When the Depression hit, we
created large public works projects, building roads, airports and power
dams.
When murderous tyranny
threatened the world, we became the arsenal of democracy and won World War
II.
When Europe was sinking in
post-war turmoil, we staged the Marshall Plan to rebuild the continent.
When John Kennedy set a
target to reach the Moon in a decade, we assembled the resources and will and
made it happen.
Then, in the 1980s something happened. We stopped believing in acting together in
the common interest. With Ronald Reagan
in the US and Margaret Thatcher in the UK, we turned to the “magic of the
marketplace.” In the public policy
arena, market tools were conceived to be superior to direct actions by
governments. Government was the problem, not the solution,
said Ronnie. Bill Clinton echoed him in
the 1990s when he said the era of big government is over.
Marketplace mysticism infused
both parties, not to mention the environmental movement, where MAs and PhDs
with expertise in “neoclassical economics” were avidly sought to develop market
tools that would reflect environmental costs and “right price” everything. Market fundamentalism won the day.
Thus the climate movement is
possessed with near theological discussions about which market tool is
better. Is it a straight-up carbon tax,
or should we create a carbon cap, auctioning permits to pollute and allowing
polluters to buy carbon emissions reductions in a trading marketplace? Ideally
seeking the lowest-cost carbon reductions possible.
What is lost in the
discussion is how we actually met challenges on the order of global warming and
climate change in the past, challenges which require the creation of new technologies
and industries. Market fundamentalism conceives new innovations and industries
to rise magically out of properly adjusted market systems. Build the incentives and they will come. A study of economic history shows it just
ain’t so.
The digital computing
industry did not start with guys in garages in the 1970s, but with huge
investments by the military and then the space program from World War II
through the Cold War. Long before Bill
Gates and Steven Jobs came the Department of War-funded ENIAC, the world’s
first digital computer, in 1946 at the University of Pennsylvania. From IBM to the predecessors of today’s
microchip industry, government-funded research and contracts founded later
commercial success. Military and space purchases of costly integrated circuits
paved the way for cheap mass computing.
Aerospace likewise rose out
of concerted public investments driven by national security needs. For instance, Boeing built the Boeing 707
jetliner on an airframe designed as the KC-135 air tanker. Before 1955 the company
drew over 99 percent of its income from the U.S. Department of Defense. The telecommunication story is the same, with
microwave transmission, communications satellites and fiber optics rising out
of federal research and investments.
Even the fossil fuel fracking revolution grew out of decades of public
R&D funding. Earlier examples of industry creation include the land and
cash grants to the first transcontinental rail lines, and the U.S. Navy’s
deliberate creation of an American steel industry to build its new steel fleet
in the 1880s.
Public investment is needed
to nurture new technologies through early stages, when investments are not
likely to produce immediate returns. If one private party takes the research
and development risks, others might share the rewards by reverse engineering
new technologies and adopting them as their own. In economics this is known as the free rider
problem. So the public must assume the
risks. Then when technologies move from
R&D to early production, costs are high until economies of scale and
learning curves bring them down. So
public support in the form of guaranteed markets for expensive early stage
products is crucial.
Carbon pricing and caps can
be a useful supplement to public investment in creating new technologies
and industries. But to win the climate
war we need to recall how we succeeded in other great struggles. By “we the people” acting together in the
common good and directly investing in creating the technologies and industries
we need to win. We did it in the
past. We can do it again.
All really true. Have you come across The Entrepreneurial State, by the Italian economist Mariana Mazzzucato? www.amazon.com/Entrepreneurial-State-Debunking-Innovation-Economics-ebook/dp/B00APDTQRA And she addresses climate change and the green economy. Great ammunition for smart debating.
ReplyDeleteYou raise excellent points. I feel that the public banking option needs to be seriously examined. It enables municipalities to set up a banking structure that keeps tax revenue capitalizing local economic activity. The best assessment of what has been happening during the whole hydrocarbon epoch was last night's episode of COSMOS on National Geographic Channel with Neil deGrasse Tyson. Aside from an astounding account of the opportunities that were developed to use solar power a 100 years ago, and other amazing facts, the show also provided a quiet unspoken inference of what is needed - a vision for regreening all the arid regions of the world. The link to this eposide is http://channel.nationalgeographic.com/channel/cosmos-a-spacetime-odyssey/episodes/the-world-set-free/.
DeleteI would like to link your essay to the Canada Chapter of the Public Banking Institute at "canadachapterpbi.ca".
Thanks very much for raising these essential arguments.
Please to link my essay.
DeleteYou are spot on with the focus on banking. Meeting the climate and sustainability challenges are so much about where money is invested. I plan to blog on that. So public banks, green banks, and all ways for the public to reclaim capital and invest it for the common good are a key part of the picture.
Re-greening. Yes! We will not stabilize the climate without reducing CO2 to at least 350 parts per million, 50 over where it is now, and more to come. Hansen says we need to bring 100 billion tonnes of carboin out of the atmosphere into trees, plants and soils. Along with capping overall human carbon emissions at 500 billion tonnes. That gives us only around 130 to go, so we need that solar.
Great hearing from you, old co-author. I'll check it out.
ReplyDelete