Obama's Wager on Clean Energy: The Right Role for Government?

There he goes again, picking winners and losers. That would be President Barack Obama, who visited Penn State University this week to shower love and money -- yet again -- on the clean, green energy sector.

This is not a mere crush. Obama has been promoting green energy and green jobs on the national stage since he announced his presidential candidacy four years ago. The terminology has changed (Democrats now prefer "clean energy") but Obama's commitment has not. The 2009 stimulus package contained more than $80 billion in spending and tax incentives for the clean energy sector. Obama's trips outside the Beltway often are designed to highlight clean energy jobs. In his State of the Union addresses both last year and this year, he has portrayed this sector as critical to the nation's economy and security, and made clear he'll direct funds to it.

Dani Rodrik, a professor of international political economy at Harvard's Kennedy School of Government, says America's green technology push is "perhaps the largest industrial policy effort in history." But it's not being called that. As Rodrik noted during an Economist debate last year, industrial policy is "a taboo in polite economic discourse in America."

That's because the phrase "industrial policy" evokes visions of Soviet-style central planning, and gives conservatives hives. Obama's latest State of the Union speech made some of them itchy. Jennifer Rubin, a conservative blogger at The Washington Post, said he had demonstrated an "undisguised hunger for government to pick winners and losers" (she was particularly critical of his call to redirect billions in federal subsidies from oil companies to biofuels).

"Stop Trying to Pick Winners and Losers, Mr. President," Andrew Wilson wrote at the conservative American Spectator. Naming Obama's would-be winners as clean energy, wireless, high-speed rail and the construction industry, he shook his head at the president's "misplaced belief in the ability of government to do a better job of picking winners and losers than the free enterprise system is able to do on its own."

It's difficult, however, to determine to what extent the free enterprise system is ever on its own. William Reinsch, president of the National Foreign Trade Council, says U.S. industrial policy stretches back at least 150 years. "We have a world-class agriculture sector because of what the government did in the 1860s" and since, he told me, including the Homestead Act, land-grant colleges to teach agriculture, and an extension service to help farmers apply research and improve their farming practices.

There are many ways to help American industries flourish, and liberals aren't the only ones who do it. We owe air travel, the space program and the Internet to federal money, much of it routed through the military -- a surefire way to mute opposition from conservatives. As Reinsch and others have noted, Ronald Reagan used a range of tools -- including tariffs on imports and relaxed anti-trust restrictions -- to buoy the U.S. automobile, steel and semiconductor industries. He also saved the only U.S. motorcycle manufacturer, Harley-Davidson.

"The historical record is very clear. This works and it's not socialism. It's not excessive government. It's eminently sensible," said Reinsch, who was an economic adviser to Republican Sen. John Heinz of Pennsylvania and later served in the Clinton administration.

The Obama administration had to decide whether to bail out GM and Chrysler, or let them collapse. Facing a loss of 1 million jobs and possibly the whole U.S. auto industry, Obama decided to bet taxpayer money on the companies.

To say the move was controversial would be an understatement. Some continue to criticize it on grounds that the government has no business owning shares in a private firm or influencing its course. Still, the revamped companies are thriving and repaying the taxpayers. In a practical sense, the gamble appears to have paid off.

Opponents of "industrial policy" say the more effective, appropriate government role is to create a hospitable economic climate for all sectors. The building blocks of that are the tax code, education and making it easy to turn research into marketable products and services. Obama is on the move in all of those areas, with his Race to the Top education grants, a proposal to reform the tax code and lower the corporate income tax, and a new Startup America program to foster innovation and help entrepreneurs.

The Startup America launch this week, however, was also another showcase for Obama's most favored sector. Onstage to make the announcement were two administration economists, the Commerce secretary, the head of the Small Business Administration and -- leaving no doubt about what the administration particularly hopes to jumpstart – Energy Secretary Steven Chu.

Gene Sperling, director of the National Economic Council, told me later that the goal is not to pick winners and losers. "None of us in government think we can foresee specific winners or losers of the future, but it doesn't mean that we shouldn't be laying the foundation for innovation" in general, he said. In terms of clean energy, he added, "we're just simply recognizing the reality that this is an incredibly promising, broad area for job growth and innovation in America that has broader benefits for our environment and national security as well."

Much of the urgency on clean energy is the sight of China and other nations leading the way on wind, solar, biofuels and other alternative technologies they are already selling to the world. It was hard to think Obama was not thinking about China, with its industries racing to meet government-imposed energy goals, when he talked last week of "central governments" that can make and execute decisions with no guff. Here, Obama said in a rueful passage, "we argue about everything. The costs. The details. The letter of every law." And ain't it grand, he added in so many words.

The country is arguing right now about high-speed rail, a favored Obama enterprise and another area where we are being outpaced by China, France and other countries. Next up, inevitably, a struggle over eliminating oil subsidies and using the money for alternative energy sources.

No doubt some people will continue to object to what they perceive as the heavy hand of government. As Republican pollster Ed Goeas once put it to me, "This country was built on a basic mistrust of government, and that's a good thing."

But a new Gallup poll holds encouraging news for the administration. When people were asked their views of eight proposals Congress might take up, topping the list with 83 percent support was a bill offering incentives to develop solar and other alternative alternative energy sources.

Obama went against public opinion on the auto bailouts and his new health care law. He's going against the tide by keeping troops in Afghanistan for now. He's finally aligned with the country on a popular issue. Now he just has to convince people that the attentions lavished on clean energy are not industrial policy, but good economics and patriotic to boot.

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