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Governments
Mandate Innovation |
There
are areas of the American economy that appear to show
promise. The signals from the electrical power market
indicate that more electrical power will be needed in many
regions including New York City and California. Government
regulation of the power markets impeded earlier construction
of generation capacity. Government programs in Canada
provide funding for the development of renewable energy
technology that is intended to produce innovative clean
energy technologies with export potential. However, prior
experience in the American economy indicates that
technologies that are subject to state-sponsored research
and development have limited market acceptance.
The Stirling-cycle engine
was a proven, efficient, low-powered, externally-heated
piston engine that operated on air and that could use a very
wide variety of fuels. Beginning in the 1960s and lasting
over 30 years, NASA provided a massive amount of funding for
research to improve the efficiency of that engine. The high
expectations for an imminent breakthrough in efficiency
literally stopped commercial production of the Stirling
engine as potential customers waited for more efficient
versions to appear. After 30 years, the efficiency of the
Stirling engine remained essentially unchanged despite the
vast amount of research funding that had been allocated to
its improvement.
The Canadian technology
development program has resulted in different entrepreneurs
in different regions developing almost identical pieces of
clean energy technology, some of which are now being offered
to a reluctant market. The scenarios of the Stirling engine
and the thermo-acoustic engine will likely be repeated in
Canada and will involve other market-ready renewable energy
technologies competing with almost identical technologies
that are being developed with state funding. Potential
customers will likely wait for more efficient versions of
the newer technology to appear on the market.
Projected power shortages
in regions such as California, Ontario and New York State
are the result of earlier regulation of the power industry
in those regions as well as several other locations. During
the economic downturn, governments in those regions are
likely to increase generation capacity by using public
capital or by involving willing private sector players.
There is a high risk of malinvestment in regions where the
power sector is highly regulated and where politics will
dictate the choice of technology.
The power industry is one
of several economic areas where political involvement will
likely prevail. The interstate highway system is literally
crumbling in many parts of America while highway repair work
is also needed in parts of Canada. Municipal sewer systems
in most major centers throughout the US and Canada are also
in need of upgrading after many years of neglect.
Governments in both countries seem quite willing to allocate
massive amounts of capital to infrastructure projects.
Unfortunately, such massive capital allocation will neither
correct the massive malinvestment of the previous decade
nor strengthen the economy.
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Artificially low interest
rates have resulted in large amounts of malinvestment in
the American economy and in the economies of America's major
trading partners, which include China and Canada. Many
companies in both countries sell products to the US market,
and they depend on reliable signals from that market. They
may instead have planned their long-term production
strategies based on misleading signals they received from
the American market, but they had no way of discerning
genuine market signals from the misleading signals caused by
the low American interest rates. 