The Unsustainable Green Business

By Ryan Krause[Editor’s Note: I am excited to introduce our readers to Ryan Krause, a new blogger at Industrial Progress Report. Ryan Krause is a PhD Candidate and Associate Instructor of Strategic Management at Indiana University’s Kelley School of Business. He conducts research in the areas of strategic leadership and corporate governance. –AE]Why did Solyndra fail, and what can that teach us for the future? Many have argued that Solyndra is an illustration of the destructiveness of government subsidies, which take investment decisions out of the hands of private investors and put them in the hands of government bureaucrats. This is true–as far as it goes. But there is something more sinister about the type of subsidies Solyndra received than, say, farm subsidies (to which I am also opposed). The subsidies to Solyndra were subsidies for a fundamentally destructive business model: “green” business, also known as “sustainable entrepreneurship.” This latter designation is particularly ironic because “sustainable entrepreneurship” is fundamentally unsustainable.For a business to be sustainable (i.e. self-sustaining), it must create value; first for customers, and subsequently for shareholders. Value is created by offering customers a product that is worth more to them than it costs to produce. Airlines create value by making long-distance travel quicker, easier, more comfortable, and safer than pretty much any alternative. Social networking sites create value by making connecting with people easier, cheaper, and more productive.What do “green” businesses do? While they cloak themselves in talk of health and efficiency and economy, what they fundamentally do is cater to the “green” ideology of minimizing human impact on nature. As Alex Epstein writes in “The Industrial Manifesto,”

It is considered “green” to do less of anything industrial—from driving to flying to using a washing machine to using disposable diapers to consuming pretty much any modern product (there is now an attack on iPhones for being insufficiently “green” given the various materials that must be mined to make them).

In other words, what “green” businesses do at their core is decrease human prosperity and comfort–whether they are making a less durable water bottle or a less efficient form of energy. Solar panels require vast amounts of resources to manufacture and install, while producing significantly less energy than most substitutes.  So why do companies produce them? Why is there even a market for a product that is more expensive than alternatives?Some of the market comes from the well-heeled, who are willing to pay a “green” premium for more expensive electricity to assuage their guilt about industrial life. But on a large scale, when we are talking about trying to substitute radically inferior “green” forms of energy throughout the energy economy, the only way that green industries are able to survive is through government assistance. Whether through subsidies, tax incentives, or loan guarantees, government support is required to keep green businesses afloat.  One can assume with a fair amount of accuracy that governments support those industries that cannot attract willing investors and/or customers on their own. Companies creating value need no such assistance in attracting financing or in drumming up sales. We are often told that we, as taxpayers, need to support green technology because it is the way of the future. But this is implausible. Are we supposed to believe that the government can spot opportunities better than profit-seeking individuals?A potential entrepreneur might ask at this point: Why shouldn’t I capitalize on government support for green industry?  It is true that as long as the government continues to support these industries, money will likely accrue to those willing to take it. But what happens when the budget tightens, or when the people lose their taste for green? A business model based on destroying value cannot stand for long. Whereas a private business must cater to the self-interest of its customers, a green business must hope that the government largesse continues unabated. Customers will always be willing to buy if the price is right, but there is no right price for a value-destroying product once it is recognized as such.Solyndra’s failure reflects a general weakness in the solar industry, and in the “green business” movement, writ large.  Entrepreneurs in this field are not focused on value creation.  They are focused on their green mission, which requires offering customers less value than they could get from non-green sources.  They are not facilitating human functioning; they are impeding it.In order to be a green entrepreneur, you have to sell the public a piece of its own destruction.  The phenomenon reminds me of a scene in the fanciful young adult novel, The Phantom Tollbooth, by Norton Juster.  Sitting down to dinner in a strange and distant land, the book’s famished heroes become dumbstruck when they realize that the more they eat, the hungrier they get.  In this land, their host gleefully explains, “we have our meals when we’re full and eat until we’re hungry.  That way, when you don’t have anything at all, you have more than enough.”What remains to be seen is whether the American consumer will stop eating “green” food before he starves himself.