I attended the annual meeting of Mass TLC this morning. Michael Mandel spoke and had a bunch of great insights. I want to get to what he had to say about energy and renewables but I need to go into a few preliminary items first.
Mandel starts from the premise that the most accurate measure of the state of the economy, crude though it may be, is employment. The unemployment rate is the unemployment rate. Either you are paying unemployment tax or you are not. There is no ambiguity.
Having established this as his measure of health. He showed that one industry (communications – very broadly defined to include mobile, web, cloud etc.) actually increased employment during the recent great recession. His point is that if an industry is robust enough to grow during a recession (when everyone else is shrinking) then it will really move forward when the rest of the economy gets back to growth. So he thinks that growth in the next economic upturn will be highly driven by growth in the communications industry.
He also showed that the biotech industry continued to grow during the first part of the great recession but then flattened out as the recession wore on. So, why isn’t the biotech industry as strong as the communications industry? Well, if Mandel is to be believed, we put a lot of money and effort into the biotech industry but did not get the big needed innovations that can drive an industry. So, he is hopeful that the biotech industry will give the communications industry a boost and help the recovery along.
What is the story with the vaunted energy and renewables industry that has captured everyone’s imagination? Mandel did not even have a slide on it. So asked him. The gist of what he said was that we, as a country, have not invested nearly enough to develop enough potential new innovative technologies to have a reasonable expectation that some will develop to the point where they provide the revolutionary changes needed to move the needle on the recovery. Unless we get lucky on one of the few bets we have made, the energy and renewables industry is too far from maturity to help this time around.
I had not thought about it this way, but the amounts being invested each year in the US on energy and renewables is scary low. See my earlier post on this topic. Unfortunately, this industry does not lend itself to venture investment because so many of the technologies need large amounts of capital and have long lead times before a return can be harvested. This is really bad news for the world because we really need innovation in this space. It is also bad news for the industry because there is not a good existing investment structure.
Someone has to come up with a new investment model to attack the larger, more expensive and longer term innovations.