Does Government Need to Fund Energy R&D?

by Iain Murray on August 26, 2008

in Economy, Energy, Environment, Global Warming

The Breakthrough Institute, whose willingness to think outside the box I greatly admire, issues a challenge of sorts to my friend Jim Manzi, who has been particpating in a debate with them over at Cato Unbound. They say:

“If Manzi thinks it is not the government’s role to make large investments to enable the emergence of new industries then he should explain how America could have become such a rich nation without having invested in the railroads, the highways, the electrical grid, the Internet, microchips, the computer sciences, and the biosciences.“

Let’s go through them one by one:

Railroads: were actually built by private enterprise, very much following the similar model in the United Kingdom. Government’s role was not as investor but as facilitator, issuing state charters with limited eminent domain powers that eased the way for quick build. There was very much competition to build the best routes. Eminent domain has significant problems, but it is difficult to think of alternatives with linear developments like railroads – or electric transmission lines. That’s a subject for a future post, but at base, this is an example of private, not government investment.

Highways: There has certainly been massive central government funding of highways since Eisenhower (see here), but government got involved in them for defense-related reasons. Would it have happened without them? Well, construction and upkeep of the King’s Highways in the UK was for two hundred years handled by Turnpike Trusts. When the new private railways came along, the toll income halved overnight (intermodal competition in transport is as important as, probably more important than, intramodal). Today, new roads around the world are being built on public-private partnership basis, with government handling the political risk and private companies the construction risk. It is perfectly plausible that future highways will be built largely through private investment.

[Aside on highways: before the vast government investment in highways, privately-owned mass transportation was profitable and efficient. Without the massive government investment in highways, and assuming light regulation on its development, we probably would have much better developed “public” transportation in the US. I suspect this is the sort of thing Breakthrough would like to have seen happen.]

The electrical grid: Well, this is a clear case where government screwed up the development of the infrastructure. America’s fragmented and inefficient grid is a direct result of the Depression Era PUHCA law and other restrictions (see here). Private development would almost certainly have given us a much more efficient and responsive electric grid. And, absent “fairness” regulation, we probably would have had smart pricing all over the country for some time, something that again I suspect Breakthrough would have applauded.

The Internet/computer sciences (we’ll take these as one): Granted, DARPA came up with the idea of linking remote computers together – again for defence purposes – to create a whole that was more than the sum of its parts. But to what extent was it that act that made the Internet the tool it is? Hyperlinks were invented by United Technologies (despite the then nationalized British Telecom claim otherwise) and bulletin boards were developed by AOL, Compuserve etc. CERN certainly had a role in introducing the World Wide Web, but the investment that has made it a massive success has been overwhelmingly private. In a sense, government funding of the Internet was nothing more than seed money.

Microchips: Texas Instruments and Fairchild separately invented the integrated circuit and, although TI was first, Fairchild’s was better – a great example of competition at work. Now certainly defense purchases of large numbers of chips for Minutemen missiles lowered the price considerably, making them affordable enough for all sorts of new technologies, but it would be a mistake to say that that could not have happened in the absence of the Minutemen project. DVDs, for example, replaced VHS pretty quickly after initially being far more expensive. Integrated circuits were bound to replace transistors whatever happened.

Biosciences: Private pharmaceutical companies spend massive amounts worldwide on bioscience. There is indeed some small amount of government funding rpoducing breakthroughs at the basic science level, but once again these amount to seed money and certainly aren’t arguments that suggest massive government funding in development and deployment of bioscience products either happens or is necessary. Indeed, government tends to get in the way of such deployment, often with tragic results. And there’s also the case of Craig Venter, whose private approach to human genome sequencing almost embarrassed the international government-funded approach, so much so that they strong-armed him into giving up his company’s property rights.

All in all, these examples actually show that government functions best by facilitation – creating the right legal and political environment for innovation and delployment of new technologies. Sometimes it tries to make us safer through defense expenditure and ends up making us richer. Sometimes it interferes and delays or perverts the most efficient development of the technological asset. None of these cases suggest that massive government funding of energy R&D is essential. They do, however, show that government can very much help by getting out of the way. And that’s an argument I am currently developing at much greater length.

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