Crony capitalism is alive and well in today’s America. It of course continues to flourish in political machine cities like Detroit, but it’s found higher up the political food chain too. Two excellent articles from this week illustrate the point beautifully.Take first the case of Newark mayor and Senate hopeful Cory Booker, whose startup, Waywire, got some attention in the New York Times earlier this week. Founded by Booker, Ashton Kutcher’s social media guru Sarah Ross, and former Gilt Groupe executive Nathan Richardson, the company racked up some high profile investors early on due to Booker’s involvement. Many of Waywire’s investors and board members it turns out also contributed significantly to Booker’s run mayoral campaign and are continuing to do so for his Senate run.Booker was rewarded for his efforts by getting the largest stake in the company, even though he’s not being expected to run it at all. It doesn’t look good:
The enhanced [ownership] percentage is troubling to some ethics watchdogs. “If you’re getting a large percentage just because you’re a well-known political figure, that’s a little bit problematic,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. “People tend to prefer their political figures not to be cashing in on their positions of public trust.”And while Mr. Booker said that investors had been drawn to Waywire because it represented a powerful idea, the company has clearly struggled to find its purpose: it has been variously touted as a site for video-hungry teenagers and a platform to bring people of political passion together. It began with grand ambitions of original content creation and a newsroom in Lower Manhattan; after false starts and technical hurdles, it recently shifted away from generating its own video to focus on getting video from elsewhere and on refining the mechanics of its Web platform, laying off at least eight employees and vacating its temporary Manhattan office space.
Booker’s stake in the company, which he initially failed to disclose in his campaign financial filings, is valued between $1 million and $5 million. As the Columbia Journalism Review tartly remarked, this “is what 21st century corruption looks like.”Next up is a story in today’s Washington Post digging in to former Democratic National Committee chairman and Virginia governor hopeful Terry McAuliffe’s electric car startup, GreenTech. The company seems to be struggling with production problems and appears to be having trouble with its claimed battery performance. But it’s more than just a flailing business venture: there seems to be other murky business afoot.
Private financing would rely heavily on a U.S. government program, known as EB-5, which allows foreign entrepreneurs to obtain conditional resident status by making substantial investments in the U.S. economy, according to e-mails from the company and the government. The program, which is managed by U.S. Citizenship and Immigration Services, allows foreigners who invest $1 million — or $500,000 in rural or other targeted areas — to receive a conditional visa and apply eventually for a green card indicating permanent-resident status.GreenTech’s foreign funds are pooled and managed by Gulf Coast Funds Management, which received federal approval to manage EB-5 investments in Mississippi and Louisiana, including GreenTech’s. Gulf Coast Funds Management has headquarters in the same Tysons Corner complex that houses GreenTech’s corporate offices. The financial firm is owned by Wang, and its chief executive is Anthony Rodham, brother of former secretary of state Hillary Rodham Clinton.The Department of Homeland Security’s inspector general and Congress are trying to determine whether the director of the USCIS improperly aided GreenTech in obtaining a visa for a foreign investor after lobbying by McAuliffe and Rodham. The Securities and Exchange Commission is also investigating GreenTech and Gulf Coast Funds Management and their conduct in soliciting foreign investors, according to law enforcement documents and company officials.
The company itself is reportedly barely functioning. Three former employees independently told the Post that GreenTech management would have workers pretend that they were assembling cars when potential investors visited, usually from China. One of these employees said, “It just seemed like they were more interested in getting green cards than in making an investment. They emphasized that a lot.”The McAuliffe story is the natural termination of the Blair/Clinton Third Way politics—the harnessing of the power of finance capital and putting it to social ends through creative regulatory fine tuning. Unless you are very, very careful, you end up with a system of total crony capitalism, where ‘entrepreneurs’ and ‘do-gooders’ and professional politicians are swapping favors and money big time. This is the Al Gore road to getting rich through green investments, which McAuliffe seems to have tried to follow on a smaller scale. It’s also part of what drove the housing bubble.Both stories are long and have many moving parts, but are very well told and are worthy of your attention. We encourage you to read them both in their entirety. And keep them in mind as Cory Booker and Terry McAuliffe try to wend their way upwards through our political system.