A public-private auto industry

Jeffrey Sachs:

The auto industry has been widely vilified in recent months... There has been an insistence on “letting free markets work”...

The critics have no doubt felt their frustrations building—justifiably—for decades. ... Still, the scorn for the industry misses four crucial points. First, a collapse of the Big Three ... would add another economic calamity to the crisis-roiled economy. ... Second, the ... Big Three were financially weak, to be sure, but they would not be at the precipice of bankruptcy were it not for the worst recession since the Great Depression. Conversely, with an overall economic recovery, the Big Three can be viable. Third, the public and political leadership bear huge co-responsibility with industry for the misguided SUV era, with its flagrant neglect of energy security, climate risks and unsustainable household borrowing.

Fourth, and most crucially, the changeover to high-mileage automobiles must be a public-private effort. To wait for the “free market” to bring it about is to wait forever. Major technological change, such as from internal combustion engines to electric vehicles recharged on a clean power grid..., requires a massive infusion of public policy and public funding. Research and development depend on huge outlays, and many of the fruits of R&D ... will become public goods rather than private intellectual property. That’s why public financing for R&D is so vital, and has been widely recognized and practiced by the U.S. government for a century in many industries, including aviation, computers, telephony, the Internet, drug development, advanced plant breeding, satellites, GPS and much, much more.

To ... bemoan the fact that the forthcoming Chevy Volt plug-in hybrid will have a first-year price tag of $40,000 is to miss the point. The costs of early-stage ... deployment are inevitably far above those that companies can realize in the long run. Public policy should help to promote this transition...

U.S. financing of sustainable energy technologies ... has been dreadfully small ever since President Ronald Reagan reversed the energy investments started by President Jimmy Carter. ...U.S. federal spending on all energy R&D ... amounted to just $3 billion or so per year in recent years—less than two days of Pentagon spending, and roughly a tenth of ... outlays for health technologies at the National Institutes of Health. ...

The move to high-mileage automobiles is real, and the effort will shape U.S. international economic competitiveness for decades. The U.S. needs a public-private technology policy, not merely finger-pointing at the private sector. GM’s Chevy Volt, Chrysler’s new Extended Range Electric Vehicles and the large-scale efforts of GM and others to produce a fuel-cell vehicle within a decade, all require public backing... This is the future of the auto industry. It would be a mistake of historic proportions to let the industry die on the threshold of vital transformative change.