Elon Musk and Crony Capitalism

Crony capitalism – the close alliance of big business with government – leads not to free enterprise, but to its opposite, in which government, not the market, chooses winners and losers, through subsidies and other forms of largesse. 

Adam Smith, the great philosopher of capitalism, understood that businessmen want to maximize profits, and how it is done is of secondary interest.  Indeed, he once said that when two businessmen get together, the subject of discussion is how to keep the third out of the market.  Adam Smith and more recent philosophers of the free market such as Friedrich Hayek, Ludwig von Mises, and Milton Friedman believed deeply in capitalism.  Many businessmen, sadly, do not.

Consider the example of Elon Musk, the billionaire Silicon Valley entrepreneur, who may be a modern poster-boy for this phenomenon.  His ambition is unbounded.  As Norm Singleton of Dr. Ron Paul's Campaign for Liberty wrote in The American Conservative, Musk has an agenda to do everything from "sending Men to the moon and Mars, to creating a 700-miles-per-hour tunnel transportation system, to turbo-charging human brains by implanting computers."

The problem is that he relies on the levers of government to fund his ideas.

In the view of Veronique de Rugy, senior research fellow at George Mason University's Mercatus Center, Musk is "perhaps the most prominent case of cronyism in modern times," especially due to his use of "friendships in government, as well as some high-priced lobbyists, to keep the spigot of government money going his way."

As is often the case with "private-public" partnerships, his ideas often do not come to fruition despite his receipt of all this government money.

Take Tesla Inc., for example.  With the help of over $1 million in lobbying expenditures annually, Musk's "go green" vision has been funded by billions in government support, including a $7,500-per-electric vehicle tax break, a $465-million discounted Department of Energy loan, and billions of state-level subsidies.

As recent news has shown, Tesla's results have been anything but good.  The company burns an average of $1 billion per quarter and fails to meet production targets, which in part caused Moody's to downgrade its credit rating and has made Tesla the most shorted stock on the entire U.S. stock market.  Despite this, Musk's government money shows no sign of ceasing.



The Wall Street Journal recently reported that in a seeming effort to reverse this gloomy financial situation, Musk recently sent out a memo to Tesla's suppliers requesting partial refunds on purchases his company has made since 2016 – a de facto subsidy that could seemingly fool investors and government officials by artificially inflating its financial outlook.

Costing taxpayers and investors billions of needless dollars is bad enough, but these subsidies may be a threat to national security as well.

SpaceX, for example, has received plenty in federal funds to launch rockets and satellites for NASA and the U.S. military.  Its record thus far has been questionable.

In June 2015, a Falcon 9 rocket exploded on the launchpad.  The loss included 4,000 pounds of food and supplies bound for the international space station.  A government report released this year blamed poor quality control at SpaceX, and the company followed suit with another rocket explosion just a year later.

Recent reports from the Defense Department's inspector general and NASA's Aerospace Safety Advisory Panel show, among other concerns, that SpaceX has more significant security nonconformities than its leading competitors.  Worry was expressed about SpaceX's ability to carry astronauts into space without causing harm.

Meanwhile, after receiving assurances of government money, SpaceX raised its commercial resupply contract prices by 50 percent.  These cost increases, coming despite SpaceX already costing more than aerospace contractors Orbital ATK and Sierra Nevada, will ultimately weaken America's security by forcing the government to do less for more.

Most recently, Musk also exhibited his emotional instability by launching what the Washington Post called "one of the nastiest attacks yet," in connection with the rescue of 12 Thai schoolboys from a flooded cave.  He attacked Vernon Unsworth, a British diver who played a key role in the rescue, who said Musk's idea of dispatching a miniature submarine for the rescue "had absolutely no chance of working."

Professor Zeynep Tufekci of the University of North Carolina provides this cautionary note: "Mr. Musk, indeed Silicon Valley as a whole, can perhaps see the Thai operation as a lesson[.] ... The Silicon Valley model for doing things is a mix of can-do optimism, a faith that expertise in one domain can be transferred seamlessly to another and a preference for rapid, flashy high-profile action[.] ... But what saved the kids out of the cave was a different model: a slower, more methodical, more narrowly specialized approach."

Sometimes it takes a crisis to recognize a problem.  In due time, perhaps the government will take Professor Tufekci's words to heart and demand more certainty and reliability before doling out anything on the taxpayers' dime.  The practice of picking winners and losers in the marketplace has gone on for long enough.

Allan C. Brownfeld is editor of Issues, contributing editor of The St. Croix Review, and a freelance author.  He served as associate editor of The Lincoln Review and contributing editor of Human Events. The author of five books, he has served on the staff of the U.S. Senate, House of Representatives, and the Office of the Vice President.

Crony capitalism – the close alliance of big business with government – leads not to free enterprise, but to its opposite, in which government, not the market, chooses winners and losers, through subsidies and other forms of largesse. 

Adam Smith, the great philosopher of capitalism, understood that businessmen want to maximize profits, and how it is done is of secondary interest.  Indeed, he once said that when two businessmen get together, the subject of discussion is how to keep the third out of the market.  Adam Smith and more recent philosophers of the free market such as Friedrich Hayek, Ludwig von Mises, and Milton Friedman believed deeply in capitalism.  Many businessmen, sadly, do not.

Consider the example of Elon Musk, the billionaire Silicon Valley entrepreneur, who may be a modern poster-boy for this phenomenon.  His ambition is unbounded.  As Norm Singleton of Dr. Ron Paul's Campaign for Liberty wrote in The American Conservative, Musk has an agenda to do everything from "sending Men to the moon and Mars, to creating a 700-miles-per-hour tunnel transportation system, to turbo-charging human brains by implanting computers."

The problem is that he relies on the levers of government to fund his ideas.

In the view of Veronique de Rugy, senior research fellow at George Mason University's Mercatus Center, Musk is "perhaps the most prominent case of cronyism in modern times," especially due to his use of "friendships in government, as well as some high-priced lobbyists, to keep the spigot of government money going his way."

As is often the case with "private-public" partnerships, his ideas often do not come to fruition despite his receipt of all this government money.

Take Tesla Inc., for example.  With the help of over $1 million in lobbying expenditures annually, Musk's "go green" vision has been funded by billions in government support, including a $7,500-per-electric vehicle tax break, a $465-million discounted Department of Energy loan, and billions of state-level subsidies.

As recent news has shown, Tesla's results have been anything but good.  The company burns an average of $1 billion per quarter and fails to meet production targets, which in part caused Moody's to downgrade its credit rating and has made Tesla the most shorted stock on the entire U.S. stock market.  Despite this, Musk's government money shows no sign of ceasing.



The Wall Street Journal recently reported that in a seeming effort to reverse this gloomy financial situation, Musk recently sent out a memo to Tesla's suppliers requesting partial refunds on purchases his company has made since 2016 – a de facto subsidy that could seemingly fool investors and government officials by artificially inflating its financial outlook.

Costing taxpayers and investors billions of needless dollars is bad enough, but these subsidies may be a threat to national security as well.

SpaceX, for example, has received plenty in federal funds to launch rockets and satellites for NASA and the U.S. military.  Its record thus far has been questionable.

In June 2015, a Falcon 9 rocket exploded on the launchpad.  The loss included 4,000 pounds of food and supplies bound for the international space station.  A government report released this year blamed poor quality control at SpaceX, and the company followed suit with another rocket explosion just a year later.

Recent reports from the Defense Department's inspector general and NASA's Aerospace Safety Advisory Panel show, among other concerns, that SpaceX has more significant security nonconformities than its leading competitors.  Worry was expressed about SpaceX's ability to carry astronauts into space without causing harm.

Meanwhile, after receiving assurances of government money, SpaceX raised its commercial resupply contract prices by 50 percent.  These cost increases, coming despite SpaceX already costing more than aerospace contractors Orbital ATK and Sierra Nevada, will ultimately weaken America's security by forcing the government to do less for more.

Most recently, Musk also exhibited his emotional instability by launching what the Washington Post called "one of the nastiest attacks yet," in connection with the rescue of 12 Thai schoolboys from a flooded cave.  He attacked Vernon Unsworth, a British diver who played a key role in the rescue, who said Musk's idea of dispatching a miniature submarine for the rescue "had absolutely no chance of working."

Professor Zeynep Tufekci of the University of North Carolina provides this cautionary note: "Mr. Musk, indeed Silicon Valley as a whole, can perhaps see the Thai operation as a lesson[.] ... The Silicon Valley model for doing things is a mix of can-do optimism, a faith that expertise in one domain can be transferred seamlessly to another and a preference for rapid, flashy high-profile action[.] ... But what saved the kids out of the cave was a different model: a slower, more methodical, more narrowly specialized approach."

Sometimes it takes a crisis to recognize a problem.  In due time, perhaps the government will take Professor Tufekci's words to heart and demand more certainty and reliability before doling out anything on the taxpayers' dime.  The practice of picking winners and losers in the marketplace has gone on for long enough.

Allan C. Brownfeld is editor of Issues, contributing editor of The St. Croix Review, and a freelance author.  He served as associate editor of The Lincoln Review and contributing editor of Human Events. The author of five books, he has served on the staff of the U.S. Senate, House of Representatives, and the Office of the Vice President.