Another government‐subsidized solar energy company is headed to bankruptcy. The latest casualty is Flabeg Solar U.S. Corp, a subsidiary of a German company. Flabeg’s Pittsburgh plant has been shuttered and its employees laid off.
In 2009, the Obama administration awarded Flabeg $10 million in federal green energy tax credits. Flabeg also reportedly received a $1 million federal grant. According to the Pittsburgh Tribune‐Review, the state of Pennsylvania and Allegheny County kicked in another “$9 million in job creation grants, loans and other financial aid.”
Flabeg apparently never had a chance to use the tax credits because it was never profitable, but federal taxpayers will likely be out $1 million for the grant. State and local taxpayers are unlikely to be as fortunate. And while taxpayers lose when government places a bad bet, the broader economy also loses when politicians redirect capital toward less productive uses (in this case, completely unproductive).
Flabeg’s demise is a reminder that it isn’t just the federal government that’s shoveling corporate welfare. Not only do state and local government subsidize commercial interests, but the handouts are often coordinated with the feds. With Uncle Sam putting money in the pot, state and local governments can find the temptation to participate in a press release announcing the creation of X number of jobs irresistible.
Just ask former Indiana Gov. Mitch Daniels (see here, here, and here).
On a final note, the head of a Pennsylvania environmental group offered this reaction to the Flabeg news:
The reason government steps into these cases is because they are too risky to get private capital…But as with private investments, some companies fail.
Yes, private investments do fail. But as I note in a paper on corporate welfare, “Businesses and venture capital firms make many mistakes as well, but their losses are private and not foisted involuntarily on taxpayers.”