The Role of Government vs. That of the Private Sector

This is a topic that applies to more than just the energy sector, but it is one that I wrestled with as a U.S. DOE official with significant budget responsibilities. Where does the government fit into the research, development and deployment (RD&D) of emerging energy technologies and where is it appropriate to turn these responsibilities over to the private sector? Where do government interests differ from and overlap with private sector interests? How does one balance the two?

In some ways addressing these questions were some of the most difficult decisions of my DOE management career. My immediate staff, aware of the decisions I faced, often said: “That’s why you get paid the big bucks.” If only that were true!

My thinking on these issues was strongly influenced by my familiarity with the DOE renewable energy program at the end of the Carter Administration. I had been a political appointee in that Administration until leaving in 1979 but I had kept in close touch after that with my former DOE colleagues. Something that burned into my memory was the experience the DOE wind energy program had with the Boeing Corporation. After the oil embargo in 1973-74 there was increasing attention to and budget support for renewable energy programs like wind, solar and others. Boeing was supported by the wind program to develop wind turbines for commercial application, a logical approach given Boeing’s experience with aviation propellers, turbine generators, and related technologies. The problem was that Boeing put up none of its own money in this effort, being fully supported by DOE. As we like to say: they had ‘no skin in the game’.

With the arrival of the Reagan Administration this funding situation changed and 100% support from DOE was no longer possible. In fact, the Reagan Administration tried its best to eliminate DOE’s entire renewable energy program, and even DOE. When this loss of total support became known to Boeing they dropped their participation in DOE’s wind program, and I drew a conclusion that guided my future decisions when I returned to DOE as a senior manager in 1991: no RD&D funding to companies that will not do cost-sharing with the government, with the degree of cost-sharing being a function of the level of risk faced by the private sector concern in carrying out its RD&D responsibilities. Thus, when I was in a position in the 1990’s to make such budget decisions my guiding rules were: at least 25% cost-sharing by the private sector when the risk was high in the early stage of a technology’s development; 50% during most of a technology’s development; and 75% when a technology was approaching commercial application. With respect to this latter point, I believed that the government could help get demonstration units into the field for evaluation and confidence building but that the government had no role in commercialization.

I also believe that government should work closely with the private sector to expedite transfer of emerging technologies to the commercial marketplace. This does not mean that government goals overlap completely with private sector goals, as some may believe but I do not. I see government’s RD&D role as ‘looking down the road’, seeing what’s coming, and doing what’s necessary to protect the public’s longer term interests. In addition, our economic system has assigned the private sector the role of maximizing financials returns to investors. Given this latter assignment of responsibility, private sector goals are of necessity shorter term in nature than those of the federal government. Thus, I see it as governnment’s responsibility to set policy and create a financial environment in which government and private sector goals can overlap to the extent possible. They will never be the same, but this is one place where government officials can earn ‘the big bucks’.

I will conclude by noting some recent public discussion of the private sector’s role in serving the public as well as its shareholders. This has been motivated by several corporations, e.g., IBM, making public their primary goal of maximizing shareholder returns. I leave a discussion of whether this is appropriate for another time and for others to discuss.