Before being nominated for Secretary of Energy, Nobel Prize-winner Steven Chu helped draft the Council on Competitiveness's 'A 100-Day Energy Action Plan for the 44th President of the United States.' The Council is a group of CEOs, university presidents and labor leaders devoted to America's prosperity. The Action Plan proposed the creation of a National Clean Energy Bank. A version of it has been included within the American Clean Energy and Security Act now in the House. The Clean Energy Bank is essential to deliver on President Obama's mandate to 'make sure that we are investing in what's required for long term growth.' The same goes for the Infrastructure Bank also now in Congress.
The sibling banks will move energy and infrastructure decisions away from the short-sighted earmark system and toward making sustainable carefully-planned investments in public works based upon the merits. In a time of budgetary crisis, the idea is that these government banks can achieve progressive goals on the cheap. Modest public subsidies can be used to leverage large amounts of private capital.
However, the infrastructure and energy banks must be vigilant to ensure that the public interest drives private investment decisions. Moreover, it is essential that the government banks do not presume that the private sector is the best vehicle for producing public goods. We must be mindful of the fact that our federal government is injecting enormous amounts of public money into private banks and AIG to address a market failure. Furthermore, by flooding money into the private financial institutions and under-capitalizing cities and states, we are distorting the market.
Unfortunately, the infrastructure and energy banks are being promoted mainly as ways of raising quick cash. We should worry when Reason Foundation, Howard Dean, Newt Gingrich, Ed Rendell, and Jeb Bush so readily reach consensus on this approach to recovery. It may be that the bipartisan progressive coalition is based more upon an appreciation of the power of subsidies and less on a shared concept of the public interest. Our recovery should not be another wave of the Reagan Revolution. In fact, our financial crisis itself has resulted in part from the hidden costs of privatization, which created incentives to under-invest in our public infrastructure for decades. Moreover, the fact that the financial figures and job creation numbers are being produced by TARP banks raises red flags.
Also worrisome is the fact that advocates for the Clean Energy Bank want to base it on the US Export-Import Bank and the Overseas Private Investment Corporation. These US government banks promote development abroad by giving subsidies to our firms. In an earlier post, I described the lawsuit recently settled between these banks, on the one hand, and a group of American cities and civil society organizations, on the other. The plaintiffs argued with some success that these government banks were subsidizing companies pursuing projects that dramatically aggravated global warming.
The discussion of the institutional design of the sibling Infrastructure Bank is no more reassuring. There, supporters are modeling it on the European Investment Bank, which promotes European integration through corporate subsidies. The European Bank, like the American export banks, has a mixed record, with successes and failures. It has opposed meaningful citizen participation in decisions and not effectively addressed power disparities on the Continent.
All of this is not to dissuade us from embracing both the energy and infrastructure banks. In fact, durable equitable recovery depends upon having these banks on line quickly. However, they must be publicly controlled institutions. Moreover, private actors who receive government subsidies must imbibe the public interest. Our siblings banks must be judged based upon their effectiveness in producing public goods.