Cronyism Doesn’t
(Always) Pay

Column: The problem with Chicago politics

February 17, 2012

President Obama’s recent activities have that schizophrenic quality one associates with romantic relationships on the brink of collapse. There was, for example, his hypocritical reversal on Super PACs; his not-quite U-turn on contraception, which was meant to appease the religious left; his stuffing the FY2013 budget proposal with handouts to construction and teachers unions; and his self-pitying yet lucrative fundraising trip to the West Coast.

The economy may be on the upswing—the stock market certainly is. But tensions inside the Obama coalition are beginning to emerge. Obama has reached the point of diminishing returns. He simply cannot please all of the elements of his coalition at once.

The problem with Chicago-style politics is that every favor one pays to one group ends up alienating another. Mandating free contraceptives in health care may please the pro-choice activists, but it will also mobilize conservative Catholics and defenders of religious liberty. Trying to please the green lobby by killing the Keystone XL Pipeline ends up angering construction unions without guaranteeing environmentalists’ support. Donors such as Susie Tompkins Buell, the millionaire San Francisco clothes designer, are still saying they "can’t" donate to Obama’s campaign because he has not been "vocal enough" on climate change. There is simply no pleasing these people. Gavin Newsom, the lieutenant governor of California, says Buell’s decision is "extraordinary." Meanwhile, the president has been reduced to wooing his financiers with love songs.

But many wealthy rent-seekers may have decided to stop throwing good money after bad. Consider energy policy. The Washington Post published a blockbuster report Tuesday describing the regulatory capture that took place in 2009. Obama raised millions from venture capital firms during his presidential campaign, the Post reported, twice as much as John McCain. At first the industry’s investment in Obama seemed to pay off: The $787 billion stimulus bill earmarked $80 billion for non-carbon energy "investments." Clients of the Wilson Sonsini law firm, for instance, which employs the wife of former Energy Department official and Obama donor Steven J. Spinner, received $2.75 billion in federal money, according to the Post.

But government-inflated asset bubbles have a tendency to pop. Spinner’s pitiable boosting of the solar-panel manufacturer Solyndra was enough to get the president to visit the company’s Fremont, Calif., campus, but it could not prevent Solyndra’s collapse. Indeed, Solyndra was only the beginning. There are now four bankrupt solar companies that received government assistance at the direction of venture capitalists who donated to Obama. Meanwhile, the administration’s budget proposal for the next fiscal year allocates no new money to the DOE loan program that brought us Solyndra. The taxpayers whose money this administration bet long on clean energy lost big.  The private sector dollars that have poured into the shale oil boom in the Midwest without federal intervention? They are seeing all the returns.

The Stop Online Piracy Act (SOPA) was another example of one member of the Obama coalition not getting what it paid for. Here were two industries—Hollywood and Silicon Valley—that supported Obama in huge numbers but have differing regulatory interests. Seventy percent of the entertainment industry’s political giving in the 2012 cycle has gone to Democrats. What Hollywood wants from Washington most of all is protection of its intellectual property. Further up the Golden State Freeway, meanwhile, Silicon giants like Google—which has given 56 percent of its contributions to Democrats this cycle—want to keep the Internet free from regulation.

When Obama found himself caught in the middle of this clash between two key backers, he dumped MPAA chief (and former Democratic senator) Christopher Dodd and his Hollywood cronies overboard and sided with what Joel Kotkin calls "the new digital elite": Google, Facebook, eBay, Wikipedia. His decision was understandable. The tech companies easily could decide to switch their partisan affiliation. But Hollywood’s support for Democrats is unbreakable. There is nothing that Obama could do that would send the blissfully ignorant actors of Hollywood into the arms of Rick Santorum.

The most sensational case of Obama’s allies not getting their money’s worth, however, has got to be the stunning collapse of telecom LightSquared’s proposal for a new wireless broadband network. This was the baby of Philip Falcone, the billionaire money manager and Obama supporter who invested a fortune in LightSquared only to have the Federal Communications Commission, chaired by the president’s law school classmate Julius Genachowski, deny approval on Wednesday on the grounds that the wireless network would interfere with the U.S. military’s global positioning systems.

Falcone, who is under investigation for tax and preferential trading issues, has seen his bank account and reputation implode thanks to the fickle nature of the regulatory state. Even more ironic: It is Obama bundler, hedge fund manager, and Center for American Progress board member Tom Steyer’s Farallon Capital Management that is selling LightSquared’s debt to investors such as Carl Icahn. So I suppose one cannot say that LightSquared has been a total waste for Obama’s pals.

"Hope and change," "progress," "clean energy," "fairness," "Internet freedom" — in every case, Obama’s slogan masks the pursuit of gain through the merger of financial and political interests. Politicians may have always sought to reward donors with such favors, but Obama has elevated clientelism to a science.

Even the most devoted machine politician, however, will run up against the institutional, Constitutional, and factional walls that the Founders built into the American system to protect republican government from itself. These barriers are why Obama has been so apologetic in his appearances before his funders. They are why his majority is so unstable. And they are why he will have to sing his way through the entire Al Green catalog before he can even hope to repair the fissures in his coalition.