Implementation
Strategic vision
The prize
Imagine a revitalized and globally competitive U.S. motor-vehicle industry delivering a new generation of highly efficient, safe, incredibly durable, fun-to-drive vehicles that consumers want. Imagine equally rugged and efficient heavy trucks that boost truckers' gross profits by $7.5 billion per year.568 Consider the pervasive economic benefits of an advanced-materials industrial cluster that makes strong, lightweight materials cheaply for products from Strykers to bicycles to featherweight washing machines you can carry up the stairs by yourself. Envision a secure national fuels infrastructure based largely or wholly on U.S. energy resources and on vibrant rural communities farming biofuel, plastics, wind, and carbon. Think of over one million new, high-wage jobs, and the broad wealth creation from infusing the economy with $133 billion per year of new disposable income from lower crude-oil costs. Recognize with pride that with this new economy, the U.S. is nearly achieving international greenhouse gas targets as a free byproduct. Picture increased energy and national security as oil use heads toward zero, and as the U.S. regains the leverage of using petrodollars to buy what our society really needs rather than handing those dollars to oil suppliers to feed an addiction. Imagine a U.S. military focused on its core mission of defense, free from the distraction of getting and guarding oil for ourselves and the rest of the world. Imagine that the U.S., able once again to practice its admired ideals, has regained the moral high ground in foreign policy. Finally, envision one of the largest and broadest-based tax cuts in U.S. history from eliminating the implicit tax that oil dependence imposes on our country by bleeding purchasing power, inflating military and subsidy costs, and suppressing homegrown energy solutions.
Sound utopian? It is not.
This vision is based on severely practical business solutions to the "creative destruction" dilemma currently faced by the chief executives in the U.S. transportation sector, and on the handful of market-oriented government policies that are needed to help lower the risk of this transition. The business principles are grounded in such classic and prescient works as Joseph Schumpeter's writing on the concept of "creative destruction" (Capitalism, Socialism and Democracy, 1943), Michael Porter's Competitive Strategy (1980), and Clayton Christensen's and Michael Raynor's The Innovator's Solution (2003).
Our business analysis supports an exciting and astounding conclusion: intelligently investing an incremental $90 billion569 over the next two decades in retooling the domestic automotive, trucking, and airplane industries and another $90 billion in domestic energy infrastructure, could create the capacity to achieve this oil-free future. Yet despite the high rates of return on these investments, they entail too much business risk—perceived or actual—for the private sector to do entirely on its own, quickly enough to meet national needs.
Vaulting the barriers
Risk-aversion has deep roots in the cultures of very large organizations. Their enormous sunk costs, both in physical assets and in psychological habits, create an immune system that stubbornly resists invasion by innovation. This resistance can be shown by rigorous business scrutiny to be destructive: innovation and competition are the evolutionary pressures that make the firm stronger. Neverless the "not invented here" mentality stubbornly persists. Wrenching change is always difficult and seldom greeted with enthusiasm. IBM had 77% higher real revenue and 20% higher real earnings in 2000–03 than it did in 1978–81, the pre-PC age when it was the king of mechanical typewriters and mainframe computers, but its transition into the microcomputer age was very hard—a near-death experience. The challenge facing U.S. makers of light vehicles, heavy trucks, and airplanes is equally daunting. But in a competitive global marketplace, the alternative to bold leadership is worse. As General Electric's former CEO Jack Welch put it, if we don't control our own destiny, someone else will.
To complement market forces, and to reduce the risk to the weakened U.S. transportation equipment sector, we need a coherent set of government policies to support the transition. We need economically efficient policies that shift companies' and customers' choices toward higher-fuel-economy vehicles of all kinds while expanding their freedom of choice; help manufacturers to retool their factories and retrain their workers; support the rapid emergence of cost-effective bio-fuels, other renewables, and domestic fuels; upgrade our transportation systems to reduce congestion; align utilities' profit motives with their customers' interests; and eliminate perverse incentives across the domestic-energy value chain. While we can probably never satisfy those pure libertarians who hold that no government intervention can ever be justified, and indeed we think many of today's energy problems spring from ill-advised past interventions, we will make a reasoned case that some limited, targeted, and carefully defined changes in federal, state, and local policy (pp. 169–226) are not just desirable but very important for managing national risks and achieving national goals.
When considering our suggestions to foster this transition and benefit all stakeholders, remember that any long-term vision beyond the comfortably familiar always looks odd at first. In 1900, the U.S. had ~8,000 cars. Fewer than 8% of the two million miles of rural roads were paved. Anyone who'd proposed then that half a century hence, the ubiquitous horse and buggy would be gone, replaced by a wholly unfamiliar infrastructure in which the newfangled oil industry would refine, pipe, and sell a new product called gasoline, would have been dismissed as a dreamer. Anyone who'd predicted that a century hence, 170,000 U.S. retail outlets would be pumping this new fuel into nearly 240 million light vehicles whizzing along 600,000 miles of highway would have been banished as a lunatic. Yet we live in that world today because the genius of private enterprise, building on Henry Ford's 1908 Model T (which got 2.5 million cars on the road during 1908–16), was supported by a series of public policies, from the early decision to have taxpayers finance public roads to President Eisenhower's 1956 Interstate Highway System. The changes proposed here are far less momentous than those. They need virtually no new infrastructure; they use well-established technologies made by existing industries; they meet current user requirements even better than today's technologies do; and they're profitable for both producers and consumers. The issue is how to help them happen smoothly, quickly, and well, so American industry can vault the obstacles to doing what it does best—innovation.
568. Of the ~20b gal/y consumed by trucking, 37% is saved at a net customer gain of ~$1/gal—
the difference in cost between the fuel efficiency technologies and the retail price of diesel fuel.
569. $100 billion is needed for new efficient automotive and trucking manufacturing capacity, plus R&D for new platform development. We estimate that ~$30 billion will be spent anyway in the U.S. to meet projected new car demand, for a net increase of $70 billion. An additional $20 billion of incremental investment is needed for airplanes. Therefore, the total incremental investment is $90 billion—essentially the same as the ~$91 billion we estimate would be needed for domestic energy supply infrastructure.
(End of excerpt)
