Those who think the government shouldn't be promoting energy innovation have short memories.
The federal government's satellite and ballistic missile program spillovers are what brought us Silicon Valley. The energy program spillovers are going to land someplace else. Bringing about a technological and industrial revolution requires a huge commitment of collective resources as well as private initiative. It requires fundamental research, well ahead of the possibility of commercialization. It requires a large, early market to generate scale economies, allowing the cost of the devices to drop far enough that ordinary people can afford them, exactly after the pattern of the semiconductor industry.
That's what's going on right now — not in the United States, but in Abu Dhabi. Afloat on a sea of oil, the tiny Gulf Arab state has committed itself to the development and commercialization of non-fossil-fuel energy sources. It is building the world's first carbon-neutral city for 40,000 residents plus business, industry and educational facilities.
The city is called Masdar. It will be powered by the sun and converted wastes, cooled in part by updated versions of traditional architecture, and transport will be provided by programmable, driverless electric people movers. The city is the most visible part of a $15 billion-plus initiative of Abu Dhabi government to leapfrog everyone else in creating what will certainly be some of the most critical technologies of our century. Its first denizens include the Masdar Institute of Science and Technology (MIST), a graduate research and training operation developed in partnership with MIT. A venture capital arm will fund start-ups involved in clean energy and energy efficiency, capitalizing on technologies developed at MIST. Major multinational corporations such as GE and Siemens have committed to building a presence there.
Masdar will be the place that incubates many new energy technologies to scale. That's important. We know how to equip individual buildings with solar panels, heat exchangers, environmental controls, thermal glass and the like. It's not cheap, but we know how to do it. Scaling up to a whole city — even just a whole neighborhood — introduces tremendous complexities and uncertainties. Masdar itself is not going to be the city of the future; it's in an odd place, and it will undoubtedly house mostly wealthy people. What it will be is a thoroughly wired producer of huge amounts of data about how different technologies and processes work separately and as part of complex systems. It is a giant, extremely expensive experiment, much like the first reconnaissance satellite or the first moon landing, and it is likely to have similar technology spillovers.
Every iconic technology of the second half of the 20th century was based on the integrated circuits whose birth was midwifed by the U.S. government. The federal government financed the research and development and constituted essentially the entire market for the early semiconductor devices that went into the satellite reconnaissance program, the ballistic missile program and the space program — and thence into our daily lives. Because it was such a large and rich market, it could afford the high prices of the early generations of devices until they could start to be mass produced cheaply and efficiently and end up in an astonishing array of consumer goods.
Everyone who thinks the federal government is an unmitigated drag on the economy should right now give up their cell phones, email, their laptops, the Internet, their car's navigation system, their computer games, their Excel spreadsheets, and any number of other devices and programs that make such a huge difference in their lives. Stop using them right now.
In short, being on the leading edge of this industrial revolution absolutely requires significant government investment. It is true that the government does not always invest its resources wisely — Solyndra is an excellent example. On the other hand, the deregulated market brought us Enron. On a scale of investment strategies that destroy value and do real harm to large numbers of people, Enron wins going away. There is room for debate about how, exactly, the government should engage with this vital sector — supporting research and development and buying the expensive early generations of output until the scale economies kick in are perhaps better options than commitments to individual firms — but engage it must.
Sacrificing everything to a tax-free balanced budget is a bad idea for a lot of reasons. One of them surely is that we need the market and the government to work together, as they have done so well in the past, to ensure our place in the global economy of the 21st century.