The proof is Steve Jobs.

This piece originally appeared in San Francisco Examiner

This piece originally appeared in San Francisco Examiner