Corporate Welfare: Bad for Business

A Capital Commerce blog post – on the subject on whether Obama is a Marxist (concluding that he is not, but he is a nanny-statist, certainly a Keynesian with some proclivity towards socialist ideals, and to the left of the Clintons on economic policy) – refers to an interesting study about how government “investment” in venture capital is not only less productive than, but crowds out, private investment.

The results indicate that enterprises financed by government-sponsored venture capitalists underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents. It is important to understand whether such underperformance arises from a selection effect in which private venture capitalists have a higher quality threshold for investment than subsidized venture capitalists, or whether it arises from a treatment effect in which subsidized venture capitalists crowd out private investment and, in addition, provide less effective mentoring and other value-added skills. We find suggestive evidence that crowding out and less effective treatment are problems associated with government-backed venture capital. While the data does not allow for a definitive welfare analysis, the results cast some doubt on the desirability of certain government interventions in the venture capital market.

Hmm … doens’t that sound a lot like Governor Rendell’s energy proposal?