“Because That’s Where the Money Is.”

In one of those too-good-to-be-true urban legends, a man once asked the famous criminal Willie Sutton why he robbed banks. “Because that’s where the money is,” he replied. Fast forward eighty years or so, and one sees that the business world has learned from Sutton’s wisdom.

LightSquared is a technology company that is going through chapter 11 bankruptcy despite receiving a $267 million government loan. Its satellite-based high speed wireless network has a fatal flaw: it interferes with GPS devices, making it useless. The FCC is blocking it, leaving the company with essentially zero business until they can solve the problem.

The company has laid off about half of its workforce so far. But The Hill’s Brendan Sasso and Kevin Bogardus found out that LightSquared is making sure to retain its most lucrative employees. Those would be its lobbyists, not its engineers:

Despite the financial troubles and staff cutbacks, LightSquared has yet to disband its lobbying army — an implicit acknowledgment that the company’s future is contingent upon what happens in Washington.

In other words LightSquared, just like Willie Sutton, knows where the money is. And it isn’t in the marketplace.

Businesses fail all the time. If they don’t create value for their customers, they don’t deserve to stay in business. Capital that is being wasted by these companies is then freed up for more valuable uses. Schumpeterian creative destruction doesn’t work without that destructive part. When Washington puts its thumbs on the competitive scales as it has with the LightSquared loan, it should surprise no one that companies suddenly swarm Capitol Hill for a piece of the action.

The result is less destruction, but also less creation. Corporate welfare means less innovation and less economic growth. It creates plenty of jobs for lobbyists and lawyers, but at the expense of other jobs that create actual value for consumers – such as many of LightSquared’s layoffs, who could be finding a technical solution for its GPS interference problem.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s