Robert Solow, Nobel laureate and father of neoclassical economic growth theory, says that policymakers' current economic solutions are nothing more than "drivel" and that spurring innovation - especially energy innovation - must be a central goal of public policy moving forward.

As ITIF and the Breakthrough Institute recently reported in "Taking on the Three Deficits," policymakers of all stripes largely ignore the role innovation must play to break America out of its current economic rut and restore budget balance in Washington. The top-line message - only targeted public investments in programs that boost innovation, productivity, and next-generation industries combined with targeted cuts in consumptive spending will put the United States on a long-term path to sound fiscal footing.

Thus, the current deficit reduction approach is akin to taking one (small) step forward and three steps back. This is largely due to a head-shaking misdiagnosis of the size and character of the United States deficit problem. America isn't just tasked with eliminating a $10+ trillion cumulative budget deficit; it also faces a growing trade deficit in addition to a disturbing shortfall in investments in the fundamentals of innovation like infrastructure, education, and R&D. All total, America's three deficits - budget, trade, and investment - total a monumental $21 trillion and are set to grow to at least $40 trillion in the next decade. It makes the Super Committee's task of finding at least $1.5 trillion in budget savings paltry in comparison.

What America really needs is a budget policy reset. First and foremost, policymaker must make innovation central to its economic policy decisions. This means making smart public investments, even with limited government resources in a time of austerity that can address all three of America's deficits. In Solow's words, there is "no excuse for boondoggles, for spending for its own sake, [but] there is room for spending on useful things."

To Solow, one of those "useful things" is clean energy innovation. Spurring innovation in the stagnant U.S. energy industry "has special importance especially over the long run." Investments in energy innovation like research, development, and demonstration will "attract capital investment, leading the way to new enterprises, industries and skilled jobs - just what is needed to pick up some of the nation's underutilized production capacity."

Solow also notes that supporting energy innovation can also address America's worsening balance of trade. To do so, we must develop alternatives to imported fossil fuels (which make up almost 50 percent of the annual trade deficit) like electric cars with next-generation batteries that are cheap and can last for 500 miles on one charge or next-generation biofuels developed using advanced genomics or chemistries.

In other words, support for clean energy innovation holds the promise of boosting the economy, creating jobs, reducing the investment and trade deficits. That in turn means targeted investment in energy innovation will also reduce the budget deficit through growth induced higher federal tax revenues. It's a perfect example of the "three deficits thinking" sorely needed in Washington.

As Fareed Zakaria states in a recent Washington Post piece, shifting to such an investment and innovation strategy requires "a big shift in the United States," compared to the last two decades of falling investments in "physical and human capital." Yet, tough times call for tough decisions. Zakaria ends with a salient message for today's gridlocked legislators: America has allowed its economic foundation to seriously deteriorate, so "if we want the next generation of growth, we need a similarly serious strategy of investment." It's obviously time to shelve the drivel and begin a serious three deficits approach to restoring American fiscal balance and economic prosperity.

By Michael Burnam-Fink, Breakthrough Fellow

There's an old adage that if you can describe a problem mathematically, it's 80% solved, and if you can't describe it mathematically, you're never going to get it right. The second modern risks that the world faces today, climate change, political paralysis, financial collapse, obesity, and anomie all are closely tied together by industrialization and urbanization.  At the same time, the creative and innovative solutions that might help solve these problems also originate in cities and corporations.  In an increasingly urban world, cities and corporations are the keys to the future, and Geoffrey West believes that he has the mathematical tools to understand them.

Cities are a lot like organisms, in that they can be seen as mechanisms for circulating and distributing energy.  Since 1997 Dr. West and his team have collected a stunning amount of data, showing strange relationships between population and various statistics about cities (New York Times). Infrastructure-roads, electricity grids, gas stations, police officers, carbon footprint, scales by the 0.85 power of population.  Intellectual capital-patents, works of art, and wages, along with negatives like crime and disease, scale by the 1.15 power of population.  What this means is that big cities are both wealthier and more efficient than small cities or rural towns, and that given a city's population, Geoffrey West can derive with 90% accuracy any other fact about the city. New York is a scaled up San Francisco is a scaled up Des Moines.  It's all in the numbers.

I don't doubt the data, or the correlation, but the underlying mechanisms and the usefulness of Dr. West observations are harder to grasp.  Cities, in this model, are made of people and their social networks, and human relationships are far less deterministic than fluid mechanics and circulatory systems. Dunbar's number, the idea that people can maintain about 150 personal relationships, is closer to a conjecture than a proven scientific fact.  The idea that there are fractal scaling laws in human relationships is even more speculative.

Likewise, if 90% of a given city is just based on population, what about the last 10%, the variations that make New Orleans different from Minneapolis?  The data shows that cities are extraordinarily stable over time; variations persist for decades despite the best efforts of politicians to improve their cities.  The data, as I understand it, doesn't show that more roads decrease congestion, or if more schools improve education, or any other causal links between policy choices and outcomes.  Management tools have to work on human scales if they are going to be accepted and used.

The second major topic of the lecture was death, and why corporations die while cities appear immortal.  In animals, death is the result of entropy. Metabolic processes create free radicals, which eventually overwhelm cellular repair mechanisms, and cause some vital organ to fail.  Cities, compared to organisms, are incredibly resilient.  They can be sacked, suffer industrial collapse, even get nuked, and still bounce back in a couple of decades.  What Dr. West didn't elucidate were boundaries and conditions. Animals have well-defined boundaries between the organism and the world, and between alive and dead, while cities are far loser agglomerations.  Is Roman Londinium the same city as British London?  Cities have kept entropy at bay because the global population is continually increasing, and it's easier for a city to make new citizens than it is for an animal to make new cells.

Corporations are like cities, in that they are agglomerations of humans, but observationally, the data shows that like animals, corporations are sub-linear; larger corporations generate less income per employee.  From this, Dr. West concludes that corporations are bound to die, which I think is an artifact of defining a corporation in terms of its legal charter, rather than the products it makes, the employees who work there, or equipment it uses.  The names on the outside of a building are as relevant to the real business of business as the stripes on a leopard are to the business of a predatory cat.  It's not the legal labels that matters, but the people, capital, and ideas.  In that sense, the data is totally inadequate to explain corporate behavior.

This project is extremely ambitious, but the sense that I got from the lecture was that of a profoundly misapplied metaphor. Like a 19^th century physicist describing the universe as a perfect clockwork mechanism, Dr. West describes the universe in terms of the dominant network technology. There are real insights to be gained, but very real dangers of technocratic arrogance plagues the application of any of these theories. During the Q&A session, there was palpable unease as the political implications of what Dr. West was saying, and the way his theories directly contradict our notions of freedom of action and democratic self-governance.

Rather than collecting and correlating the data that's available, I'd prefer it if Dr. West used his acumen to develop more rigorous theories of energy and information flow between people and technological artifacts.  If cities truly behave as he says they do, the important lessons for bettering the human condition will be found in more precise theories of human relationships, and the ecology of technology. The macro issues of infrastructure and creativity are important, but what makes cities unique, and what makes living in cities interesting, is the microstructure of where the roads go, where the good restaurants are, and what the creative people talk about. At present, the theory does not even being to explain these qualities.

I just attended a presentation by Marlene Grundstrom, who works with the Stockholm Environment Institute on energy access and energy poverty.

Often left out of both discussions of climate change and global poverty, lack of access to clean, affordable energy turns out to be a key driver of both, and a considerable source of suffering and mortality in less-developed countries. To illustrate this, Ms. Grundstrom noted that indoor smoke inhalation kills more people every year (around 1.4 million people) than malaria does. Also, while the mortality incidence from AIDS and malaria are projected to decrease in coming years, deaths from indoor smoke inhalation are expected to rise.

One of her main points was that projects to expand energy access are more successful when they rely on local institutions and local knowledge. When a community has ownership over a project and can continue implementing it even after the donor or aid organization departs, the project has a higher chance of achieving its goals.

Ms. Grundstrom noted a case where women in Ethiopia rejected clean cookstoves in favor of traditional coal-burning stoves, because food cooked with clean cookstoves tasted differently. Here we see local knowledge as the dominant force in dealing with energy poverty, as opposed to thermodynamic or epidemiological concerns.

A community of a higher order should not interfere with the life of a community of a lower order, taking over its functions.

I was also reminded of the work of Dan Kammen, a professor of mine at UC Berkeley and current Chief Technical Specialist of Renewable Energy and Energy Efficiency at the World Bank, whose work on "mundane science" (PDF) jumped to mind.

In energy and development research, it appears as a disproportionate focus on advanced combustion systems, commercial fuels, and large centralized power facilities, even though more than 3 billion people rely on wood, charcoal, and other biomass fuels for the bulk of their energy needs.

Why do I cite these two ideas? Because energy access does seem to receive a disproportionately small amount of attention in energy/climate discussion. However, it really is both a cause and a symptom of problems people are already hard at work dealing with around the world (addressing poverty/development in general and developing clean fuels and renewable technologies). One can imagine and observe other motivating principles from different sciences and faiths. Scientific, humanitarian, economic, and religious motivations can all point towards the goal of reducing energy poverty and expanding access to clean energy.

1.5 billion people worldwide lack any access to electricity*, and therefore rely on traditional biomass and dung for the primary energy source. A movement to drive down the cost of clean energy, so that industrial nations can replace their incumbent carbon infrastructure with renewables, is inextricably linked to closing the global energy gap and expanding energy access to the world's poor. Delivering the energy poor the means to control their own destiny through expanded access to clean and affordable electricity must be an explicit element in efforts towards decarbonization.

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*According to the UN, "electricity access" means 40Wh/day (4 hours of access to a 40W light bulb per day), which tells me that that 1.5 billion figure actually understates the problem.

While the German Feed-in-Tariff (FIT) has been a great piece of policy for deploying renewable energy, it has not been effective at driving down the costs of photovoltaic (PV) systems. In fact, based on learning rate analysis, it may actually be detracting from PV innovation and cost reductions.

The German FIT effectively pays PV electric producers a flat rate for the electricity they produce regardless of the market price for electricity. While this ensures market penetration for PV, it does little to drive down the cost of PV. Once an installer can install PV at a cost that makes it profitable, little will be done to drive down costs of systems for the consumer even if internal innovation occurs. Why reduce costs to consumers if the feed-in-tariff continues to ensure profitability for their electricity production regardless?

The demand generated for PV in Germany due to this incentive is much greater than the rate at which new manufacturers and installers can enter the marketplace to reduce costs, and so little competition takes place to drive down costs. To limit the "windfall profits" that may be occurring for the more developed firms, Germany could decrease the payout of their FIT over time, which they have slowly been doing.

Even with the newly implemented rate decreases (9% per year), however, they are not decreasing the FIT at a rate that represents traditional learning rates for the PV industry - from 1985 through 1995 PV learning was 35%. Looking at similar analysis for Germany today yields a learning rate for PV of only 7%. Comparatively, the implied learning rate for the German FIT is only 3%. The difference in learning rates means that the cost of installed PV is declining quicker than the FIT is dropping (see the graph below), guaranteeing increased profitability for the PV industry at rate-payers' expense each year.

Even so, the decreasing cost of PV installations only represents a 93% progress ratio - something similar to present day values for coal development (97% progress ratio) compared to historic rates for wind (82% progress ratio) or PV (65% progress ratio). There's obviously a problem: PV is not learning at the rate that it should be.

Data analyzed based on IEA-PVPS numbers

The above data for installed PV costs seem to follow the FIT price structure rather well. When FIT payouts increased, for instance, the installed cost for PV also increased. As PV is a global market, not unique to Germany, it is unlikely that the learning rate for PV will be the exact same as the FIT. Nonetheless, these rates are very close, and perhaps Germany is the cause of this by leading demand for PV systems.

FIT price declines have had little effect on annual capacity additions

The German policy, quite simply, creates too much market demand at high prices. This directly prevents competition and cost reductions. Right now, production is roughly doubling every year, but so is demand. Production and installation is unable to grow fast enough to ensure market competition, and because there are policies in place that guarantee profits for electricity generators, there are few reasons for established PV firms to decrease costs or pass on savings.

To remedy this problem, the German FIT must decrease more rapidly - perhaps at rates that are closer to historic PV cost reductions. Going forward, Germany's revised EEG program will decrease the FIT at 9% per year, which is a step in the right direction. However, this will only be effective if incentives in the rest of the world also similarly decline. If not, the outcome will simply be a migration of installed PV capacity into regions that continue to "overpay" for PV technology.

By Michael Burnam-Fink, Breakthrough Fellow.

Today, I was catching up on my news, reading about the Clock of the Long Now, when I heard a little story about roof beams at Oxford's New College (really, you should just watch Stewart Brand's clip).  Five hundred years ago, at the same time as the college was built, the founders planted oak trees, because they knew that long after they were all dead, the beams would become beetley and eventually need replacing.  Their foresight floored me; to plan that far ahead, to ensure a legacy for their successors deep in the future.  And it got me thinking about our energy system, which underpins every other part of the economy, and about the seeds we should be planting now.

The Earth's resources are limited, but the sky is full of energy.  Hundreds of TW of energy fall on the Earth's surface every second, orders of magnitude more than we could ever use.  All forms of energy available, with the exceptions of nuclear and tidal, originate from the sun.  Wind power is the energy of the sun translated into gaseous motion.  The sun drives evaporation and rainfall, which fills our reservoirs and spins hydroelectric turbines.  Plants turn air, sunlight, and dirt into useful energy sources for people, animals, and biomass generators.  Oil, coal, and natural gas are nothing more than the fossilized sunlight of centuries past.

Solar is more expensive than conventional energy sources, not just because solar panels are pricey, but because the electrical grid is poorly set up to handle solar power.  Unlike a coal or natural gas plants, solar only works when the sun is shining, and while on average the earth receives plenty of sunlight, a specific site will only produce electricity about 25% of the time, due to weather and night.  A way to cheaply and efficiently store electricity, and a more robust infrastructure from transmitting power from point to point--the Smart Grid, are both parts of the solar future.  Similarly, the sun falls most strongly on deserts, from the Mojave to the Sahara, far away from where people live.  High-voltage transmission lines (HVDC) from sunny deserts to populous cities are another part of the future solar infrastructure.

There are many barriers standing in the way of this energy future.  Some are technological; like the limited production of solar panels today.  Others are financial; these are major capital investments which will only pay off over decades, if at all.  But a surprising number of barriers are political.  The permitting process for interstate transmission lines can only be described as a regulatory nightmare, let alone international transmission lines.  Nobody is quite sure how consumers will pay for electricity at a market price using smart meters, or how grid scale storage will affect the highly regulated electricity market.  And everybody is afraid that they'll be the ones footing the bill, while someone else makes off with the profits.  While fairness, transparency, and going with the lowest bidder are all good principles, failing to resolve the energy challenge will only be catastrophic.  Balanced against the fate of the planet, a little waste is a small price to pay.

The current effort around cleantech R&D and deployment are admirable, but they are not enough, a few hundred billion a year, worldwide, when the true scale of the challenge is in the trillions of dollars.  But more than money, or science, policy-makers should be thinking about longevity.  The systems we put in place have a tendency to stick around, the have to be maintained.  David Edgerton noted in his book, "The Shock of the Old", that maintenance costs tend to far outweigh initial capital costs for new technologies, yet are mostly ignored.  Even in our throw-away culture, few items are used once and discard.  Instead, the used cars, clothes, and appliances of the First World lead second lives in the Third World.  The grand advantage of solar energy is that there are not moving parts, nothing to corrode or decay.  Right now, solar panels have a lifespan of four decades; that should be four centuries.  The electronics that transmit power to the grid, the balance-of-system components, should be equally durable, both physically and technologically.

When I say that in the long run, Earth's energy future is solar, I am not speaking as a policy advisor, or an environmentalist, or an economist, but as a physicist--or more properly a chemist, since this argument is originally Professor Nate Lewis' of Caltech, and the laws of physics cannot be denied.  Switching to an all-solar energy system is not going to be cheap or easy, but if it's the only workable solution in the long run, we should begin the transition today.  The recently passed House appropriations bill cuts one $1 billion from the Department of Energy, and the major battles were over lightbulb efficiency standards, the Strategic Petroleum Reserve, and high speed rail.  This is not leadership.  This is not long term planning.

I refuse to accept that 500 years ago, people were better at foresight and planning than we are today.  Why do we not have a plan for long-term energy security? Why do our leaders refuse to discuss the issue?  And if you think I'm wrong, what is your plan?

((Addendum:  The other long term solution to the energy challenge is fusion.  We should also be pursing every option available, but many major breakthroughs in plasma physics will be required before fusion becomes an operational power source. I'm not willing to stake the future on fusion.))

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?

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 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.

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.

--
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.

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.

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.

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".

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.

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.

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.

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.