United States: an ambiguous approach to green technologies
A clue to what is required to accelerate green transformations is found in the US,
where government-funded initiatives are busy building on their understanding of
what has worked in previous technological revolutions. While the US has been
good at connecting academia with industry, in its own push into clean technologies,
its performance has been uneven. As one of the first countries to push into wind
and solar power in the 1980s, the US failed to sustain support and watched as
Europe, Japan and now China take the lead. Worse, the US failed to alter its energy
mix significantly, setting up its position for decades as a world-leading CO 2
emitter. With world-class innovative capability, the world’s largest economy and
a massive energy grid, the US is ideally positioned to kick off a clean technology
revolution, yet it has not.
A key reason for uneven US performance has been its heavy reliance on venture
capital to ‘nudge’ the development of green technologies. The United States is the
VC capital of the clean technology world, with US$7 billion invested in 2011 versus
US$9 billion globally (Hopkins and Lazonick, 2012). However, VCs have shown
themselves to be ‘impatient capitalists’: they are not interested in sustaining the
risks and costs of technological development over a long-term period. Indeed,
together, private equity, venture capital and infrastructure funds provided just US$1
billion for climate change mitigation/adaptation projects in 2012, much less than
State development banks (US$123 billion) and even other governmental agencies
(US$12 billion) that obtain their own funding from limited budgets (Climate Policy
Initiative, 2013). VCs also have limits to the financial resources they can allocate
to finance fully the growth of clean technology companies. Since some clean
technologies are still in the very early stages when uncertainty is highest, VC funding
is focused on some of the safer bets, rather than on the radical innovation that is
required to allow the sector to transform society so as to meet the double objective
of promoting economic growth and mitigating climate change. Ghosh and Nanda
(2010) argue that it is virtually only public sector money that is currently funding
the riskiest and the most capital-intensive projects in clean technology. Federal and
state incentives provide billions to support the establishment and growth of a
domestic solar PV market, ensuring that companies have an opportunity to capture
market share and reap economies of scale.
Impatient capital can destroy firms promising to deliver government-financed
technology to the masses, but critics often focus on the government as the source
of failure, rather than examining the behaviour of the smart, profit-hungry business
community in producing that failure by jumping ship, restricting their total
commitments or demanding financial returns over all other considerations. If VCs
are not interested in capital-intensive industries or in building factories, what exactly
are they offering in terms of economic development? Their role should be seen
for what it is: limited. More importantly, the difficulties faced by the growing clean
technology industry should highlight the need for better policy support, not less,
given that existing financing models favour investors and not the public interest.
The green entrepreneurial state 143
A clue to what is required to accelerate green transformations is found in the US,
where government-funded initiatives are busy building on their understanding of
what has worked in previous technological revolutions. While the US has been
good at connecting academia with industry, in its own push into clean technologies,
its performance has been uneven. As one of the first countries to push into wind
and solar power in the 1980s, the US failed to sustain support and watched as
Europe, Japan and now China take the lead. Worse, the US failed to alter its energy
mix significantly, setting up its position for decades as a world-leading CO 2
emitter. With world-class innovative capability, the world’s largest economy and
a massive energy grid, the US is ideally positioned to kick off a clean technology
revolution, yet it has not.
A key reason for uneven US performance has been its heavy reliance on venture
capital to ‘nudge’ the development of green technologies. The United States is the
VC capital of the clean technology world, with US$7 billion invested in 2011 versus
US$9 billion globally (Hopkins and Lazonick, 2012). However, VCs have shown
themselves to be ‘impatient capitalists’: they are not interested in sustaining the
risks and costs of technological development over a long-term period. Indeed,
together, private equity, venture capital and infrastructure funds provided just US$1
billion for climate change mitigation/adaptation projects in 2012, much less than
State development banks (US$123 billion) and even other governmental agencies
(US$12 billion) that obtain their own funding from limited budgets (Climate Policy
Initiative, 2013). VCs also have limits to the financial resources they can allocate
to finance fully the growth of clean technology companies. Since some clean
technologies are still in the very early stages when uncertainty is highest, VC funding
is focused on some of the safer bets, rather than on the radical innovation that is
required to allow the sector to transform society so as to meet the double objective
of promoting economic growth and mitigating climate change. Ghosh and Nanda
(2010) argue that it is virtually only public sector money that is currently funding
the riskiest and the most capital-intensive projects in clean technology. Federal and
state incentives provide billions to support the establishment and growth of a
domestic solar PV market, ensuring that companies have an opportunity to capture
market share and reap economies of scale.
Impatient capital can destroy firms promising to deliver government-financed
technology to the masses, but critics often focus on the government as the source
of failure, rather than examining the behaviour of the smart, profit-hungry business
community in producing that failure by jumping ship, restricting their total
commitments or demanding financial returns over all other considerations. If VCs
are not interested in capital-intensive industries or in building factories, what exactly
are they offering in terms of economic development? Their role should be seen
for what it is: limited. More importantly, the difficulties faced by the growing clean
technology industry should highlight the need for better policy support, not less,
given that existing financing models favour investors and not the public interest.
The green entrepreneurial state 143