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Editorial: Politicians don’t understand “green” innovation

As summer and the election season heat up, expect to hear more about two of politicians’ favorite subjects de jour: green jobs and innovation. Politicians will remind us there was a loan guarantee program in 2009 costing $38.6 billion aimed at green jobs. Though it was supposed to generate 65,000 jobs, the 2010 Economic Report of the President found that it has created about 3,600.

A lot of this spending was directed toward promotion of companies that might be called innovators. For example ARPA-E, the Advanced Research Projects Agency - Energy, got its first funding through the 2009 economic stimulus bill. ARPA-E, of course, funds high-risk, high-reward research in clean, affordable, and reliable energy.

It is easy for any discussion of government-funded innovation to quickly get political. But I’d submit that the reason green jobs initiatives haven’t lived up to their advanced billing has less to do with the philosophies of the two major political parties than with a misunderstanding about the way innovation works.

Politicians of all stripes like to fund, or say they support, innovation and entrepreneurs. It’s easy to see why. Economists tell us nearly 10% of all new jobs created since 1980 have come from entrepreneurs. They are better at creating jobs than government or big business. But there is a fundamental misconception among politicians about why entrepreneurs innovate in the first place. It is not to create jobs. In fact, entrepreneurial companies try to manage their affairs with as few employees as possible.

To find the reason why innovators innovate, track back to the underlying rationale for innovative new developments and companies. You will often find these enterprises are set up to produce goods or services in a more productive way -- or in the case of ARPA-E companies, producing more using less energy. And they reinforce the general trend of making more with fewer people. For example, the U.S. produced 91 million tons of steel in 1970 using 531,000 workers. In 2007, U.S. steel plants produced 106 million tons using only 159,000 workers. Those workers aren’t working three times harder than their counterparts of 1970, they are just more productive thanks to innovations in automation technology, much of which came from the labs of entrepreneurs.

One result of this trend is that manufacturing plants employing thousands of workers are becoming few and far between. But you wouldn’t know that from the tone of remarks made by politicians talking up “green” manufacturing jobs. They seem to be stuck in the days of the Studebaker when they speak of an economic revival “built on American manufacturing.”

There are important reasons that government should support entrepreneurial pursuits, particularly those associated with using and generating energy. For one thing, the rising productivity that comes out of innovation raises general standards of living. Economists at the Federal Reserve Bank, for example, have calculated that the typical new car in the U.S. costs 6% less in real terms than one made a decade ago, though new models contain comfort and safety features unheard of in older cars.

Jobs will undoubtedly arise because of the help government extends to entrepreneurs. Just don’t expect it to give rise to a “green” equivalent to Ford Motor’s River Rouge plant, which in its heyday employed over 100,000.

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