Perry's Solyndra?

Taxpayers continue to pay the bill for cronyism as the debt balloons, the dollar collapses, and our credit rating falls.  From the 2008 financial meltdown, the Fannie Mae/Freddie Mac debacle, and multiple pork-laden stimulus bills to auto bailouts, TARP, and easy federal loans for speculative projects, the costs mount.

With such a clear pattern of corruption and special deals for contributors and insiders, how could Republicans possibly fail to capitalize on Obama's reckless waste of taxpayer money in rewarding his biggest fundraisers?  Republicans can easily throw away the advantage by nominating a candidate with a record of rewarding friends and donors with the spoils of government power.

In Texas, bio-tech firm Convergen LifeSciences looks a lot like Governor Rick Perry's Solyndra.

Governor Perry manages the Emerging Technology Fund (ETF), providing financial support to companies developing new technology in the hope of creating high-tech jobs.  First created in 2005, ETF is made up of regional panels that screen proposals for a statewide advisory panel (all appointed by Perry).  ETF dispersed $342 million through August 2010.

Like Solyndra, Convergen's project to develop a lung cancer treatment was easily identified as a speculative endeavor.  Convegen's proposal was rejected at the regional review board, part of the normal ETF evaluation process designed to insulate the program from politics.

Solyndra had George Kaiser, mega-fund-raiser for Obama.  Convergen had David Nance, mega-donor for Perry.  Nance is the founder of Convergen.  Despite several business and personal bankruptcies -- including previously failed companies partially funded by the state -- Nance managed to donate $335,000 to Perry's campaigns, association fundraisers, and foundation.

As in the case of Solyndra, Convergen received help in circumventing the normal process.  This part is very murky.  Somehow, the proposal that failed the regional review was presented at the closed-door session of the state advisory panel (which previously included Nance), where it was approved.  While the governor's office claimed that an appeal was filed, there is no appeals process in ETF's charter.  The process by which Convergen received $4.5 million -- the highest amount ever awarded -- was "extraordinary."

Where Solyndra received a below-inflation interest rate, Convergen gave Texas an 8% annual interest promissory note with no due date.

Just like Solyndra, the principal investors unloaded risks on taxpayers.  According to the previously secret state grant application, Convergen founders put up only $1,000 each, while Texas taxpayers put up $4.5 million.  They were entering phase II clinical trials in late 2010, but only 33% of successful phase II drugs make it to market, and the success rate for cancer drugs is only 4.7%.

The big difference between Solyndra and Convergen is that Convergen hasn't failed.  Not yet, at least.  The odds of success might be better than a roulette wheel, but this is taxpayer money.

Convergen is not an isolated case, either.  In fact, Nance previously received state money "at the direction of the Governor's budget office" for a now-bankrupt company which still owes Texas $50,000.  Max Talbott served on Perry's ETF panel and simultaneously was a paid consultant for several firms that sought and received money from the ETF.  While he claims that he recused himself for some conflicts (in closed-door sessions), conflict of interest questions remain for other clients; $16 million of ETF funds went to the firms of major Perry donors, and $27 million of ETF funds went to firms of former ETF advisory board members.

There are also questions about unusual access by lobbyists who went to work for Perry and then returned to lobbying for firms doing business with the state.  Still more questions exist about major donors influencing decisions, approvals, and the reorganization of state agencies.  Much of this will almost certainly be revealed in the course of the campaign.

While these insider practices are shady and unfair to others who were denied similar opportunities, none of this is illegal (although the FBI is investigating Solyndra to see if they falsified records).  Still, these incidents are damaging politically and forfeit a winning issue against Obama.  More importantly, a candidate guilty of cronyism undercuts one of the best practical arguments in favor of reducing the size of government.

When the total economy is only $14.7 trillion and the federal/state/local expenditures exceed $5.8 trillion, is it any wonder that cronies "invest" so much donating to candidates and lobbying officials?

This is where Nader and populists on the left err in believing they can solve political cronyism through complex regulatory schemes and further concentration of power in a central government.  The more power and money concentrated in one place, the higher the reward and the greater the incentive for corruption.

The first and most important step in tackling pay-to-play, political favoritism, and insider deals is to decentralize power and significantly reduce the money in Washington (and Austin).  A lean and limited government is then much easier to police against cronyism.

Making the case for tackling cronyism, reducing the size of government, and decentralizing the corrupting power of a central government will be very difficult for a politician renowned for political favoritism.

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