Should The U.S. ‘Bail Out’ Venture Capital Firms?
By Anna Johnson on February 23rd, 2009Interesting article by The New York Times columnist and Pulitzer Prize winning author, Thomas Friedman. Friedman’s op-ed piece in the Saturday edition of The New York Times argues against the U.S. Government bailing out General Motors and Chrysler, and suggests that if the Government wants to bail out anyone, it should be venture capital firms.
Thomas Friedman says that pouring more money into General Motors and Chrysler is really just bailing out ‘losers’. He says that doing so is not how the U.S. got rich as a country and it’s not how it will get out of the crisis. Giving money to venture capital firms, he suggests, would be much more productive.
Friedman writes:
“You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.”
Thomas Friedman says that if the U.S. Government wants to use taxpayer money to stimulate the economy it should provide limited financing to the technology sector where, with some extra funding, it will help the U.S. not just survive the current crisis but thrive when the crisis is over.
Having recently watched the documentary film, I.O.U.S.A., I’m not sure the U.S. Government should be bailing ANYONE out!
In the context of I.O.U.S.A. which paints a frightening picture of the U.S. economy and its $10 trillion deficit (as at February 23, 2009), by bailing out the auto makers or anyone else, the U.S. Government will not just be using U.S. taxpayers’ money, but it will also be going even further into debt, to to do so.
In other words, the U.S. Government will essentially be forcing its taxpayers to take on more debt in order to bail out these companies. Companies that have been mismanaged, aren’t making cars that enough people want, or otherwise just don’t have what it takes to survive in today’s competitive environment.
Of course letting the auto makers go down, means letting thousands of workers (several hundred thousand) lose their jobs. That would be devastating for those workers and their families, and would likely have precisely the opposite effect on the economy as that desired.
Not an easy decision to make.
But one can only wonder, will bailing out the auto makers actually work? Or will it be pouring more good money after bad? And when, exactly, will the U.S. Government pay down, let along pay back, its debt?
You might wonder why I, an Australian, would even be concerned about this. Well, apart from having a long-standing admiration for many aspects of the U.S. I am concerned as a world citizen. A strong, stable U.S. economy is good for the world. And the opposite is true too…
Source: Thomas L. Friedman, “Start Up the Risk-Takers,” The New York Times, February 21, 2009
