On Friday, Sept. 23, executives from bankrupt solar firm Solyndra pleaded the Fifth in front of a Congressional oversight committee. The committee sought to probe how the company squandered a $535 million loan guarantee from the Department of Energy right before imploding. The episode has been one big embarrassment for President Barack Obama, as last year he touted Solyndra as a perfect example of a clean energy firm capable of creating high-tech, high-paying “green jobs.”
The Solyndra incident is a perfect example of government support for a company and/or industry gone wrong. It also clearly shows the damage that can be levied on taxpayers when the government tries to pick winners and fails. But perhaps more pernicious than the consequences of government support for a loser is when the government seemingly carries out a crusade against specific sectors of the economy, and even against specific companies.
Reviled and vilified industries such as big oil, tobacco and even restaurants all have come under scrutiny by the government in recent months, despite the fact that they sell legal products that consumers demand.
On the food front, the latest victim of government pressure is Darden Restaurants (NYSE:DRI), which operates Red Lobster, Olive Garden and Longhorn Steakhouse, among others. Earlier this month, the company announced it would reduce calories and sodium in its meals for children. The move by Darden comes not as a response to changing tastes by its customers, but rather as a result of pressure from public health officials and consumer advocates to cut the calories and improve the nutritional value of meals for kids.
Evidence of this pressure can be found in first lady Michelle Obama’s pet project, “Let’s Move,” a program she fronts that’s designed to combat childhood obesity. In fact, Obama actually was present at Darden’s media event in Washington, D.C., when the company announced the change in its restaurants’ kid’s menus. “I hope that parents will take full advantage of these kinds of new options,” Michelle Obama said at the event.
Now if that isn’t subtle pressure from the government, I don’t know what is. Will this kind of pressure be a negative for Darden shares? Probably not. However, one needs to ask what business it is of the first lady to pressure companies to change what they serve to their clients. The same principle is at work in the tobacco industry.
Like it or not, cigarettes are a legal product that consumers want. But that hasn’t stopped the U.S. Food and Drug Administration from attempting to require tobacco makers to place stronger warnings and graphic pictures on the top half of cigarette packages. The feds want to compel cigarette makers to put on their packages pictures of diseased lungs, a body on an autopsy table and a man blowing cigarette smoke out of a tracheostomy hole in his neck. The FDA also wants to compel cigarette makers to add the phrase “smoking can kill you” to each pack’s label.