THE BLOG
09/12/2011 04:10 pm ET | Updated Nov 12, 2011

What Obama and Global Governments Can Do to Promote Growth

I recently read a fascinating book, The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong With America by Nick Gillespie and Matt Welch. In it, the authors take the view that if the duopoly government of Republicans and Democrats were to get out of the way, American entrepreneurial free market thinking can solve some of our biggest problems.

Particularly in infrastructure, I agree with the book's hard-line premise that the two-parties are both "colluding in a power-sharing agreement at the expense of the rest of us." While the system is not perfect, and government consistently gets in the way and oversteps its bounds, there is a role for government that is clear -- particularly in infrastructure.

As an entrepreneur myself, I believe that "controlled chaos" of free markets is in fact how we solve many of life's tough challenges. The "control" part is, and can only be, set by the government. The "chaos" has, and is, provided by entrepreneurs who drive businesses and industries.

Think of major successes like the explosion of growth in the wireless communications industries. After all, government determined the frequency bands. Or, the Internet becoming an information superhighway -- the U.S. Government created it and tested it on itself before it changed our lives. But, in both examples, the change also needed the "chaos" of entrepreneurs to happen.

The big challenges, and therefore wealth creating opportunities, are mobility, energy and water -- three areas where the "controlled" part of chaos is vitally important. These areas have seen extraordinary innovation and a bit too much chaos.

To compete and to solve these problems we need the control part to come from a public-private partnership.

An example is SEMATECH. SEMATECH, conceived in 1986, began operating in 1988 as a partnership between the U.S. Government and 14 U.S.-based semiconductor manufacturers. At the time, the Japanese had surpassed the U.S. semiconductor industry. SEMATECH's purpose was to solve common manufacturing problems and regain U.S. competitiveness. Today its members represent about half of the worldwide chip market.

So, what can government do to help solve our big issues of mobility, energy and water?

The first challenge is coordination. The infrastructure funders, governments, and other decision makers are not on board yet. And unlike the Internet and other recent innovations, infrastructure requires consistent and equal participation on an ongoing basis since all of the parties have the ability to scuttle the deal.

Once coordinated, there are several roles of government:

1) Planning is another word for "controlled" in controlled chaos. Entrepreneurs and investors need a roadmap. In electricity, water, and mobility the people who fund entrepreneurs will simply not put up sufficient capital ($trillions) without a 5-10 year vision for where we are headed. This includes technical standards, data to create lending standards, and an overall vision supported by practitioners.

2) 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 which cost only a little but shift the playing field.

3) Put in place scale mechanisms for new technologies, with defined goals and sunset provisions after no more than 10 years -- California, Germany and Japan have done this well for the renewable electricity industry.

4) Lead by example by using government buildings and land as a first mover to spur the kind of scale up necessary to move things along faster -- often times these technologies pay for themselves but need strong early supporters for the first contracts.

The opportunity to do this correctly is huge and has already been tested at scale. If we are coordinated with defined roles, we will create industry and jobs. But, even more important is that we will be addressing our big problems.

All of this leads to what we all know already: This next revolution is the largest wealth creation opportunity on the planet. The World Bank has put global infrastructure investment needs at U.S.$ 35 trillion over the next 20 years - not that they have a clue how to implement it. In the U.S. alone, the American Society of Civil Engineers estimated that critical infrastructure required U.S.$ 2.2 trillion over the next five years.

The Libertarian in me wonders why the government refuses to fully use the free market tools it has like the SuperESPC Contracts, power purchase agreements for electricity generation, and other well tested contract structures to immediately unlock $150B in Federal Government purchases in electricity, mobility, and water. When I suggested this to a room full of respected cleantech advocates, they just laughed and told me that government doesn't work that well in using its own tools.

In a time of fiscal austerity, maybe we should rebalance our priorities and match a lot more chaos with a little more government control.