When ITWeb reported that Optimal Energy was to be shut down, readers appeared to be united in their disappointment. The company had been given hundreds of millions to build an electric vehicle called the Joule, but failed to attract the investment it said it needed to put the concept into production.
Reader comments largely blamed the Industrial Development Corporation (IDC) for its lack of vision, with a few swipes at the private sector for not meeting Optimal Energy's investment demands.
“Pity the IDC lacks the vision - could have been a great project and created thousands of jobs,” wrote Diappointed (sic). “I guess this expertise will now go where the rest of our bright engineers and scientists went - overseas.”
“The issue is not whether or not the Joule would have been successful or not - the key thing is that a message would have gone out to innovators to apply themselves - all this does is make it that much harder for entrepreneurs to succeed in this country. Investment is about putting in the effort and the money for a long-term gain - not every project has to succeed. We have so much potential here for innovation, if only it was matched by a government and business sector (the local sector are the biggest bunch of wimps and morons on the planet when it comes to fuelling innovation) prepared to put faith in the local capability. Both, unfortunately, are more interested in the short-term lining of their own pockets than actually looking at long-term, sustainable solutions,” declared Bengine. “Here's a big raspberry at SA government and SA business. You are a bunch of nancy boys.”
As I pointed out in a column in the June 2012 issue of ITWeb Brainstorm, however, such emotional sentiments miss the point. Of course, the issue is whether or not the Joule would have been successful. It makes sense to take a risk on a project you think might be successful. It makes no sense to fund a project that you know will be unsuccessful. That's why no investors were crazy enough to bite. It's great to see that the government, despite tolerating failure, delays and ever-wilder dreams from Optimal Energy CEO Kobus Meiring and his team, eventually ran out of patience too.
In the case of the Joule, the demands for investment skyrocketed from half a billion to R9 billion. The projected sales rose from 4 000 to 50 000, in a cynical ploy to qualify for tax breaks and subsidies. The project was already many years behind schedule. All this happened before they even started production. Imagine the budget overruns and delays once the hard work actually started? We'd get an antiquated, uncompetitive dud at a cost that would make the arms deal look cheap. Maybe. One day. And if we did, it would never pay back the original “investment”.
That's not investing. That's gambling.
They were cheerleaders of the Joule, blinded by how cool the technology looked.
Ivo Vegter, ITWeb contributor
Sadly, the media largely failed in its duty to be critical of how the government spends our money. For the most part, they were cheerleaders of the Joule, blinded by how cool the technology looked. They proudly waved their little South African flags, regurgitating press releases without even thinking of questioning the rapidly escalating figures. No wonder they end up with readers who think white elephants are an investment in “long-term, sustainable solutions”.
Unprofitable projects are, by definition, unsustainable. By sucking up endless billions, they make South Africa poorer, not richer. When the billions consist of tax money that might otherwise be spent on education or policing or healthcare, the cost is disproportionately borne by the poor. And as for the expertise, we shouldn't flatter ourselves. Nobody needs our expertise at burning money. The world has enough trouble with unsustainable government spending as it is.
The requirement that production be profitable isn't just a greedy need on the part of companies to “line their own pockets”. It means you get more out than you put in. It means production is worth the effort. It means that building it is “long-term, sustainable”. It means that the economy grows, rather than shrinking. It means we're getting richer instead of poorer.
Imagine the same logic on a smaller scale. You could learn a lot by paying a company to work for them, instead of asking them to pay you. Over the years, you'd develop a lot of expertise, and benefit that company greatly. But unless you're leeching off someone else to fund your cost of living, it's going to make you very poor very quickly. It is not “long-term, sustainable” to starve while you're supposedly investing in your future.
The father of modern economics, Adam Smith, wrote: “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”
Profitability is not just a trivial afterthought. We ought to thank the IDC for cutting our losses on the Joule at a mere R300 million. We wasted more than R8 billion on the Rooivalk attack helicopter, the previous white elephant Meiring was associated with.
“They haven't sold any of those,” said Optimal Energy's marketing director, Diana Blake, of the Rooivalk, “but you shouldn't hold that against them.”
Why, yes, you should. And I told you so. Let's not give Meiring any more of our money to waste on government-funded boondoggles, okay? Burning cash on pipe dreams is not cool.
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