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One challenge in designing a practical plan for energy innovation–and convincing politicians and the public of its value–is that no one really knows how to quantify the economic benefits of scientific research. Over the last several decades, economists have convincingly documented how innovation can increase productivity and, thus, economic growth. But little is known about how research leads to innovation or what kind of research is most effective. “The link between R&D and economic impact just doesn’t exist on the micro level,” says Julia Lane, director of the Science of Science and Innovation Policy program at the National Science Foundation. Lane and colleagues at the National Institutes of Health have begun to study the impact of the research spending called for in the stimulus bill. Initially, the group will simply track stimulus-funded R&D, collecting data on how different disciplines are funded and how many jobs are created. In a second, more ambitious phase of the project, they will try to find new ways to quantify the economic, scientific, and social effects of the research over time.

Few in the scientific community doubt the value of federal support for research, but politicians are not so united. Lane says that if scientists can’t demonstrate the impact of their research more clearly, the funding will be in jeopardy. “We ought to be able to have some sense of what investments [in R&D] to make,” she says. It’s hard to make such policy decisions now, she adds, because “the data on how scientific ideas are created, transmitted, and adopted are limited.”

There is, however, plenty of evidence that government funding and policy decisions can, if done correctly, create an environment conducive to innovation. But as Harvard Business School professor Josh Lerner suggests in his recent book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do About It, government efforts to promote new businesses have a decidedly mixed record. There have been great successes–Lerner describes, for example, the critical role that government involvement played in the early days of Silicon Valley–and dismal failures, such as a program by the Malaysian government to establish a biotechnology zone in what is now known as “the valley of bio-ghosts.”

Lerner’s book doesn’t directly address energy innovation, but the author shows how important venture capital and entrepreneurship are in realizing the potential of new technologies–and he makes a convincing case that government can encourage these activities.

In a recent interview, Lerner said it is too early to grade the success of the energy spending in the stimulus bill, but he worries that the U.S. government has repeated the mistakes of others. In particular, he says, by making large investments in a relatively few companies, federal agencies such as the DOE have effectively picked winners. A better approach, he suggests, might have been to distribute smaller amounts to more companies and “listen to the market” by linking the government investment to such factors as how much private investment a startup has raised. Regardless of such concerns, though, Lerner stresses that government support for new technologies is crucial. “The government certainly has a role to play in both financing and creating an environment that is conducive to energy-related entrepreneurial activity,” he says. “But it needs to be done right.”

Big Bucks

Over the last several years, a plethora of books, academic papers, and expert reports have proposed ways to formulate a coherent strategy for energy innovation. Notably, in June the American Energy Innovation Council (AEIC), a Washington-based group of industry executives, issued a “business plan for America’s energy future,” signed by, among others, Microsoft chairman Bill Gates, GE CEO Jeffrey Immelt, and Xerox CEO Ursula Burns. The report calls for tripling annual federal support of what it terms research, development, and deployment (RD&D), from the current $5 billion to $16 billion, of which $1 billion would go to ARPA-E. The business leaders also call for a “national energy strategy board” that should be “external to the U.S. government” and would be charged with supervising an “independent corporation outside of the federal government” that would help commercialize new energy projects. In their plan, this corporation would receive $20 billion over 10 years through a single federal appropriation.

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