Making the Green Industries Shovel-Ready for Obama’s Jobs Program

When President-elect Barack Obama announced his vast jobs program for everything from bridges to green technology, the New York Times sniffed the “plan, if enacted, would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them.”

If you like Obama’s plan, your first reaction to this put-down might be to deny it. Oh, no, this isn’t “industrial policy!” Perish the thought. But that reaction just shows how public dialogue has so thoroughly trashed the idea of public investment and planning in the last 40 years since the ascendance of free market ideologies.

A second thought might be: Why wouldn’t you want the government picking winners like jet planes, computers, and the internet, what with the private sector picking losers like sub-prime mortgage securities and SUVs? Not that you can’t find plentiful examples to the contrary on both sides. What it really comes down to is that the current economic crisis should be a teaching moment when we finally understand that you need intelligent investment from both the private and the public sectors. Myself and a growing number of others welcome back Keynes, the British economist who was the guru of the mixed economy. The sweep of 20th century history should have shown us that the extremes of the continuum — Soviet style command economies on one end and pure neo-liberal self-regulating free market economies on the other — were nightmares and dreams.

“The great fallacy of the market myth,” writes economist James K. Galbraith in his recent book The Predator State, “lies simply in the belief, for which no foundation is economics exists, that market can think ahead.”

“Markets distribute today’s production to consumers. This they do reasonably well…” says Galbraith. “Planning, properly conceived, deals with the use of today’s resources to meet tomorrow’s needs.” Thus, the marketplace has not been able to solve the multi-fold problem of dependence on fossil fuels despite the 50 years of rhetoric which established it as an urgent economic, environmental, and national security threat. In order to maintain the U.S. as a global leader in advanced technology we have had to make do with trickle-down from the national investment in Defense technology because there was reliable bi-partisan consensus for only that. Despite this oblique approach, we’ve done remarkably well. Until now.

Perhaps only the prospect of epic economic ruin could trump military hardware as a target for public investment. The President-elect has committed himself to spend billions on job-creating public infrastructure projects, on a scale to rival the building of the interstate highway system a half century ago. The green part of it that would include mass transit, updated and expanded electrical grids, renewable energy, alternatives fuels, and energy efficiency.

Media reports have said that the Obama transition team is working with Congress on a jobs recovery program that could cost $400 to $700 billion, with the green jobs portion at perhaps $100 billion. This is the estimated cost of a likely blueprint for the investment that is provided by the Democratic think tank Center for American Progress, founded by John Podesta, the co-chair of Mr. Obama’s transition team. The report, prepared by University of Massachusetts researchers, estimated that two million good paying jobs (at least $16 an hour) would be created in the first two years of the investment, with a big impact on the national unemployment rate. As envisioned in this report, $50 billion would go for tax credits to buoy financing in the marketplace; $46 billion to direct government spending for public building retrofits, expansion of mass transit, freight rail, smart electrical grid systems, and “new investments in renewable energy,” and $4 billion to federal loan guarantees. These would strengthen current programs, which, while important in building the growing renewable energy industry we have, hardly constitute a blueprint for a new energy economy.

When the President-elect recently met with the nation’s governors, they told him the states have $136 billion worth of road, bridge, water and other projects “shovel ready” to go as soon as money becomes available.

This poses a question for the green industries: What are its shovel-ready projects?

I see two inadequately funded categories:

(1) Risk-taking capital for entrepreneurs who can’t get the money they need to bring products to market or to grow. For all the talk about the new green economy being next big thing for tech investment, venture capital and other risk-taking investments have come forth on nothing like the scale which is needed to provide the jobs Mr. Obama is looking for. And,

(2) Green technology research, development, and demonstration, which has been inadequate to the task through both Republican and Democratic administrations in the last three decades. Surely these are the keys to developing both the technologies and the professional talent the U.S. will need to recover its squandered lead in renewable energy. To work out a coherent plan for the investment it is hard to see how the President-elect could have chosen anyone better for Secretary of Energy than Steven Chu, the Nobel-winning physicist who directs the Lawrence Berkeley National Laboratory.

Existing businesses, business plans, and research proposals are, I would say, shovel ready. Even before Mr. Obama asks the question we need to be ready with the answer: If green researchers and entrepreneurs had all the capital they need, how quickly could they make technologies mature and large scale markets develop? It’s the Apollo and World War II question. Until now the answer as always been: as fast as the marketplace allows it.

In an earlier column, I raised questions about whether risk-taking on new technologies should be left mainly to venture capitalists. Venture Capitalist Victor W. Hwang, managing director of T2 Venture Capital which invests in academic research spin-offs, offers a more textured view on the issue in a recent posting on blog.

“Government stimulus of innovation can be extraordinarily useful,” says Hwang, “but only if done in a smart way, that truly understands the nature of innovation and how to affect its multiple input processes… So, what’s ‘broken’ in the innovation system? It is not necessarily a lack of technologies. While there are always more scientific discoveries to be made, there is already today a backlog of scientific innovation that is waiting be to be… turned into commercial products. Therefore, while increasing funding for scientific research can be useful, such action alone does not go to the heart of the problem, which is that commercialization requires a bunch of other things to work in concert.

To unleash green innovation Hwang suggests government get in the way in the following smart ways:

1. Capital formation: create a “fund of funds,” a pool of capital that invests in smaller venture capital funds addressing underserved markets, including geographical areas, sectors, and stages of development. Innovation can happen, he suggests, in places outside of California and greater Boston.

2. Marry entrepreurial skills with technology: Hwang would put “entrepreneurs-in-residence” in the heart of research institutions to find these breakthroughs and turn them into viable commercial products, a “geek version of Americorps.” The Department of Energy has launched a modest program of this kind.

3. Update the SBIR: The Small Business Innovation Research program “is the world’s role model for how government can fund proof-of-concept projects to jump the commercialization gap,” says Hwang. But it needs a drastic make-over, more money, and continuous evaluation of good ideas.

4. Take more risk: Government should take the advice often given to entrepreneurs: don’t be afraid to fail. “There are some risks that may be worth taking from a societal standpoint but that no single venture capital firm would take.” An existing model, according to Hwang, is NIST’s Technology Innovation Program (TIP). “…there is no other government program with the institutional expertise to roll the dice competently on big, audacious projects. TIP should be funded generously.”

5. Push federally funded research out of the lab and into the marketplace: Despite the growing interest at universities in promoting spin-offs of their research, Hwang finds that they “usually move slowly or not at all, since university officials have nothing to gain and much to lose by moving as quickly as the market demands.” Hwang thinks government should toughen the Bayh-Dole Act which gives universities the right to commercialize intellectual property generated by federally-funded research. In theory, the law requires funding recipients to use the commercialization right or lose it. New teeth and deadlines for action are needed.

For those of us who believe that a green economy is not just the latest investment opportunity but an imperative one, Mr. Obama’s remarks and proposals give us hope, but hope that is not audacious enough. We are still but a tic on a “to do” list even if we’ve moved up the list.

Tom Friedman of the New York Times, the green economy’s indispensable cheerleader, summed it up in his recent book Hot, Flat, and Crowded: “The main task of the current Department of Energy — most people don’t realize — is watching over our nuclear weapons stockpile, not guiding a green revolution. We need a real Department of Energy that oversees all energy policy the way an effective Department of Defense oversees war.” Actually, we hope more effective, Dr. Chu.

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Mark Braly was energy advisor to the mayor of Los Angeles during the 70s energy shock, author of the city's prize-winning energy plan, and president of a State of California non-profit corporation which made loans to renewable energy businesses. Now retired, he is a City of Davis, California, planning commissioner working on the city's zero-carbon program. He is president of the non-profit Valley Climate Action Center.

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