"Beyond Boom and Bust: Putting Clean Tech on a Path to Subsidy Independence"

Published in April 2012 by scholars at the Breakthrough Institute, the Brookings Institution, and the World Resources Institute. "Beyond Boom and Bust" documents the federal spending cliff faced by clean energy markets over 2009-2014, and offers a set of recommendations to strengthen American clean energy policy, improve the national energy innovation system, and reorient clean tech deployment incentives to prioritize cost reductions and performance improvements. The widely acclaimed report, which was endorsed by the New York Times and the Washington Post, was the product of 2011 Breakthrough Generation research cataloguing the programs and expenditure levels targeting clean tech in the United States and several European nations. This research offered the first comprehensive assessment of American clean tech spending, and has been cited by numerous experts to illustrate the inherent risks to clean energy markets that remain dependent on federal subsidies.

"Rising Tigers, Sleeping Giant"

Published in November of 2009, "Rising Tigers, Sleeping Giant," was the first comprehensive assessment of the competitive position of the United States in the global clean energy race. It compared recent clean energy trends, as well as national clean energy policy frameworks, of China, Japan, South Korea, and the United States and found that the United States is lagging far behind its economic rivals in the new growth industry. The report began as a group project during the 2009 Breakthrough Generation fellowship.

The report was released in Washington, D.C. at an event hosted by the Senate Energy Committee. It was widely covered in the press both in the United States and abroad, including in the New York Times, Financial Times, and Wall St. Journal. You can read news stories about the report here.

"Where Good Technologies Come From: Case Studies in American Innovation"
Published in April of 2009 and re-released in December 2010 with additional research, "Where Good Technologies Come From" illuminates the stories behind the invention and diffusion of fifteen technologies that are everyday facets of our modern lives and offers a new look at government involvement in technological development. The report shows that public investment and active government support has been one of the greatest forces behind the nation's technology development and economic growth.

The report, which was a product of the 2008 Breakthrough Generation summer fellowship program, was recently cited in a Newsweek cover story, written by Fareed Zakaria, on innovation in America and around the world.

"National Energy Education Act (NEEA)"
Published in July 2008, the National Energy Education Act proposal--akin to the National Defense Education Act of 1958--calls for a comprehensive public investment package to train a new generation of innovators in strategic energy-related fields. The proposal was featured in op-eds published by the San Francisco Chronicle and the Baltimore Sun, and influenced the development of President Obama's RE-ENERGYSE energy education initiative.

2012

• "Advanced Nuclear Tech Assesment." Fellows completed a thorough survey of next generation nuclear technologies under development and put together a comprehensive guide. Through a series of interviews with nuclear developers and energy policy experts, fellows analyzed which technologies were the most mature and what significant technological hurdles exist.

• “Political Feasibility of Nuclear Power.” Fellows created a set of historical case studies that asked why countries first develop nuclear power, looking at the post-WWII boom and recent trends in Asia. We found the main drivers were mainly economic and natural resource related. Through an extensive literature review and statistical analysis, fellows were able to identify important factors that drive or restrain development of nuclear power.
• "Deployment 2.0." On the heels of Breakthrough's widely-acclaimed 2012 report "Beyond Boom and Bust," the Energy and Climate program set out to study and recommend policy reforms to major US clean tech deployment programs. In particular, Breakthrough Generation fellows evaluated federal tax policy support and state-level renewable portfolio standards regulation to identify best practices, highlight structural design weaknesses, and suggest reforms that optimize deployment policy's effects on technological innovation.
• "Carbon Pricing Revisited." Fellows examined the most recent literature on carbon pricing, both theoretical and empirical. The project was designed to evaluate carbon pricing's effects on global and national emissions mitigation; technological innovation; deployment of clean energy technologies; and government revenues and taxation policies.
• "Scenarios for Global Agriculture." Agriculture is the primary human use of land and the largest driver of habitat loss worldwide. At the same time, demand for food is set to nearly double by 2050. The way in which global agriculture responds to this increased demand is therefore a defining challenge for conservation this century. In this project, Generation fellows used FAO data to construct a set of scenarios for food demand and agricultural efficiency by 2050 in order to highlight key levers and estimate the scope for innovation and diffusion of agricultural technologies and best practice.

• "Growth theories in context." There is little consensus among economists about the sources of long-term economic growth. The Generation fellow working with the Economic Growth and Innovation Program sought to put these disagreements in context by approaching the questions from a more sociological and historical perspective. The project involved a review of the most recent literature on the history of economic thought, which laid the groundwork for a critique of what is today the dominant ‘neoclassical’ paradigm.

2011

• "The Coming Clean Tech Crash," researched the upcoming collapse of key clean energy policies and subsidies in the United States, United Kingdom, Spain, Italy, and Germany, to explore the likely impact on clean energy markets worldwide. This research led directly to the 2012 report "Beyond Boom and Bust."


• "Smart Deployment: Clean Energy Deployment Policies to Accelerate Innovation and Cost Reductions." Building on research by 2009 Fellows, this project examined case studies of historical cost reductions and innovation in microchips, jet engines, and solar panels in order to develop a set of key policy design criteria for clean energy deployment policies effective at driving cost reductions in maturing technologies. These criteria were then used to critically examine conventional clean energy policies, including feed-in tariffs, renewable portfolio standards or renewable energy obligations, and tax credit policies, and to develop more effective new policy recommendations. 


• "Power to the People or People to the Power? Effective Strategies for Energy Poverty Alleviation." Building on research by 2010 Fellows, this project continued to explore effective strategies and policies to expand access to modern energy sources to the 1.3 billion people worldwide lacking electricity access and the more than 2 billion burning dirty and primitive fuels for cooking and heating.


• "Is Carbon Pricing Really Economically Optimal? Alternative Policies for Efficient Decarbonization of Energy Supplies." This project developed a simplified partial equilibrium economic model to explore the economic efficiency and deadweight economic losses incurred by carbon pricing and clean energy investment strategies to drive carbon reductions in energy sectors.


• "Conservation in the Anthropocene" looked at the evolution of theory and practice in nature conservation over the past few decades, tracing the rise of cost-benefit analysis and economic approaches, as well as analyzing arguments and evidence for global environmental sustainability. This work laid the foundation for the most recent addition to Breakthrough's repertoire, the Conservation Program.

2010

• "Energy Innovation Tracker" (EIT) is a non-profit project whose goal is to provide accurate data on US energy innovation spending. The initial target of the project is spending by the federal government, and the project may expand to include other sources of innovation funding. A good summary of the work to date is here.


• "Modeling Experience Curves," a project to develop a two-factor "experience curve" model used to explore the public investments required to drive deployment and accelerate cost reductions for maturing clean energy technologies. This research informed the development of Breakthrough's recommendations for smarter clean energy deployment policies (as appearing in the 2010 report "Post-Partisan Power" and other publications).


• "Case Studies in Energy Poverty Alleviation" examined the national strategies to expand energy access pursued by China, India, Brazil, South Africa, and Ethiopia and developed key lessons for energy poverty alleviation policy. The research contributed to a forthcoming report from the Breakthrough Energy and Climate Program.


• "Transforming Transportation," a project to model how quickly low-carbon vehicle fuels and pathways can transform the on-road vehicle fleet in the United States. Included modeling and key background research on low-carbon fuel and vehicle options (including biofuels and plug-in and electric vehicles).


• "Building a Green Economy," a project to develop a new economic theory for creating a clean energy economy and understanding its implications for economic and energy policy. The research contributed to "Manufacturing Growth," a Breakthrough Institute report on the importance of advanced manufacturing, and influenced Breakthrough's ongoing work on the clean economy.


• "Assessing the Threat of Terrorist Groups" analyzed eight different groups from the Irish Republican Army to Lakshar-e-Taiba to determine their similarities and differences in terms of goals, strategies, and tactics. This work was used as a backgrounder for a major Science of Security report: "After Al Qaeda: Assessing the Threat of Hirabi Terrorism"


• "Modernization as Liberation Theology," the product of research by Breakthrough fellow Jerome Roos with co-founders Michael Shellenberger and Ted Nordhaus, is an original article which was later published under the title "Evolve" in the September/October 2011 issue of Orion Magazine and which will also feature in the second issue of the Breakthrough Journal. The research also provided input to a presentation made by Michael and Ted at the "Protecting Nature or Saving Creation? Ecological Conflicts and Religious Passions" conference in Venice in September 2010.

2009

• "Rising Tigers, Sleeping Giant." The first comprehensive assessment of the competitive position of the United States in the global clean energy race. The report was unveiled at a briefing hosted by the staff of the Senate Energy and Natural Resources Committee and was widely cited in the press, including the New York Times, Time Magazine, Financial Times, and the Wall Street Journal.


• "Case Studies in Decarbonization: the Success of Direct Government Investment to Transform Energy Supply" explored the historical efforts of Sweden, France, Japan, Germany, the United Kingdom, and the United States to transform energy supplies and improve energy efficiency to reduce fossil fuel use. The internal research report found that the most rapid decarbonization rates (in Sweden and France) were achieved via major public investments in the deployment of large-scale zero-carbon energy sources (e.g. nuclear and hydro power).


• "Inside the Experience Curve: Accelerating Innovation and Cost Reductions in Energy Technologies," researched key technology case studies to identify the causal factors behind the steady historical cost reductions known as "learning curves" or "experience curves." The internal research report has been foundational to the development of Breakthrough Institute's recommendations for smarter clean energy deployment policies (as appearing in the 2010 report "Post-Partisan Power" and other publications).

2008

• "Where Good Technologies Come From: Case Studies in American Innovation" Documents how the history of American innovation is one of active partnership between the public and private sectors, a partnership that has been key to developing breakthrough technologies that have driven generations of economic prosperity. The New York Times, Newsweek, and Atlantic Magazine each featured the report, and President Obama cited a number of its case studies in his 2011 State of the Union Address.


• "National Energy Education Act" Proposes a public investment initiative to train a new generation of innovators in strategic energy-related fields -- akin to the National Defense Education Act that trained scientists and engineers to win the space race and subsequently build the Internet Revolution. The proposal was featured in op-eds published by the San Francisco Chronicle and the Baltimore Sun and influenced the development of President Obama's RE-ENERGYSE energy education initiative.


• "An Inspiring Truth," a project to explore and develop effective communication strategies to inspire popular support for public investment in clean energy innovation. 2008 Fellows Molly Tsongas and Alisha Fowler went on to apply lessons learned from to project in the development of the Alliance for Climate Education's award winning live multimedia presentations on climate science and solutions.


• "Campus InPower," a national training program that helps student organizers create funding mechanisms to pay for large-scale sustainability projects on their campuses. Launched by 2008 Fellow Rachel Barge, the award winning project (recipient of a Clinton Global Initiative-University Award and Wild Grant) was incubated during the 2008 program with key program research and materials created by 2008 Fellow Joanna Calabrese.


• "Communicating National Security Strategies." 2008 Fellow Adam Rodriques assisted Breakthrough Institute staff on a project to develop a psychologically-resonant national security strategy for progressives. The research informed the development of Breakthrough Institute's unique "Science of Security" project.

2007

• "Fast, Clean, & Cheap: Cutting Global Warming's Gordian Knot," a foundational energy innovation policy paper published by the Harvard Law and Policy Review. Breakthrough Institute research fellows and Breakthrough Generation co-founders Teryn Norris and Aden Van Noppen contributed key research and writing the paper.

The Breakthrough Dialog began with a very interesting idea, that of second modern risk, which was not fully fleshed out. At the heart of second modernity is the idea that humanity has become responsible for its own fate. Thanks to the power of science and technology, we have banished the ancient gods and forces of nature. Food, shelter, and physical security are all assured in the first world, and so humanity has directed its efforts to fulfilling post-material needs for status, power, and a moral society. In many ways, this is a zero-sum game; unlike material goods, status and power cannot be increased, only redistributed. Different cultures have profoundly different concepts of morality. For all our efforts to improve the second modern condition, it seems that the best we can do is run to stay in place. Post-material failure is one kind of second modern risk.

But while people worry about their job security, and their child's chances of getting into Harvard, and what their neighbors are up too, second modernity has its own apocalyptic horsemen. Flood, famine, fire and plague are primitive problems. In their place, we have substituted the business cycle, anthropogenic climate change, and total war. Second modern risks are more worrying, not just because they are bigger, mankind finally has the power to wipe itself out, but because they are human in origin, and therefore, in some sense, are our responsibility. My fear is that decades or centuries from now, the weary, broken survivors of whatever ended our technological civilization will look back and say, "But why didn't they change?" How then, can we as individuals and as a collective, come to grips with both kinds of second modern risks?

The answer is in the broadest sense, politics. Politics is the primary process by which people come to collective decisions, particularly about risk and leadership. One of the better lines at the Dialog, which I will tentatively ascribe to Roger Pielke Jr, was "Risk is political." Perceptions of risk are strongly correlated with political beliefs, for example, conservatives are far more likely to believe that they personally will be harmed by a terrorist, while liberals believe they are more like to personally experience the negative effects of climate change. This mismatched perception of danger in the world is one underlying source of many more specific policy disagreements.

One of the Dialog panelists, David Ropeik, recently wrote a book on the cognitive science of risk perception, and his argument, summarized in a Nature op-ed, is that "Research from diverse fields, and countless examples from the real world, have convincingly established that our perceptions of risk are an inextricable blend of fact and feeling, reason and gut reaction, cognition and intuition. No matter what the hard risk sciences may tell us the facts are about a risk, the social sciences tell us that our interpretation of those facts is ultimately subjective." The difference between objective reality and perceived risk leads to what he calls, "The Perception Gap, the gap between our fears and the facts, which is a huge risk in and of itself... it produces social policies that protect us more from what we're afraid of than from what in fact threatens us the most (we spend more to protect ourselves from terrorism than heart disease)...which in effect raises our overall risk."

No surprise that people aren't very good thinking about second modern risks. Our brains have had less than 10,000 years to adapt to the patterns of civilization, and far less to adapt to technology. With low-probability/high-impact events, how can we develop a baseline to discuss risk? Discounting return over time is a standard technique in economics, and more concretely, we don't really believe in the world of our unborn grandchildren, let alone our grandchildren's grandchildren. Very real problems far in the future are frequently put aside in favor of short term concerns. But even if human brains aren't set up to think rigorously about risk, we can't sail blindly into the future. The stakes are too high.

When heuristics fail, we turn to scientific methodology, and the best work of knowledgeable expert panels, yet these tools are insufficient for managing risk. Technical risk, "probability times consequences", can't approach the diversity of human fears and ambitions, and so is often politically untenable. Building a wall between risk assessors and risk managers is a common best practice, but group-think, a lack of accountability and regulatory capture can foil even the most qualified experts. The poor decision-making behind the Challenger disaster and the Vietnam War are two classic examples, of just many modern catastrophes, of how very smart people can become bogged down in the details, ignore opposing evidence, refuse to admit alternative theories, and ultimately wind up creating the very risks they set out to avoid.

Democratic decision-making bodies seem even less suited to evaluating risk. Take, for instance the decades long fight over increasing automobile fuel efficiency standards. This can only reduce dependence on foreign oil and improve air quality, two goals no strategic policymaker could oppose, yet because of the 'risk' to jobs in Michigan and other states, increasing the Corporate Average Fuel Economy standards has become a political quagmire. Broad trends that no government can control, like wars, natural disasters, and recessions, frequently determine political choices. Partisan purism, single interest groups, large donors, and the endless election season all serve to destroy whatever circles of rational deliberation there once were. At this point, Congress is no longer a legislative body; it is a national whipping boy for everything that goes wrong.
How then, can we do the right thing? Should democracy be abandoned in favor of authoritarian governments which can strategically plan for the future? I doubt it, as history shows that effective authoritarian regimes are sustained by the political skill and capital of their leaders, and as those leaders age and lose touch with their original sources of legitimacy, their nations either liberalize or decay into corruption, cronyism, and kleptocracy. The solution, rather, should come through strengthening our democracy.

People suffer from trivial second modern risks because the world appears random and senseless, because events follow without cause, and hard work is unrewarded while people become millionaires for no reason. Society can't deal with existential modern risks because long term planning is rarely encouraged. The cure for both might be found in more public engagement, more Socratic inquiry, and more involvement with the forces that govern our lives.

Designing political institutions that are responsive, representative, and wise is not going to be easy. However, what is quite clear is that representative democracy, going into a voting booth and marking off "D" or "R", is no longer a useful way of fostering political engagement, accountability, or leadership. Through challenging our preconceptions and assumptions in mutual dialog, breaking down the walls between policy-makers and citizens, and making the actions of the State, corporations, and other institutions clearly visible, we can begin to figure out what the real risks of second modernity are, and how to deal with them.

by Nicholas Murray, Breakthrough Fellow

At the first annual Breakthrough Dialogue a conservative political commentator and policy scholar suggested that environmentalists are too focused on climate change. Instead, he argued, we would be better served by addressing more immediate environmental threats, namely fishery collapse. While we shouldn't see this as an argument against the need for climate change mitigation and adaptation, this dialogue member is right about the fish problem. Fish stocks are in rapid decline to the point where we're already seeing shortages.

The complexity of this issue calls for creative solutions. The right approach means throwing out classical environmentalist preservationism and embracing the reality that we can and must influence the natural systems around us in order to maintain our quality of life. This influence, however, will only be successful if we abandon classic top-down strategies in favor of bottom-up approaches that are stakeholder designed and managed.

The global status of fish stocks is truly alarming. According to the Pew Ocean's Report, wild fish catch peaked in the 1980s and continues to decrease. Today, only 22% of fisheries are fished sustainably. A common solution has been investment in fish farming or aquaculture, which could on a large-scale address the demand that declining stocks are increasingly unable to meet. In spite of its benefits environmental groups have launched a global campaign against aquaculture for its influence on local environments and use of genetically modified fish. They would rather that we leave our human hand out of the functioning of natural ecosystems, even if it means increasing pressure on declining fisheries.

The idea that we can leave nature untouched is an illusion; we humans have had our hand in ecosystem function for thousands of years. So much so in fact that an associate professor of Geography and Environmental Systems and Breakthrough Dialogue panelist suggests that we are now living in the Anthropocene era, a time characterized by human dominance over environmental systems. In reality, he shows, there are no natural systems left on Earth free of human influence. It follows then that trying to keep our hand out of 'natural' aquatic ecosystems is futile; our hand has already in been in them for a long time, and it's not coming out any time soon.

This Anthropocene idea may invalidate the notion that we can leave nature untouched, but it surely doesn't justify the ecosystem destruction. The reality, however, is that aquaculture and its consequences for the environment would be a far cry from destruction. Chief Scientist for the Nature Conservancy and Dialogue member would argue that although environmental groups put much emphasis on the fragility of ecosystems, they're actually quite tough. Ecosystems are dynamic, constantly adapting to changing pressures, human and non human. Ecosystems have no 'natural state' because they are constantly in flux. In reality there is nothing to preserve beyond the ecosystem's ability to adapt, which in and of itself is remarkably resilient. Fish farms may bring environmental change, but change is what ecosystems are all about.

These progressive ideas may qualify aquaculture - even from the environmentalist standpoint - as a valid means of meeting demand for fish, but that doesn't address the decline of wild fisheries. Not all fish can be farmed, and there exists a sizeable fishing industry with a stake in sustainable fish stocks. This is a classic issue of tragedy of the commons: no fisherman has a reason to sacrifice catch for future seasons, as other boats will simply scoop up whatever they sacrifice. Such a situation yields two types of externalities. For one, excess catch in the present means less fish for future generations. The second, also known as the 'derby externality' arises from extreme competition among fishing boats, resulting in heightened risks to crew, excess investment in fishing equipment, and sub optimal market returns for fish.

The only strategy for the sustainable management of fisheries that has shown any success against these externalities has been what's known as individual tradable quotas (ITQs). Essentially these are tradable allowances for a set amount of fish catch allocated among fishermen within a given region. From the economist's perspective, this unregulated property-rights-assignment approach to common pool resource management is the ideal means to save a fishery. In practice however, simply imposing a free ITQ market is often not sufficient. While ITQ programs have made headway in recuperating fish stocks, their typical top-down design often does more harm then good to fishermen.

Deregulated ITQ markets have been known to attract non-fisheries interests that buy up ITQs as a form of investment. This activity drives up the costs to working fishermen, making them less competitive against fishermen that operate outside of an ITQ trading system. These outside interests can also drive up the price of ITQs to the point where they're prohibitively expensive for smaller scale fishing operations to acquire.

Improving ITQ markets means abandoning the top down approach, a process that dialogue members say involves reconsidering the notion that certain environmental solutions are objectively the right answer. As much as we would like to cite studies in economics to assign freely traded ITQs legitimacy over any other proposal, the reality is that a wide array of stakeholders and outside actors makes the situation much less simple. Such complexity necessitates taking a step back from the unregulated ITQ market as the unequivocal solution, and exploring ways to redesign our approach with the stakeholders in mind.

The ideal way to go about this perhaps incorporates economist Elinor Ostrom's Nobel Prize winning work concerning common pool resource management. Beyond assigning property rights, Ostrom argues, the most effective approaches are built from the bottom up, relying on stakeholder design. Stakeholder based solutions address common interests, and have shown to be easily enforceable. A revised ITQ program would then rely on stakeholder design and management, possibly through a stakeholder management board. Such a body would likely eliminate outside investors that are looking to profit from ITQs, agree to seasonal closures to protect spawning fish, and design refuge areas for depleted species. I suggest this, as recuperating fish stocks in the ITQs context speaks to fishermen's best interests. More fish in the ocean means the overall catch limit can rise, increasing the value of everyone's ITQs.

The fisheries issue may be pressing and difficult, but the solution exists. Arriving there means progressing beyond the ideas that we can leave nature untouched, and that we can address the interests of a complex array of stakeholders from the top down. This progress will allow us to update our notion of the relationship between humans and nature, and adapt stakeholder based rather than theoretical policy responses. Fresh challenges are at hand; we need to tackle them with fresh thinking.

"As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of society as great as he can...he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations

"...it is the main merit of real competition that through it use is made of knowledge divided between many persons which, if it were to be used in a centrally directed economy, would all have to enter the single plan."

- Friedrich Hayek, Individualism and Economic Order

It has become the central preoccupation of modern American politics to enlist ourselves in partisan warfare, one side defending government with neo-Keyensian support against its free-market foes embracing neoclassical doctrinaires. This makes development of American prosperity and innovation difficult. As Pisano and Shih aptly stated in their 2009 survey of American economic competitiveness for Harvard Business Review,

All too often, the debate about what role Washington should play in supporting innovation degenerates into a battle between two extremes: the laissez-faire camp and advocates of centralized industrial policy. Listening to them, you'd think there could be no middle ground [1].

But both political and economic history show that, if growth and increased prosperity are the goal, neither markets nor governments can function without the other. Indeed, governments and markets are partners, not enemies. A middle ground does exist; and it is precisely the partnership between government and private market participants that has historically driven economic growth and innovation.

The sharpening bipolarity evident today is reflected not only in our national politics, but also in competing academic-philosophical ideologies over the role of government and markets in preventing an American Lost Decade. As Robert Atkinson of the Information Technology and Innovation Foundation expounds upon in his summary on economic doctrines [2], the race to reinvigorate the American economy has dissolved into a melee between neoclassical economists, arguing for capital accumulation and unencumbered markets; and neo-Keynesian practitioners, pushing for demand stimulus and entitlements through government spending. Each side refers to its acolytes as "leading economists," and neglects the ideas posited by their opponents, even as the two allegedly competing institutions--governments and markets--share key attributes.

Indeed, many of the popular virtues of markets are mirrored and often amplified in the public sector. Adam Smith's Invisible Hand of the Market--a metaphor he employed only a handful of times in comparison to the quantity of citations he receives for it--directs the economic agent to achieve optimized social benefit by pursuing individual profit. We can similarly imagine an Invisible Hand of Government, which guides investment, growth, and economic inputs through socially constructed policies that, again, make for the optimal social outcome. The two semiotic notions form a partnership that combines the best of both worlds while mitigating each other's failures. Call it the Invisible Handshake.

The Wisdom of Hayek

The kinship between governments and markets originates in their mutual inadequacies. No philosopher or political technician has better appropriated the central challenge of each than early 20th century economist Friedrich Hayek. In criticizing Socialist central planners, Hayek observed that governments would fail to have an efficient influence on markets due to a failure of cognitive processing. The sheer magnitude, diversity, and seeming contradiction of economic behavior, by billions of actors making trillions of decisions, renders such efforts facile. The Fatal Conceit, as he termed it, is thinking that we can accurately model a market on this aggregated "data," to the degree that enables successful and efficient central planning.

This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning--direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons [3].

The better avenue for Hayek was competition, through which economic agents interact with each other, creating a chaotic but organic and well-functioning marketplace. The purpose of neoclassical economics throughout the 20th century became to explain this marketplace scientifically, and develop models for predicting economic outcomes; growth models and academic prescriptions for the economy proliferated, and the field earned pedigree in Presidential Councils, governmental departments, and as the sole member of the social sciences to associate itself with a Nobel Prize.

At the same time, Hayek's affection for competition bore new fruit in the global reaction to Axis dictators in WWII and communism thereafter. Such stark and dramatic regimes rested on the assumption of centralized power, as the state became the standard-bearer for economic evolution and prosperity among fascist nations in Europe and Asia. The rational reaction for a budding postwar conservatism was to run in the opposite direction, by embracing competition and decentralized power. Thus, one of the founding principles of Hayekism achieved grand import for American conservatism, maybe the most powerful American socio-political movement of the last fifty years.

Perhaps the rigor of economic modeling in Hayek's wake would have disturbed him, as he spent much more time detailing why markets were efficient than how--indeed, it appears from his writings that he believed overzealous efforts to model and predict human behavior in the marketplace, whether by centralized bureaucracies or ambitious economic modeling, were doomed for failure. Nonetheless, we can count Hayek among the intellectual forebears of neoclassical competition as a doctrine, and free market capitalism as a dominating modern philosophy.

Following the Crash of 2008, the ensuing global credit and liquidity crunches, and the absolute failure of modern financial economists to predict any of it, it appears that allowing markets to self-navigate is as dangerous as placing total control behind the closed doors of a centralized state government. The attempts by experts, both on Wall Street and government-contracted economists, to model and predict economic activity, proved absurdly hubristic. If centralized planners made overly ambitious assumptions about their ability to process a functionally infinite stream of cognitive noise from economic actors, free market fundamentalists erred in incorporating perfect rationality, perfect and complete information, and constant discount rates throughout their preferred models.

A gradually deregulated economy, following the Reagan Revolution and the rising dominance of neoliberal economic ideology of the last thirty years, should have increased competition and therefore efficiency. And perhaps it did, for a time. But the failure of neoclassical economics in predicting a crisis is mirrored strongly by its inability to steer out of one. The dominant economic paradigm of recent decades has, if not entirely failed, been deemed incomplete. A missing piece must be identified and added for American economic growth, and economic thinking in general, to survive and evolve.

The Role of the State

That missing piece is government. Hayek would likely disagree, but the boundary conditions that limit both governments and markets are mitigated by pairing each appropriately with the other. Markets, suffering from false assumptions and incomplete models, depend upon stabilized institutional platforms established by governments. Governments, constrained by the limits of cognitive processing and excessive planning, can benefit from a private sector that utilizes many and diverse actors for innovation and growth. The two engage in a partnership, what ecologists might call a mutualist or even symbiotic relationship. The Invisible Hand of the Marketplace shakes the Invisible Hand of the Government.

This is nothing new. In truth, government was never really "missing" from our economy, just our economic models. The primary affect of American government for over two centuries has been the development and maintenance of policy and social platforms for private citizens to enjoy continued safety and prosperity, the most obvious and ubiquitously acknowledged example being defense. The government's monopoly on the use of force allows for relatively transparent police protection of the citizenry, and is the object of near universal popular support. Simultaneously, the provision of national defense as a public good--non-excludable and non-rival--is facilitated by government use of tax revenue for its military. These government platforms enable a safe and secure society by any relative standard, without which the private sector would suffer.

The same is true of other state government effects, which can both guarantee a safe playing field and enhance its value. Government-standardized scientific units enable a more efficient and effective science, which benefits the private sector with more complete information and universal application [4]. The minimum wage and social safety nets, programs that evolved to ensure future prosperity during the Great Depression, aim to guarantee sufficient purchasing power so that the consumption-production relationship is maintained. Public higher education produces the next generation of investors, businesspeople, and entrepreneurs, in addition to the future politicians and bureaucrats who will create new platforms for further increased security and prosperity.

And, though contemporary controversy has reached a boiling point over the issue, government platforms can also enhance growth and prosperity. Indeed, three of the primary drivers of economic growth--technological innovation, infrastructure, and productivity--are very often the products of government intervention rather than markets.

A seminal report on technological innovation, "Where Good Technologies Come From," details the Invisible Hand of Government guiding private sector stability. Railroads and agricultural research in the Lincoln era predated nuclear power proliferation and microchip procurement led by the Eisenhower and Kennedy administrations. The personal computer, the jet engine, the Internet, biotechnology, the cell phone, the entire energy economy, and virtually any revolutionary technology you can think of resulted from direct and sustained government investment [5].

Just as it had driven technological innovation through direct investment in R&D, deployment, procurement and diffusion, the American government has also played historic role in enabling commerce in ever-greater quantities and efficiencies through the construction and maintenance of a national infrastructure. Roads and railroads provide a transportation grid for commuting, traveling, and shipping. Overseas shipping lanes and airline routes are provided tax-free, sometimes with military protection, allowing commercial and private companies to benefit from their transit. The installation and regulation of broadband infrastructure, and the gift of the airways to radio broadcasters, allow for ever-growing communication among consumers and businesses.

As technological innovation and infrastructure enable more and better commerce and industry, productivity rises as firms are gifted more efficient means of production. And, as the neoclassical Solow-Swan model demonstrates, productivity drives growth. It is interesting, and more than a little ironic, that Solow explicitly excluded technological innovation from his growth model, assuming it was exogenous and deeming it "manna from heaven [6]." Solow's inability to explain the process of technological innovation is complemented perfectly by a history of government investment in technology. Heaven, it seems, is the government.

As GNP has risen historically, so have national receipts, and a stronger government has been able to build increasingly vast and stable platforms for an increasingly wealthier citizenry to enjoy and prosper upon. The result is a virtuous cycle of growth and security, as private sector innovation on top of government-enabled platforms drives growth and opens up frontier industries, from energy to communications to biotech to IT to social networking and beyond.

The Invisible Handshake

Hayek's guiding thesis was that market prices transmit the incredibly vast and complex system of information better than any centralized planner could; increased competition and the accuracy of prices are positively correlated. This philosophy unfortunately says little about macroeconomic elements, nor does it accurately describe an economy rife with oligopoly, regulatory capture, and rent-seeking. Where Hayek's mechanics were correct, his application failed, and the use of his work to justify a deregulated free-market economy precipitated precisely the failures in the market that he predicted in governments.

As crisis endures, government platforms must re-evaluate their own role just as markets must. The role of government becomes ever more essential as markets fail, and the holding patterns that functioned for a time need addendum. Governments and markets must emerge from this crisis as partners again, not as enemies. Never actually broken, the Invisible Handshake must now be acknowledged and exploited. The debate between neoclassicists and neo-Keynesians--over which villain to marginalize, governments or markets--must come to an end.

New government platforms must reinvigorate American education and manufacturing, rather than letting them idle. They must take note of mini-industrial revolutions in energy technology, broadband, cloud computing, and the contingent hardware and software that will arrive and require a stable platform for performance. Markets can regain confidence in regulatory platforms and national missions, like the quest to rebuild our energy infrastructure [7] and compete with the rapidly developing BRICS economies [8]. Entrepreneurs and private industries--busy developing technologies and practices in energy technology, cloud storage, wireless broadband, and many other growing sectors--will benefit from a government that, while not "picking winners," sets up a playing field for innovation and competition.

Just as Hayek would have wanted.

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Endnotes

1. Pisano, Gary P. and Shih, Willy C. " Restoring American Competitiveness." Harvard Business Review, July-August 2009.
2. Atkinson, Robert D. "Economic Doctrines and Policy Differences: Has the Washington Debate Been Asking the Wrong Questions?" Information Technology and Innovation Foundation. 2008.
3. Hayek, Friedrich. "The Use of Knowledge in Society." American Economic Review XXXV, No. 4, 519-530. American Economic Association. Sep. 1945.
4. Weights and Measures Divison. National Institute of Standards and Technology (NIST). http://www.nist.gov/pml/wmd/
5. Jenkins, et al. "Where Good Technologies Come From: Case Studies in American Innovation." The Breakthrough Institute. December 2010. http://thebreakthrough.org/blog/2010/12/american_innovation.shtml
6. Warsh, David. Knowledge and the Wealth of Nations. W.W. Norton & Company. 2007. P. 25
7. Revkin, Andrew. "On the Energy Gap and Climate Crisis." DotEarth at The New York Times. April 2010. http://dotearth.blogs.nytimes.com/2010/04/07/on-the-energy-gap-and-climate-crisis/
8. Zakaria, Fareed. "The Future of American Power: How America Can Survive the Rise of the Rest." Foreign Affairs. June 2008. http://www.foreignaffairs.com/articles/63394/fareed-zakaria/the-future-of-american-power

Liberalism as it exists today isn't so much an ideology as a flag of convenience. The progressive position on policies promoting the welfare state and cultural attitudes towards abortion, gun control, and gay marriage unites a solid minority coalition, but one without big ideas except for a vague notion of 'play nice' and 'be yourself.' As Michael Lind of the New America Foundation put it, the Democratic Party is about checking off the wish-lists of its constituent interests groups. "What is the liberal position on the environment? It's what the Sierra Club wants." Rather discuss values, liberals have retreated to policy literalism, appealing to a slew of "scientific" and "rational" policies to achieve narrow, tactical ends: price carbon dioxide, extend healthcare to the uninsured, stop the war, decrease classroom sizes. Liberals have ceded values and emotion to conservatives, with disastrous electoral and policy results at every level of government. Liberal scientism is a rhetoric of failure.

The scientism that inhibits the appeal of liberalism today started in the Progressive Era with a bipartisan push to clean up, professionalize, and make scientific public policy and government institutions. In many ways, the movement was a success, creating the Food and Drug Administration and ending the worst abuses of machine politics and robber baron monopolies. The Progressive Era laid the groundwork for the New Deal, the welfare state, and the Environmental Protection Agency. But it laid the groundwork for its eventual failure, through the malignant idea that with enough scientific knowledge, political problems could be reduced to administrative problems with cut and dried solutions.

Liberal leaders today still follow the same approach, retreating to science rather than having a debate over values. Instead of a worldview, they offer a flood of facts and figures, all peer-reviewed according to best scientific practice. Rather than scientizing politics as desired, the result has been politicized science, particularly around climate change. When values are at stake, people believe what they want to believe, choosing and discounting facts to reinforce pre-existing ideas. The conventional solutions to climate change: global regulatory institutions, corporate responsibility, community action, are inherently more amenable to liberal values than conservative values. Ultimately, rather than give up deeply held beliefs, conservatives choose to ascribe corrupt motives to climate scientists.

In his inaugural address, President Obama promised to "Restore science to its rightful place." In contrast to the Bush administration's imperial ambitions in the Middle East, disdain for evolution, and denial of climate change, President Obama promised to user in an age of rationality and science, to the delight of his base. Science, as a technique for discovering relationships between facts in an observable reality, is the ultimate arbiter of truth. Science tells us that carbon dioxide is changing the climate for the worse. Science tells us that smoking causes cancer. Science tells us that educated citizens lead more successful lives. But science does not tell us how to respond to this knowledge, or why we should act to change the world. Those answers are dictated by deep-seated values: liberty, justice, opportunity, and what they mean in the 21st century.

Technology, as opposed to science, offers a better way. At the center of many completed liberal goals is a technology. Electrification and the automobile freed the countryside from poverty. Vaccines, antibiotics, and insecticides dramatically reduced human suffering from disease. The Green Revolution has done more to reduce world hunger than one hundred celebrity concerts for aid. Modern revolutionaries use cellphones, encrypted email, and Twitter to fight oppressive tyrants. Technologies are powerful, because to paraphrase Dan Sarewitz, they reliably embody a cause-and-effect relation in the world. Rather than depending on social interventions to change selfish, stubborn, humans--a fool's errand, as any veteran of a dysfunctional relationship can tell you, machines calmly go about rearranging the world. And because technologies are a reliable way of achieving outcomes, they act as focal points around which fractious interest groups can rally.

Using technology to advance liberal goals will require letting go some of the deeply held beliefs of the New Left, like the innate distrust of hierarchies, the belief that civilization can only intrude on nature, and the notion that technology corrodes some kind of human essence, which spring from the worst technocratic excesses of the 60s, the Vietnam War and the Great Society. The Green push against technology as an imperialist force that destroys ecosystems and communities has some basis in fact, but romantic attachment to an imaginary past is a conservative belief, not a liberal one. Change is the state of the world, and attempts to regulate old industries back into health, or protect every square meter of the planet from humanity are doomed to failure. Rather, we should recognize the role that technology can play in designing a better tomorrow.

Our watchwords should be elegance, empowerment, and humility. The best technologies are easy to use and simplify life, instead of putting extra obstacles in our way. Technology should not make people dependent on distant suppliers for hardware and expertise; modifications and improvements should be open to the user. And finally, just because we have technological solutions does not mean we can implement them without the consent of those who will be affected, or that their effects will be linear and easy to predict. Technology is a necessary condition for progress, not a sufficient one, and science will still play a guiding role in policy design, but not an arbitrating one. We must be willing to accept incomplete solutions, and abandon failed experimental policies.

At our core we are a technological society, and only by fully harnessing the power of technology and managing it well can help reinvent liberalism. Technology is far closer to any American than 'the land' or 'nature' is; it is the shaping architecture of our lives. We can no more eliminate than we can the air we breathe or the water we drink. By imaging the kind of world we want to live in, the kind of options we want to have, and the technological means necessary to provide those options, liberalism can reclaim its mojo.

This year's Breakthrough Dialogue played host to a number of interesting discussions concerning technology and the environment. My thoughts from these discussions can best be summed up by Dr. Albert Bartlet: "the greatest failing of the human race is its failure to understand the exponential function." And so it seems that while people continue to remain optimistic about technological innovation, little emphasis is ever placed on the magnitude of the problem that technology needs to innovate around - especially when it comes to exponentials. Simply put, let's talk about growth, and what exactly technology would need to accomplish.

When talking about the world of exponentials and growth, the term "Malthusian" gets thrown around an awful lot. Thomas Malthus predicted that population growth would surpass agricultural production at some point, and that this would lead to starvation, deaths, and a general decline in living standards- something deemed undesirable. Of course, that's not what happened. The Haber-Bosch process came to fruition, and agricultural output was able to keep up with population growth thereby setting precedence for technological innovation around resource restrictions. In the words of one dialogue panelist, this represented "more than exponential growth." Of course, that's not really the case - it was merely growth at a faster rate than population growth for that period of time. This brings up the question: what exactly is growth rate and exponential growth?

To illustrate this concept, it's best to simplify it to something humans have a good grasp of: doubling. To provide an age-old example, imagine bacteria that doubles every minute and lives in a Styrofoam cup. You start out watching this cup with bacteria in it at 11:00 PM one August evening, and at midnight the cup is completely full. I will now pose this question: when was the cup half-full (or half-empty)? Humans like to think linearly - so without actually thinking about it too hard, you would be inclined to guess 11:30 PM as it represents the midpoint in the timeline. However, the actual answer is 11:59 PM. At one minute before midnight, the cup was half-full. Yet, due to the phenomenal proliferation rate (doubling every 1 minute), the cup went from half-full to full in 1/60th of the time it took to fill the first half of the cup.

Let's apply the same concept of growth to something everyone is at least partially familiar with: inflation. An estimation of about 3% inflation per year is reasonable (the previous example had 1.2% growth per second). If we then apply this to something like a movie ticket at $10 dollars today, and say, "how long will it take until it costs $20 dollars?" Most of us would venture a guess, or just say, "a while?" However, there's a relatively easy way to estimate doubling time; it's referred to as the law of 70 (or 72). You divide 70 by the percent per year growth rate, and that gives you a decent estimate of the doubling time. In this instance, in about 23 years it will cost $20 dollars to go to a movie (70/3 = 23). This gives you a good tool to use when changing annual growth rates into doubling times - something that is easier to grasp.

However, sustaining growth when it's bounded by natural resources is simply impossible. At some point, it will no longer be possible to keep up with compounded annual growth. In the bacteria example, the growth will stop once the confines of the Styrofoam cup are reached. In the real world, we'll eventually run out of all resources in the universe (or just become extinct). When looking at energy resources, like oil, it's now possible to see where theories like Peak Oil come from.

Oil is a finite resource, and at some point we will run out of oil as we currently know it today, or stop using it. Either way, the consumption of oil will have to slowdown, and then stop. Right now we're consuming oil exponentially, growing at a rate of about 1% to 1.4% per year. The magnitude of the problem is now apparent: we not only have to stop consuming oil, but we have to develop technological solutions that simultaneously displace our current usage and can be deployed exponentially to meet continued energy growth rates. This is a challenge.

2011 has had energy demand from oil at roughly 151 million megawatt hours each day. We would need to install about 15 million megawatts worth of wind turbines (assumed capacity factor of 40%) to produce a similar amount of energy (over 100 times today's installed capacity). Wind turbine growth rates have been around 20% to 40% per year, meaning this could be achieved in only 20 years if 40% growth can be sustained.

If we begin to talk about displacing all of fossil fuel usage with something like wind (and ignore grid integration issues and other infrastructure development problems) while simultaneously growing global energy usage, the ability and feasibility is increasingly diminished. Coal, similarly, would require that renewables not only compete with already existing infrastructure (58 billion megawatt hours each year), but also compete with a growth rate of 2% per year. Simply mapping this out, we are left with roughly 14 years of continued 40% growth to produce as much energy as coal. Similar analysis can be provided for all forms of fossil-based energy.

The fact of the matter is that sustaining 40% growth per year for something like wind energy, a significantly developed renewable technology, is just unlikely. Already, we've seen some drops in that growth rate, and most of the easy-to-access wind sites have been used. This will affect the efficiency of turbines, and further curtail growth in the sector. This means that we need to depend on novel renewable technologies that have not been developed or deployed significantly if the environmental concerns associated with fossil fuels are to be met in a timely manner. Additionally, we'd actually have to deploy those technologies at growth rates that are higher than the increasing demand for energy if we are to mitigate environmental impacts.

Overall, when you start looking at the ability for renewables, especially dominate, cost-competitive renewable resources to make major headway in overcoming today's energy challenges, you're left with a sense of pessimism about current technology. This lends itself to the need for humans to innovate and come up with new, novel technologies to truly address this problem. While the problem may be addressed in the short-term with novel innovations, like what was previously witnessed with agricultural productivity, growth of this magnitude is far from trivial and should not be taken for granted.

By E. Shapiro, Breakthrough Fellow 2011

The U.S. Federal Government needs to be more active in supporting technological innovation in the clean energy sector if it wants to make real progress against climate change. And supporting technological innovation means providing strong intellectual property rights (IPR) protection for innovative private firms. But there is a fundamental tradeoff between creating an incentive to innovate by awarding patents and other forms of IPR, and stifling the competition that fuels this innovation.

If we want clean energy innovation, we need competition in the market for energy provision. But we don't have this competition in the energy market due to market barriers such as immense capital and infrastructure requirements. So we need government intervention to promote innovation. But government intervention in private markets to promote innovation runs substantial risk of creating anti-competitive distortions. Are you beginning to see the problem?

Let's back-pedal a bit to how this dilemma has come about. In case you hadn't noticed (though if you're reading this blog, chances are you have noticed), we have a climate problem. A growing world population and rising standards of living have led to increased energy consumption and, as a result, greater carbon emissions. It's unlikely we'll see developing countries curtailing population growth any time soon, and carbon-intensive energy provides an all-too-necessary path to overcoming poverty. So how can we head off increased carbon emissions? We need innovation in clean energy technology such as nuclear, solar and wind power.

And this clean energy technology needs to be deployable at a global scale if it's going to have any real effect on curbing carbon emissions. And to get globally deployable clean energy that is cost-competitive, we need significant technological advances. The immense capital requirements of energy R&D are seconded only by the infrastructure necessary for wide-scale deployment. What private company is going to devote the billions necessary for innovation and commercialization?

And what private company that does devote billions to R&D is going to want to sell that technology at current market prices? No company is going to invest in R&D if it doesn't' think it can recoup those costs down the line. Further, knowledge-sharing mandates to encourage deployment in developing economies aren't so great for cultivating private sector incentives to innovate in clean energy technology. The result? Innovation in clean energy tech is woefully undersupplied, despite its potential to mitigate climate change.

So, how can we promote clean energy innovation without (further) bankrupting the government? And how can we ensure that technological innovation will be dispersed globally to help solve the clean energy deficiency we currently face? We need to bolster the gains to innovation that will enable private companies to recoup costs sunk in capital-intensive R&D and make investment profitable.

How can we shore up these gains in order to encourage clean energy innovation? One way is to award IPR such as a patent to the company responsible for the innovation. The problem is, a patent grants its holder monopoly over the innovative technology. And this monopoly right runs the risk of eliminating competition, suppressing further innovation and hindering large-scale deployment and commercialization of the new technology.

So, can IPR such as patents encourage innovation? Moser (2005) says yes. She tests the effect on innovation of patents laws in 22 European countries, looking at the number and quality of inventions presented at the 1851 and 1876 World Fairs. (Quality is measured by the number of awards won by an invention.) Moser finds that patent law affects the type and quality of innovations. Countries without strong patent protection have more innovation in scientific instruments, textiles, and food processing industries, where new technology is easily kept secret. In contrast, countries with strong IPR have more innovation in industries where innovation is less easily kept secret, such as mining and engine machinery.

Now, it's been a bit of time since the 1851 World Fair, and although we may have progressed from steam engines to photovoltaic modules, Moser's fundamental conclusion persists. If clean energy technology is going to be commercialized globally, it's going to be difficult to keep innovation a secret. And we need strong IPR if we want to see clean energy innovation. Unfortunately, assigning IPR is particularly difficult in the energy sector. Projects are large, long-lived and capital-intensive, requiring collaboration and complex cost-sharing agreements between multiple parties.

This collaboration often occurs at the international level, between multinational corporations. If we want to encourage innovation and keep up with the globalization of both energy production and carbon abatement, we need stronger IPR at both the domestic and international level. This means developing a stronger and more cohesive global IPR regime.

But cohesiveness isn't the only goal that international IPR for clean energy technology must aspire to. We need worldwide IPR that both promotes global deployment of clean energy technology and protects developing countries' economies. If developing countries have to recognize strong international patents, their nascent local industries will be unable to compete with emerging technological giants such as First Solar, GE, Siemens, or Vestas.

Isn't there anything that might give us a clue as to what to do? It's not exactly a shining example of successful knowledge-sharing, but the problem of vaccine development for priority diseases such as cholera, malaria, and typhoid is in many ways analogous to the current dilemma facing clean energy innovation and IPR. These diseases kill millions each year, creating tremendous need for large-scale vaccination. Yet pharmaceutical companies have little incentive to develop vaccines for diseases that uniquely affect third-world populations. They're much more interested in pursuing lucrative first-world markets for Viagra and diet pills.

Unfortunately, the third-world vaccine problem has yet to be miraculously solved via international collaboration and government intervention. The last WHO conference on IPR and vaccines was nearly 10 years ago, and while TRIPS has helped protect pharmaceutical companies in developed countries, it hasn't exactly made it easier for third world populations to get access to priority vaccines. Fortunately, priority vaccine development provides some valuable lessons for clean energy innovation.

Private sector vaccine development with IPR protection granting patents to pharmaceutical companies has led to under-development, production and supply of priority vaccines in developing countries where the market price reflects the poverty that has caused the disease incidence in the first place. Similarly, granting patents for innovative nuclear, wind or solar technology almost guarantees that these technologies won't be deployed in developing countries where the market price for energy is dictated by the fact that concern over carbon emissions ranks far below demand for clean water and food.

But the public sector hasn't done much better in developing priority vaccines. First-world populations don't need these vaccines, while developing economies don't exactly have excess cash to throw at pharmaceutical R&D. There's been some success in creating international biosafety standards and institutions enabling developing countries to adapt biotechnology to address diseases such as cholera, typhoid and malaria, and public funding mechanisms have increased developing countries' ability to innovate internally. But 75% of the R&D budget for Sub-Saharan countries comes from international donors. Further, there is a trade-off between public sector promotion of long-term capacity-building and short-term funding specific diseases via technology transfer.

The same problems arise in funding clean energy innovation. Developing countries don't have the resources to fund capital-intensive, long-term clean energy innovation. Yet technology transfer from innovators such as the US not only drains the pockets of third-world governments, but also precludes local industry development. And there's even less international collaboration in clean energy technology than in vaccine development.

So, does the story of priority vaccines provide us with a system that can reward private sector innovation, yet allow public, affordable access to this innovation? Arrangements such as licensing agreements have been able to facilitate technology transfer for local production of vaccines by qualified producers endemic countries. NGOs such as the Gates Foundation and the International Vaccine Institute have also stepped in to fund local vaccine development and distribution. These successes have relied on global health partnerships and knowledge-sharing networks.

The story from IPR in priority vaccine development is that the public and private sector, as well as the international community, will need to work together if we want to solve the world's energy problem. Public policy that facilitates compensated technology transfer via licensing or interconnectivity agreements can promote private sector innovation while overcoming the monopoly patent dilemma. International and non-governmental organizations can also play a role in distribution and provide a network for knowledge-sharing. IPR is critical to clean energy technology, but requires global collaboration if we're going to realize the full benefits of innovation.

By Jeff Kessler, Breakthrough Fellow

Risk is entirely political - or so it was briefly argued at this year's Breakthrough Dialogue. This brings up a number of questions: what is risk, how do we calculate risk, and does it matter? More important than this, however, is the notion of whether or not risk should be viewed as entirely subjective and political, and if not, what should be done about it. While the dialogue argument was made as a counterpoint to the speaker's actual beliefs, it brings up an important distinction that even if risk isn't entirely political, politics and subjectivity definitely factor into it, and should be considered when discussing "risks".

If we look at risk from a risk assessment perspective, we're left with a very cut and dry definition of risk: The potential loss (L) multiplied by the probability (P) of that loss. Or, Risk = Loss x Probability. It's then merely a matter of "plugging-in" values for these terms, and coming up with what can be a definitive measure of "risk." With this mathematical approach, one just needs to determine if the calculated risk is acceptable or not to go through with a given plan. The subjectivity of "acceptable risk," then also becomes political.

What happens when risk is subjective? Well, you can still go through the motions of calculating risk using the above equation, but the values you're plugging in may not be as "definite" as they might initially seem. For instance, how can we measure loss? Should it be in absolute economic terms? If there's a 10 percent chance that you're going to break your $1000 dollar laptop, the calculated risk for the laptop is $100 dollars. Therefore, maybe it's worthwhile to invest in an insurance policy on your laptop if it's around $100 dollars. If it costs more than that, then you may just want to go ahead and take the risk. What if, however, you have no other access to computing devices, and breaking your laptop means you won't be able to talk to your grandkids for a week until you get a new laptop? How can you incorporate this "loss" precisely into the traditional risk model? There is clearly no definitive way to calculate this, and so it becomes subjective, or in the instances of larger decisions, political.

To further borrow from the Dialogue discussion on risk, we can look at Germany as an example. Germany has been making efforts to reduce their dependence on nuclear power in favor of coal power plant expansion. This may come as a shock, as they have also created aggressive carbon reduction goals, and nuclear power is a reasonable way to approach these reductions. Furthermore, deaths associated with nuclear power are lower than for all commercial energy technologies except hydropower, implying that it is less risky. The mining hazards as well as public health risks of nuclear power are significantly less than for coal. So why, then, would Germany want to build more coal power plants?

It's political. For Germany, coal represents additional opportunity. Many of the environmental hazards of coal mining, such as open pit mines that scar the landscape, have been politically reconstructed. Pit mines have been transformed into lakes, and with the creation of lakes has come the creation of beachfront property. Coal mining also provides jobs and spurs investment. Germany doesn't view the future of coal as "dirty," but instead it has been re-envisioned as "opportunity".

Viewing risk as political complicates the efforts being made toward climate change and energy goals. Basically, if there is no definitive answer for how to regard risk, then quantification of risks does little good, as it is always open for interpretation and subjectivity. How then are we supposed to come to any consensus as climate debates continue onward? In discussions of climate change it is often viewed that underdeveloped nations are at the greatest "risk" from continued reliance on carbon-intensive energy forms. However, it is also these very nations that would be less at "risk" if they were capable of developing into countries, like the United States, that have significantly greater carbon footprints. Thus, we're left with a politically subjective view of risk, and arguing about the "value" or "outcome" of your risk assessment is identical to political debate.

What the above discussion indicates, is that risk analysis is only useful when similar political frameworks are being applied to the assessment. It's no good to say that nuclear power is less risky than coal power if that viewpoint does not fit into a specific political framework. To truly evaluate risk and gain value from the traditional mathematical approach, it is essential to derive assessments through the same political lens. For Germany, this would mean assessing nuclear and coal from the political framework of "opportunity." In this scenario, coal seems to be winning.

While it is evident that there is some value in risk assessment regardless of political framework, it is clearly impacted by subjectivity and politics. Going forward with debates using a conventional risk assessment model is not the most favorable path to take on global issues. When different groups are impacted, and politics is at stake, it does little good to abandon politics in favor of "hard numbers" provided by conventional risk assessments. Although risk might not be "entirely political", politics needs to be considered.

The campaign to avert cataclysmic climate change soldiers on. Despite an aggressive global economic crisis that unequivocally stole some wind from the sails of climate action, the movement lingers, organizing marches and rallies for the coming climate revolution. But action on the climate-energy front will not occur at the grassroots level. Instead, advocates should focus on identifying the appropriate elites, whose influence and inclinations offer a potential pathway to progress on energy and climate change.

The notion of eschewing grassroots organizing is unfamiliar to "causie" political movements, especially progressive ones. Progressive politics looks back with pride and conviction on its accomplishments in union organizing, suffrage and civil rights, and contemporary environmental victories like the creation of the EPA and the passing of the Clean Water and Air Acts. These achievements relied on building a critical mass of devoted and vocal support whose growing magnitude would reliably overwhelm public opinion and entrenched political opposition.

The movement to save the climate is unlikely to win with these tactics. In attempting to change the fact that the public doesn't care about climate change, the movement routinely forgets one important thing: the public doesn't care about climate change. Opinion polls indicate subsiding public concern over the future effects of climate change. A recent (and highly controversial) report by Matt Nisbett suggests that collective action and lobbying for the 2010 climate bill outgunned opponents from Big Coal and Big Oil, and the Kerry-Lieberman American Power Act didn't even get a vote in the Senate. Gallup shows that the public concern about the environment ranks last in a field of fifteen different national issues, a metric that the economy unsurprisingly dominates. Even if more and more people were coming around to the opinion that climate change is a real and dangerous phenomenon (which they aren't), that increasing swath of the population still wouldn't care too much about it.

And the truth is, the public doesn't need to care that much about it. Energy and climate policy is primarily institutional, technical, and scientific. It is much less socio-cultural. This makes sense, too: energy is a largely invisible and homogeneous commodity that competes on price alone. The public will use energy in the most cost-effective way possible, so the most logistically simple way to mitigate climate change is to make clean energy cheaper than carbon fuels. This goal will be achieved by policymakers, engineers, and entrepreneurs.

The solution to the climate-energy crisis is akin to the Manhattan and Apollo Projects and the creation of the Internet. None of these made use of mass public support or mobilization--indeed, the Manhattan Project was done in secret. Yet all were technical challenges with a national mission, accomplished by elites and contracted largely by the federal government, and with gargantuan social effects. No grand infrastructure projects are sexy products of some outpouring of public demand, yet the creation of the Interstate Highway System was perhaps one of the most significant achievements in the story of American commerce. These projects were accomplished by elite American patriots. Somewhere out in the masses of my generation, a team of elites is waiting to meet each other and make clean energy cheap and ubiquitous.

The people standing around that team of elites, far greater in number, are not powerless. Effective climate policy will not be an all-out favoring of technocracy over democracy, but grassroots advocates need to understand the difference. Timetables and targets are even weaker technical plans than they are political strategies. A growing and vocal contingent in the developed world, dedicated to fixing the climate problem, means very little when 90% of new energy demand will come developing economies over the next century. Lifestyle choices--like consuming less, cycling to work, and switching out that 100-watt bulb--are infinitesimal compared to the challenge of decarbonizing fourteen terawatts of power. There are policies that can accomplish these ends: boosting research and development, driving technological innovation, subsidizing early-stage deployment, and empowering the next generation of scientists and engineers through education. But the grassroots section in this relay-campaign pretty much ends at advocacy, left to watch as elites carry the baton across the finish line.

The campaign to mitigate carbon emissions and revolutionize our global energy infrastructure will not be accomplished by the masses. It will not be accomplished by marches and emotive global demonstrations, even less so by eco-terrorism and violent disobedience. We will see this challenge defeated instead by a select group of elites: technicians and practitioners, experts and politicians. That's not a bad thing. As Aaron Sorkin says, elite is not a bad word; it's an aspirational one. How fortunate we would be if we could identify that team of patriots and elites who could lead us to a clean energy future.

In Vaclav Smil's article The Manufacturing of Decline, he traces the fall of American manufacturing. Rather than blame decreased US manufacturing and exports on government over-regulation, Smil makes the case that the root cause was actually a lack of government investment and stimulation of manufacturing infrastructure and supply chains. This heterodox explanation shouldn't make us feel hopeless, but guide our future policy to expand and support domestic production. Rather than attempt to take back lost industries such as textiles, furniture, and electronics, the United States should encourage expansion into new industries like clean energy, where there exists real potential for long-term, sustainable growth.

A common narrative has evolved in America, concerning our loss of manufacturing. As environmental controls strengthened, wages rose, and unions expanded, US companies were forced to move their manufacturing bases overseas. This is viewed as the natural path economies should take, as workers become more productive, less workers are needed in manufacturing, incomes grow, and we can afford to import more and more cheap goods. We've slowly developed into a service economy, and that's okay.

Smil disagrees; service jobs cannot replace manufacturing jobs if we wish to keep our economy healthy and strong. He also argues that acceptance of this economic-evolution narrative has caused a lack of federal manufacturing policy in the US that could have prevented our sharp decline in manufacturing prowess. By comparing America's economic make-up to those of Japan and Germany, countries with strong manufacturing sectors, Smil argues that it is not only possible but critical to maintain a strong manufacturing sector to have sustainable economic growth.

Using three decades of economic statistics, Smil illustrates the ways in which the health of the overall economy is dependent on the amount of domestic manufacturing. The large and growing trade deficit in the United States is largely due to a great disparity in manufacturing imports vs. exports. Germany and Japan have very large manufacturing trade surpluses, while the US has a large manufacturing trade deficit. The United States also exports a much lower percentage of its total manufactured goods than most other developed countries.

Smil argues that the high unemployment in the United States was caused by a slow, gradual loss of manufacturing jobs. For example, by December 2010, only 8.2 percent of Americans were employed in manufacturing, but in Germany and Japan those percentages remain much higher, 19 and 18 percent respectively.

While some of these lost manufacturing jobs in the US were likely replaced by service jobs, not all of the jobs were replaced, nor were they replaced fast enough. And as Smil argues, a service job has a very different role in the economy compared to a manufacturing job. For every dollar produced through manufactured goods, $1.40 is added to the economy, but for every dollar of retail sales only 60 cents is added to the economy.

Smil does not think it's too late for us. He points out that some American manufacturing industries have seen fast growth in exports, specifically, pharmaceuticals, chemicals, and power-generating machinery. A strong federal manufacturing policy should start by supporting these industries to help them grow and establish stronger supply chains and market dominance. One industry that shows promise for expanding domestic manufacturing and future exports is clean energy. Environmental groups should attach their causes to support for domestic manufacturing of clean energy products as a way to help the economy, create jobs, and reduce the trade deficit.

One form of clean energy that has spurred growth in American manufacturing is wind power. According to the 2009 DOE Wind Technologies Report, the share of wind turbines that were manufactured domestically rose from 20-25% in 2005 to 50% in 2009. The authors of this report argue that domestic and foreign companies are expanded wind turbine manufacturing in the United States to reduce transportation costs and currency risks. Of the ten wind turbine producers with the largest share of the U.S. market, seven have one or more manufacturing plants in the United States, many of these were built in the last five years. Of the remaining three wind turbine manufacturers, two companies have announced specific plans to build manufacturing facilities in the United States. Many domestic wind turbine producers benefited from large cash infusions from acquisitions and increased investment from foreign wind companies..

As a counter-example to wind, the percentage of domestically produced solar panels deployed in the U.S. has decreased. According to the 2008 DOE Solar Technologies Market Report, from 1999 to 2005, exports of solar panels exceeded imports, but starting in 2006 imports exceeded exports. The DOE suggests that this effect was caused by legislation which required a large increase in solar power deployment that far exceeded domestic manufacturing capacity, so US solar installers had to import more panels. In the future, legislation of this kind should match increased deployment of a technology with investment in manufacturing capacity, so that the supply chain grows along with the industry.

In the next 5-10 years, the US could see a whole new high-value export role off the assembly line, modular nuclear reactors. Several American companies are working through various stages of approval for their new nuclear reactor design which are meant to be mass-produced and shipped to their location completely sealed. Companies like Hyperion Power Generation already have ordered placed, and most of the first orders will be shipped out of the US. Considering that the cheapest of these reactors is $25 million, exports of these products could make a large difference in the trade deficit. And since the units must be returned every 8-10 years for refueling, they would maintain a long-term demand.

Smil's article should give us hope. American manufacturing is not declining as part of some natural economical evolution, but due to factors within our control. America has a chance to implement a strong federal manufacturing policy that can radically change the trends in US manufacturing, by supporting and expanding the manufacturing industries which we continue to lead in. In addition, environmental groups have the opportunity to advance their cause along with the economy instead of against it, by pushing for increased domestic production of clean energy products.

Policy-makers seeking to ignite the engines of economic growth are turning to a new theory of "innovation economics," which focuses on technological evolution and its supporting institutions. However, the axiom that "innovation drives economic growth" derives mostly from the observation that conventional explanations of growth based on capital and population fail to explain differences in economic outcomes, not incontrovertible evidence. Failure and innovation seem to run hand-in-hand. Fantastically innovative technologies, from the SAGE air defense network, to the Concorde SST, and EV-1 electric car became technological turkeys when they failed in the market. Entrepreneurs have a failure rate approaching 80%. Neoclassic economics--the doctrine that innovation economics seeks to replace--grew up crippled because it borrowed from an incomplete model of equilibrium physics, using the First Law of Thermodynamics, but not the Second Law. Similarly, without a better understanding of the forces behind technological evolution, innovation economics will develop as a fundamentally flawed theory. There is a difference between faster evolution, and real improvements in quality of life.

The ultimate goal of any economic theory, from Adam Smith's invisible hand to modern liberal neo-Keynesian theories, is explaining how wealth is created, how wealth is allocated, and how individuals and organizations interact in markets. In his book, The Origins of Wealth, Eric Beinhocker explains the difference in lifestyle between two tribes, the Yanomamo of the Amazon, and the Manhattanites of New York City. Measuring the economy both by income and by the availability of goods, he explains, "Thus, the most dramatic difference between the New Yorker and the Yanomamo economies is not their 'wealth' measured in dollars, a mere 400-fold difference, but rather the hundred-million-fold, or eight orders of magnitude difference in the complexity and diversity of the New York economy versus the Yanomamo economy." Approximately 1010 different products are available in the New York area, compared to a few hundred in the Amazon. Not only does this diversity of goods better meet individual needs of comfort, taste, and style, but it also creates a much richer panoply of jobs and opportunities.

How did this situation arise? How did humanity transition from the ancient economy of the Yanomamo to the modern economy of New York in just a few thousand years? Beinhocker proposes that the economy works according to the universal rules of evolution--differentiate, select, and amplify. This process is carried out in the interactions between physical technologies--concrete objects, social technologies--ways of doing things, and business. While accurate, this description merely skims the surface of the complexity of evolutionary theory, as developed in biology.

Biological evolution, as explained by Richard Dawkins in The Selfish Gene, is about the competition of genes, packets of biological information. Genes do not exist in isolation, but are bound together in a genome, which is phenotypically expressed as a living organism. The selective pressures of the environment, competition and predation, and the reproductive preferences of potential mates all act to select for advantageous combinations of genes. The varying survival strategies favored by a given phenotype leads to genetic drift, speciation, and evolution as we know it.

Compare this rather minimalist retelling of biological evolution to one of the deeper accounts of technological evolution, W. Brian Arthur's The Nature of Technology. Basic technological components make use of a single physical principle, such as the reaction of hydrocarbons and oxygen to create heat, or the relationship between temperature, pressure, and volume. More complex technologies are built by combination of these components, for example, combustion, thermodynamics, and wheels are the essence of the automobile. Ultimately, a successful technology must fulfill a human need, which is represented in aggregate by The Market. Science and 'modularization' adds more components, exponentially increasing the number of possible technologies, and the number of useful ones.

But relying on combinatorial evolutional alone to drive growth is optimistic. Evolution has no teleology, no ultimate goal, no moral purpose. The law of natural selection is simplicity itself: that which survives, survives. The econosphere--the sum total of technological and ecological activity analogous to the biosphere, is very good at giving us what we want, in terms of more products and more powerful tools, but it is not good at survival. The industrial revolution is barely 200 years old and already the planet is choking on the by-products of technology and an unprecedentedly large population. The coming crisis is all too apparent to human foresight, but the blind forces of technological evolution see no problems. After all, as long as the market is healthy, who cares about the people?

The challenge for policy-makers is not just driving the innovation engine faster, but figuring out how to transition to a sustainable economy. A good analogy for the current situation is that the ecosphere is a zoo exhibit of predatory machines, each one a different technology, their brutal struggles sustained by constantly throwing fresh meat--the limited supplies of fossil fuel, into the enclosure. Meanwhile, waste products like CO2 and heavy metals threaten the fundamental parameters of the enclosure. What policy-makers must do is transform the enclosure into a working ecosystem, with plants, herbivores, and without a decline in the top predators--the energy intensive technologies like refining, transportation, and computing that sustain modern life.

This is no simple task. Policy-makers have few good options. Introducing technologies that are not yet competitive, like solar and electric cars, is like putting a lamb into the lion cage, and requires constant vigilance and effort to keep the lamb alive. Changing the fundamentals of the ecosphere, clearing thickets with carbon taxes and technology bans, runs the risk of damaging the exhibit. The most effective technique is to use the power of evolution to save the exhibit, to create incubators and designed environments to accelerate the evolution of desired technology. Or returning to the real world, support and sustain institutions capable of energy innovation, from basic research in universities, to pilot-scale power plants, and financial guarantees for early entrants in clean energy.

Innovation economists deserve praise for rejecting the neoclassical growth story and attempting to include the 'endogenous factor' of technological advance, but their efforts to make a rigorous and useful theory are far less impressive. My analog of the economy to a zoo exhibit is likely no more true than the economy-as-equilibrium-system model used by neoclassical economists. Before innovation economics can mature as a field, it must develop more rigorous models of what a technology is, how it evolves, what the equivalent of genes and generations are, and the nature of the selective forces at play, so that institutions that encourage socially beneficial innovation can thrive. Economist Joseph Schumpeter described the process of innovation as one of "creative destruction." Innovation economics need more creation, and less destruction.