Tags: Solar | Firm | Bankruptcies | obama

Solar-Firm Bankruptcies Show Wisdom of Bain, Foolishness of Obamanomics

By Michael Carr   |   Friday, 20 Jul 2012 07:08 AM

Abound Solar is a small company that should have never made the national news. The company wanted to make solar panels, a low-margin business with high risk.

If it succeeded, it would be a successful niche manufacturer like thousands of other businesses in the country. If it failed, it would be among the hundreds of thousands of failed business ventures that are victims of creative destruction in a dynamic economy.

Instead of being allowed to participate in the free market, the company was protected from poor decisions by government loan guarantees. As prices of panels made in China plunged, the managers at Abound Solar focused on securing government-backed loans rather than competing.

In the end, Abound proved that the laws of economic apply. Low-cost labor should be used to make low-cost goods, as Adam Smith first wrote in “The Wealth of Nations” in 1776.

Private-sector funds were not available to Abound Solar because private investors knew the risks exceeded the potential rewards. Ignoring those risks, the government offered $400 million in loan guarantees but Abound Solar ran out of time after burning though only $70 million.

Abound Solar, and Solyndra, could have failed with smaller losses without government support.

Those businesses stand in contrast to Bain Capital, which simply allocated capital on behalf of investors. Bain used the least-expensive labor that could deliver quality.

Without the discipline of the market, Abound Solar insisted they could ignore the high costs of labor and pass the costs on to the customer. If that customer is the government, Abound Solar’s business model works. When market forces intervene, the model fails and taxpayers lose.

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2012-08-20
 

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