Obama’s second term is the chance to turn lemons into lemonade. America has a lot of experience with that: Like rebuilding the U.S. infrastructure after WWII; or using the space race in the 1960s to drive innovation (we even had the side benefit of Tang). The big challenges now are mobility (transportation), energy (electricity), and water. That means they are also the big wealth opportunities. Why? At the core of each is insatiable consumer demand. We need look no further than Hurricane Sandy to see our dependence upon transportation fuel, electricity, and drinking water.
While we have just experienced two years of gridlock in Washington, there is a clear role for government, particularly in infrastructure. In the new bipartisan effort to compromise on the fiscal cliff in order to stimulate growth and create jobs, the question is, “How can the government now push us forward with ‘controlled chaos’?”
As an entrepreneur, I believe that “controlled chaos” of free markets drives economic growth. The government should set the “control” part by creating the rules of the game, no different than the rules in sports. The “chaos” is provided by the players, or the entrepreneurs, who drive businesses and industries. But, the rule-makers (government) cannot be players, or investors in businesses, as we saw in the highly publicized Solyndra case.
So, here are five things government can do to leverage mobility, energy, and water into economic growth:
The first solution is coordination. The infrastructure funders, governments, and other decision makers are not on board yet. And unlike the Internet and other recent innovations, this type of infrastructure requires consistent and equal participation ongoing, since all of the parties, including the government, have the ability to scuttle the deal.
An example is Sematech. Conceived in 1986, Sematech began operating in 1988 as a partnership between the U.S. Government and 14 U.S.-based semiconductor manufacturers. The goal of Sematech was to solve common manufacturing problems and regain U.S. competitiveness over Japan. Today its members represent about half of the worldwide chip market.
Entrepreneurs and investors need a roadmap. In electricity, water, and mobility the people who fund entrepreneurs will not put up sufficient capital (trillions of dollars) without a 5-to-10-year vision. We simply need a plan, and “All of the Above” is not a plan, but a recipe for confusion.
Some examples of what might work: Make it clear that meeting the Renewable Portfolio Standards and Efficiency Standards already passed at the state level will not destabilize the grid. Establish a working group to help the states implement the standards at the lowest cost. Further establish guidelines for Public Service Commissions on how to use standards to create grid infrastructure resilience in the wake of Hurricane Sandy. After 9/11, for example, we fortified our data systems with data redundancy as a security measure.
At the same time, we need to work on our aging drinking water facilities. The American Society of Civil Engineers believes that we have underinvestment by $55 billion. Create a plan and a pathway to solve this underinvestment.
We need fuel choice to be the other half of the equation, ending the hegemony of oil over transportation fuels. During the campaign, Romney and Obama both said that they believed that this is possible by 2020, but neither put forward a credible plan. It is time to do that. Increased CAFE standards are part of the solutions. But increased drilling for unconventional oil sources just ensures higher oil prices.
Remove all subsidies for legacy and mature infrastructure technologies to level the playing field. The large fossil fuel companies continue to corner the market based on strategically engineered subsidies that cost only a little but shift the playing field dramatically.
Put in place systems to help new technologies scale rapidly, with defined goals and sunset provisions after no more than 10 years so that they know the help they’re getting will eventually run out. California, Germany, and Japan have already done this for the renewable electricity industry.
Lead by using government buildings and land as a first mover to spur the kind of scale-up necessary to deploy technologies faster. Over time these technologies will pay for themselves but they need strong early supporters for the first contracts.
Infrastructure investment is the largest wealth creation opportunity on the planet. The World Bank estimates global infrastructure investment needs at least $35 trillion over the next 20 years. In the U.S. alone, the American Society of Civil Engineers estimates that critical infrastructure requires $2.2 trillion over the next five years.
There is some low hanging fruit. For example, the government can use free-market tools like the SuperESPC Contracts, power purchase agreements for electricity generation, and other proven contract structures to unlock $150 billion in federal government purchases in electricity, mobility, and water.
I am optimistic we will rebalance our priorities and match a lot more chaos with a little more government control during Obama’s second term. We need the Republican view that businesses should be unencumbered, and the Democratic view that the government has an important role. It is more than a balance of power, but a balance of control and chaos.