Thursday, December 2, 2010

10 Reasons Against Government Cleantech Funding...

...And Why None Are Persuasive

Tightening the belt on planet earth
Business and investors, as well as a significant portion of the general public, have taken a mostly skeptical view of government’s spending tax (or worse, borrowed) dollars on new technologies. It matters little which sector, or whether the funds are termed stimulus or investment, or whether funding is deemed short-term or some kind of “commitment” or even whether it is a response to a catastrophic emergency.

Such skepticism sometimes stems from inchoate reasons. Negative reactions can arise reflexively (“we need to control spending!”), from unexamined prejudices (“government spending is bad!”), or because of ideological biases (“all government spending is wasteful!”) Digging beyond slogans and sound bites, objections are of three basic kinds: (1) Cleantech isn’t important and shouldn’t be a priority; (2) Cleantech is important, but government should not be involved; and (3) Cleantech is important, but funding is not how government should be involved.

Further distillation yields 10 specific objections to government funding of cleantech:
  1. Other things are more important
  2. It’s a waste of money
  3. We cannot afford it
  4. It would increase the deficit
  5. Government would fund the wrong things
  6. Government is inefficient and wasteful
  7. Private enterprise should do it
  8. It distorts markets
  9. It’s unsustainable
  10. Other approaches are better
Are any of these objections compelling? A closer examination suggests not:

  1. Other things are more important. What things exactly? The consensus view from the just-completed election is that economic recovery from the Great Recession is today’s most important public policy priority. A root cause of our economic torpor is that the energy on which the economy critically depends is limited in ways classical economics no longer adequately model. Energy is no longer easy, cheap, abundant or elastically responsive as the economy changes but instead has become a powerful and frequently negative driver of the economy. Energy sourcing and use have social and environmental side effects that are increasingly hard to bear. Finally, our national security is dangerously dependent on energy security. Cleantech funding provides a near-term economic jolt even as it lays a foundation for a more sustainable energy future that is critical to a more structurally robust economy and a stronger nation.
  2. It’s a waste of money. If nothing’s more important, then it is hard to deem cleantech funding a waste of money. There are also many good reasons for it including: growing the economy, catalyzing private investment, boosting American competitiveness, creating jobs, increasing tax revenues, and providing public benefits such as sustainable community development, environmental protection and energy independence. No other spending choice does all these things. Because other choices do less, asserting that government funding of cleantech is wasteful is tantamount to the fringe position that all government spending is wasteful. This isn’t a serious objection.
  3. We cannot afford it. To the contrary, our economic vitality, energy security, and global competitiveness all require it—the fact is that we cannot afford not to fund cleantech. One of the most central roles of government is to respond to threats to our collective well-being, and a vigorous cleantech effort is the exactly appropriate response. What we truly cannot afford is to squander scarce resources on peripheral needs, ideological hobbyhorses or for initiatives that do not have as broad and energizing an impact.
  4. It would increase the deficit. Whether this is true or not is the subject of considerable debate amongst politicians and pundits. Economists, however, largely contend that the best and surest way to reduce the deficit, and the national debt which it increases, is to grow GDP, expanding the tax base and boosting tax revenues without having to raise rates. Cleantech investment can boost GDP and reduce the deficit. Cleantech is sometimes called the Third Industrial Revolution, and countries globally are all vying for the larger slices of the biggest economic pie of the 21st Century. And so what if the deficit did increase? The US has incurred temporary deficits and increased the national debt when circumstances required. This is just such a circumstance. What matters is the ratio of national debt to GDP; deficits matters little if GDP is growing at a faster pace. Anemic GDP growth is the real worry, and failing to compete in cleantech cedes robust GDP growth to our global competitors. Will we saddle ourselves with a technologically backward energy model economy and the laggard economy it institutionalizes?
  5. Government would fund the wrong things. While government cannot avoid picking winners and losers, a strong commitment to the right sector is still correct even if choices within the sector are not optimal. And we can optimize within the broader cleantech funding effort by (a) establishing the right strategic objectives; (b) delegating the implementation details down; (c) recognizing regional variation in resources and capabilities; (d) distributing our efforts broadly, avoiding the trap of thinking there is a silver bullet solution; and (e) employing metrics to evaluate, manage, and adjust the approach over time.
  6. Government is inefficient and wasteful. Any human enterprise, including government, can be, but it is hardly inevitable. It is specious to fret over potential inefficiency and waste in government, when the upshot, as noted above, is to delegitimize government in its entirety. This objection needs to be refocused into the prescriptive concern of whether government efforts can be more efficient, more productive, and better aligned with our national goals. Critics of governmental efficacy should focus their scrutiny on the vast subsidization of the dirty fossil industry or the financial industry, despite the already massive profits of each. Funding the nascent cleantech sector is much less wasteful than the expenditure of taxpayer funds on industries which are eminently able to stand on their own and which many think actively frustrate reaching solutions to our national problems.
  7. Private enterprise should do it. Private enterprise is necessary to the success of the cleantech revolution; however, its involvement is not sufficient. Free market bromides to the contrary notwithstanding, entrenched incumbents in the private sector are structured to choose their pecuniary self-interest over broader societal objectives. Change is a threat and they are generally disinterested unless they can control it. Markets are great, but are inefficient or indifferent, especially in this globalized era, at advancing the strategic objectives of any individual country. Only government can create the environment and conditions that encourage the formation of new economic engines and which promote the country’s larger interest. Private enterprise is also an imperfect funding source for early stage research and seed investment; even venture capital is historically focused on accelerating already proven technologies and business models. The result is a faddish tendency to make me-too investments rather than make the broad, distributed bets necessary to foster the true innovation that would lead to strategic success in the global economy.
  8. It distorts markets. True, but that’s exactly the point. Other governments are aggressively encouraging cleantech economies in their countries; to be competitive the US must do the same. The free market has no national allegiance, and without direct encouragement, the cleantech economy will take root overseas instead.
  9. It’s unsustainable. True again, but so what? Government funding should not go on indefinitely, and there is no reason for that anyway. American innovation remains a powerful advantage which can sustain the competitiveness of US companies far into the future. With clear strategic objectives and consistently applied metrics to measure and manage the effort, government involvement should diminish over time as the cleantech economy matures. Today, however, only joint public and private efforts can succeed in the greenrush to build the early infrastructure that ensures long-lasting success.
  10. Other approaches are better. Some argue that direct funding is not the best or most appropriate role for government involvement, and it is true that government must do more than just provide funding. Government must also provide the right environment, specifically a regulatory and permitting regimen consistent with the larger strategic objectives and the policy consistency and stability that allows private enterprise to be able to usefully assess investment risk. However, the argument that tax cuts should be used instead of direct government funding is not supported by experience. The futility of endless tax cuts has been conclusively shown, whereas the salutary effects of direct government investment are accepted across the political spectrum—by everyone from Nobel Prize-winning liberal economist Paul Krugman, to the non-partisan Congressional Budget Office, to top conservative Republican economist Mark Zandi. Tax cuts may be selectively useful, but they are not as effective as direct investment, and wholly inadequate as an ubiquitous substitute.
The public is generally skeptical to government funding of anything, and especially of late with the demagoguery promoting distrust of government and the deficit scolds in full throat. Attitudes change, however, when people directly feel the benefit:
The government is like that nerd who crashes a high school party. No one has any use for him... until they figure out he’s got a fake ID and can buy the beer.
The arguments against government of cleantech are not persuasive. Instead, the benefits of stronger government support would have lasting and powerful benefits to the country. Other countries are aggressively competing for these same benefits. We need to get serious and we need to get going. A closer look at what funding the cleantech sector needs and what is currently provided will be the subject of a future post.

This is a repost from the Northwest Cleantech Blog with minor changes for grammatical clarity.

No comments:

Post a Comment