Wednesday, June 10, 2009

What stops private ambition (part 1)

To achieve our 2050 goals, we have to spark as much human energy as we can, while diminishing coordination and duplication costs across the economy.

Inspiring economic acitivity requires both incentive and purpose. The economy is a fundamentally purposeless activity - we place meaning on our exchanges, like Babbit fantasizing business to war, or traders analogizing profit-taking to mathematical precision, or co-workers laughing and mock-fighting over boring work. It underscores that humans work for meaning.

To inspire ourselves and our economic acts, we must place meaning on the simple short-term rush to survive and to flourish. Meaning creates the performance and results that are unusual and make some companies great. We cast the struggle in a heroic narrative. By doing so, we take the famous "wedge game" and breathe life into the dreams of the academy - energy efficiency, carbon trading, carbon storage, renewables, and nuclear in their proper times and places.

But inspiration alone is not enough. Political leaders have tried to simply inspire since our first knowledge of global warming. But still, 65% of our electricity, for example is carbon-based. The first initiatives to slow global warming began under Nixon but no Congressional policy truly started until the "No Regrets" policy of George Bush Sr. in 1992.

So why isn't the shift working, and what can we do? We must first understand why the shift has not happened.

The quandary is from six basic factors: strategic clarity, appropriate human skills (and the allocation of those skills), an existing market, capital to ramp up and fund projects (and proper allocation of capital), skills in the management teams to execute the visions, and the power to maintain a business's working capital or liquidity

Strategic Clarity

You can't play the game if you don't see the field. The makeup of the field is due to several components. There is a necessary dependence on government, as I'll talk about in the next post, the strangeness of carbon. It's also dependent upon competition. Competition is usually great as it spurs us to higher goals, but it also can be destructive to coordination.

Government's role in encouraging strategy requires, as an aside, a lack of dogmatism. There isn't any silver bullet - solar, wind, carbon storage, etc. The only two requirements for a valid project or technology is (a) does it make power and (b) is it the lowest cost solution under all incentives, and (c) is it low-carbon.

Strategic clarity is lacking now because of high regulatory risk combined with market uncertainty. To make it clear, government has to set up a stable system and people pressing forward with their own bets in this space must be flexible in their goals and ambitions.

Human skills

Creativity is the most important. This skill allows us to change human habits. We also need business management skills, engineering skills in materials, systems engineering, information technology and numerous other fields. To a limited extent, these engineering skills are being created and allocated by research grants in universities. The universities are inspiring and training engineers that have the interest to solve the technical issues. Also don't mess with it by sending valid scientists who want to study here elsewhere!

We also need attorneys and financiers who know the economics an intersection between public strategy and private strategy. Allocators of capital have to be clear-headed enough to see the best bets and find the right teams. It also requires leadership skills, the ability to inspire, motivate, and guide teams to produce results. And because of the regulatory dependence, it requires people that understand government and its ways.

Finally, it requires business leaders who are idealistic, but more prudent than idealistic.

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