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Memo to Barack Obama: Incentives Beat Mandates and Penalties for Change Catalysts

Posted by Bob Warfield on December 7, 2008

I read with great interest that Obama sees the Internet as part of the Infrastructure the US government should invest in to help speed recovery.  First of all, it’s great news that a President is even talking about the Internet as infrastructure, realizing that there is more to infrastructure than the roads and bridges of earlier such thinking.  Infrastructure has always been a good place to invest recovery money because not only does it create jobs, but it makes the economy more efficient in the longer run.  Nowhere could this be more true than investment in the Internet for the US.  If nothing else, such an investment will help ensure the US continues to be a technology powerhouse.

Here is Obama’s quote from RWWeb:

“It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online, and they’ll get that chance when I’m President – because that’s how we’ll strengthen America’s competitiveness in the world,” he said.

Now we have to see what form of stimulus Obama will use to drive this and other initiatives aimed at turning around the recession reigniting growth.  Many of the articles I linked to are concerned that this kind of talk won’t continue after Obama takes office.  I think just the opposite will happen.  A friend and I were discussing this over drinks recently and he feels that Obama will not tell us most of what he plans until after taking office because he doesn’t want others to take credit for the initiatives, second guess them before he can drive them forward, or otherwise get in the way.  That makes total sense to me.

While we’re waiting to hear what the real initiatives will be, I have one piece of advice:  focus on incentives, not mandates or penalties.  Incentives have been the great deciding force for capitalism.  Misplaced incentives are what got us into this mess, and the opportunity to earn incentives can get us back out again faster than any other mechanism.  If we get too tied down not just in fixing a problem, like creating better Internet Infrastructure, but also in doing too much Social Engineering (you can only get the funds if you fit these political criteria), that’s going to seriously water down the impact of the programs.  Watering down is the last thing we need right now.

There question that Obama should be most concerned about is how to ignite opportunity around the infrastructure areas he wants to change.  If there is one thing this country knows how to do, it is to rise up and take advantage of an opportunity. 

For example, need an energy policy?  Figure out a way to create incentives that make your policy a shoe-in.  Consider Compete’s recent article about interest in fuel economy for new vehicle shoppers.  They show pretty convincingly that once gas prices became more reasonable people went right back to being interested in gas guzzlers.  They recommend a gas tax to, “ensure that gas prices stay above $4.”  I think that’s a lousy idea.  That’s a penalty and worse high energy prices have a very negative effect on the economy.  What would an incentive look like?  Here in California we gave car pool lane stickers to those who bought fuel-efficient hybrids.  Suddenly, I was running into all kinds of people who would normally drive a big German Uber Car or other conspicuous consumption status symbol car that had bought a Prius or other stickered hybrid.  The car pool lane was an incentive, and it worked extremely well.  That program has ended, but the Federal government could build that into the highway money package so all states had such a program in much the same way as they enforced the 55 mph speed limit.

What about improving our broadband infrastructure?  One of the biggest pains I see is availability of WiFi.  It’s a mess to get WiFi right in Silicon Valley.  Yes, it’s available, but you have to pay this credit card fee here, or that one is secure and needs a password, yada, yada.  It reached a point where I just turn it off on my iPhone unless I know what I’m getting.  We can turn that into an incentive as well.  Create an Open Source standard for a WiFi access point that is guaranteed to be free to access.  I want to make sure that the access point is guaranteed free.   Set it up so the same access point is registered with a small business tax payer id, and pings a government site every day.  Then give the businesses a small tax break in proportion to how much uptime their free access point offers.  Make it a significant enough break that they can pay for the access point as well as their regular Internet connection charges.  Suddenly we’ll have WiFi everywhere we go.  Who wouldn’t want to deploy a free access point that worked this way?

There are lots of other possibilities large and small.  I’ve talked about pairing sleepy Big Co’s with smart management “mentor” talent.  Would the CEO of GM listen to Steve Jobs about what car to build?  If he does, he should get some cash.  If he won’t, he shouldn’t get the cash.  Want nuclear power?  Figure out some incentives to get people aligned on the desirability of building plants now and incenting the local community to want the nuke in their neighborhood.  In fact the whole Green and Energy Industries are filled with areas where clever incentives could work.  GE and others have residential fuel cell technology that runs quietly on natural gas.  Imagine a refrigerator-sized unit that can produce enough power for the average sized home.  Such cells produce some CO2 when powered by natural gas, but their carbon footprint is about 1/3 lower than conventional electricity and the energy losses in transmitting the power long distances to homes are eliminated.  Even more interesting is that such cells actually run on Hydrogen and Oxygen (they use a gadget to extract the hydrogen from natural gas), so they’d be tailor-made for the hydrogen economy where they’d have no carbon footprint as soon as hydrogen could be made available to the household.  An incentive program could make residential fuel cells economical for homes to purchase in the near term while create thousands of new jobs producing the devices.

4 Responses to “Memo to Barack Obama: Incentives Beat Mandates and Penalties for Change Catalysts”

  1. aleaxit said

    Only one R in “Barack”… please fix the title!

    Otherwise interesting article, but you’re way off in dismissing the need to guarantee a floor under energy prices. The Saudis keep doing that: get high oil prices and enjoy the revenue, then at the strategic time crash the prices so as to bankrupt anybody who invested in alternative energies, ensure trouble for local adversaries such as Iran (who way overcommitted in spending based on three-digits $/barrel prices and now faces a crisis), stop efforts at energy saving, etc.

    The Saudis’ masterful strategy will keep working until big governments find the political courage to implement a “floor-price tax” on energy, thus giving investors the certainty they need to invest for the long run — a MUCH better approach than handouts and subsidies!

  2. Harl Delos said

    Suddenly we’ll have WiFi everywhere we go.

    Provided you don’t go very many places. Heck, you can’t even get voice over cell phone in many places.

    You’re complaining that roaming broadband is inconvenient, but for many people, stationary broadband isn’t available at all.

    Heck, there’s something like 5% and 10% of this country that can’t even get cable television, and they’ve been deploying that for four decades, and less than 80% of all people with hardwired phones can get DSL.

    Depending on where they live, they may be able to get satellite internet; sometimes, that requires that you cut down a half-acre of trees, or that you remove a mountain. But even after you pay $80 a month for satellite internet, you have so much latency that it can be worthless for many things, such as VoIP.

    Not everybody lives in the Castro district, or in the canyons of New York City. Obama didn’t run as president of a few cities. He ran for present of the entire country.

  3. smoothspan said

    Aleaxit, I’m not sure I see how a tax on energy guarantees the floor investors need to invest in energy, unless you’re going to undertake some sort of protectionist taxation scheme. Cheap energy is a good thing, and creating artificial scarcity through some form of tax is not the answer because too much of the economy is hurt by expensive energy. Spend the effort reducing the need for energy or finding other cheaper sources and you’re much better off.

    Harl, I’ve lived with Satellite broadband myself. Beats the heck out of a plain old modem. I don’t really see your point in being so anti-WiFi though. Clearly we’d like to fix both problems, not just one or the other. I’ve given an example approach for WiFi. Where’s your example for the other?

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