Tag Archives: innovation policy

Reblog: Why Tim Cook is Steve Ballmer and why he still has his job at Apple • The Berkeley Blog

This post seems particularly apt for the electricity industry. IOU CEOs typically are “executioners” not “visionaries,” and this is at the heart of their existential conumdrum.

What happens to a company when a visionary CEO is gone? Most often innovation dies and the company coasts for years on momentum and its brand. Rarely does it regain its former glory. Here’s why. Mi…

Source: Why Tim Cook is Steve Ballmer and why he still has his job at Apple • The Berkeley Blog

Where Should All the Coal Miners Go? – Pacific Standard

An interesting discussion about the failures and lessons for broad scale retraining programs.

My own thought is that we need to buy out the homes of displaced workers at the higher of either their purchase cost or the assessed value to facilitate moving to a new job location.

Source: Where Should All the Coal Miners Go? – Pacific Standard

Why infill commercial development isn’t so common

mip1Davis has not been able to develop larger tracts of land to attract firms working on innovation and partnering with UC Davis. Opponents of several proposed projects have claimed that developers can instead assemble the numerous infill parcels that already exist within city limits to create the needed innovation parks. Now a new study in the leading journal, American Economics Review, finds that in Los Angeles, assembling a group of parcels for such projects faces sale prices 15% to 40% more than a single parcel project. And that doesn’t include the typical per parcel transaction costs that are compounded by multiple purchases. The bottom line is that infill development for larger projects face a high cost premium that must be acknowledged.

An answer to Brexit & Trump: Rebuild our infrastructure

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At the core of the dissatisfaction driving support for Brexit, Donald Trump (and Bernie Sanders) is economic dislocation that reduced the jobs and wages of those who worked in the manufacturing and construction industries. The solution is NOT to return to retail manufacturing, where the U.S. can’t compete with China; nor is it to extract more fossil fuels in a highly volatile energy market or to build houses for another financial bubble. Instead we can address their needs while solving a different crisis–fixing our crumbling infrastructure, and even get some other ancillary benefits. We would have both construction and heavy manufacturing jobs with good wages, aimed right at the Brexit/Trump constituencies. And there would be little foreign competition while we put the U.S. economy on better footing to compete in other sectors.

The American Society of Civil Engineers estimate that America needs $3.6 trillion of investment in replacing our infrastructure such as roads, waterworks, power and gas lines and the rest that makes American go. This sounds like a big number, but it’s only a bit more than half of what all federal, state and local governments spend annually. Of course, we would never pay for all of this at once. In our current low-interest environment, at 3% bond financing over 30 years, the annual cost would be $180 billion, which is less than 3% of total spending.

The key is to use disciplined deficit spending, i.e., bonded indebtedness, to finance this program. Funds should be earmarked specifically for this program at the federal, state and local levels. One source of funds could be a wealth tax. A tax rate of 0.2% (yes, two tenths of a percent) on registered securities and real estate could cover the annual debt repayments.

We could tie this program to two other possible goals:

  • To ensure that the income from holding the bonds accrue to a wider segment of the population, we could limit purchase of the bonds to the Social Security Administration and widely-held municipal bond mutual funds.
  • We could staff the program with young people serving in a compulsory national service. The national service would give 18-20 year olds their first jobs and bring together a mix of different backgrounds and cultures. As the draft did in World War II, they could gain a better understanding of others beyond their current experiences.

 

 

 

Nishi and Our Obligations to Other Californians

I wrote this column for the Davis Vanguard in a series about the future of economic development for Davis:

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The University of California created what Davis is today. When UC Davis became a full-fledged campus in 1959, the State of California began the process of pouring resources into this city to develop a top notch university. UC Davis is now acknowledged as the top agricultural academic institution in the world.

We can see what the university has brought us all around. If you want to imagine what Davis would look like without UCD, go to Woodland or Dixon. We have a vibrant downtown with many community activities. We have one of the top rated school systems in the state. And our property values reflect the premium of those benefits. Davis is a very desirable place because of UCD. You have chosen to live here because of these amenities that cannot be readily found elsewhere in the Central Valley.

State taxpayers have contributed billions of dollars over the years to the campus, and students have brought resources from around the state, keeping the local economy vibrant. In return, the state has not asked Davis explicitly for any contributions or cooperation. Yet there are obligations that come with hosting UCD. Other state residents are counting on UCD, and its host city, to provide an educational gateway to both UC students and concomitant economic and cultural growth statewide.

How do we meet that obligation? By providing a fair share of housing to students, and affordable housing for faculty and staff. By incubating new businesses that spin off innovations developed on campus. And by cooperating with UCD in its long-range plans. Yes, we need to ask reasonable cooperation from the University in return (which does not always come readily. For example, I opposed the final configuration of West Village, and believe part of its difficulties arise from that configuration.) But that does not mean that we can oppose all UCD-related development.

So how does the Nishi Gateway Project relate to this obligation? UCD cannot and should not host all housing and spin offs on campus. Students need to learn how to live on their own outside of the protective UC womb. And UCD should not be directly involved in commercial activity because that puts the state directly in the role of promoting certain profit-making enterprises. Instead, the city needs to host housing and businesses. Other college towns successfully accomplish these tasks.

Davis is the only significant university town without a large research park; this puts UCD at a distinct disadvantage for attracting research dollars and researchers. And UCD is at a disadvantage recruiting faculty. Many assistant and associate professors have spouses working in technical fields, and universities usually help them find jobs as part of recruiting. Davis lags in offering these opportunities. Nishi will create jobs for this younger adult segment, both for incoming faculty’s families and for graduating students. Davis is already experiencing a hollowing out of our young adults population; we need to reverse this trend to keep the town vibrant.

Nishi offers a mix of research and development space and housing close to campus that meets most of our standards for sustainability and impacts. It may not offer the “perfect and optimal” configuration, but no one can ever achieve that standard, simply because that definition varies in the eye of the beholder.  Creating affordable housing is about much more than just designating a few units for lower income residents. A constrained housing market guarantees higher prices—just ask San Francisco and Manhattan. The best way to make housing more affordable in Davis is to offer more housing. Nishi does this in the context of a relationship with our biggest employer.

Some suggested that alternative locations exist for this development, that residents will be exposed to excessive pollution, or that we will be losing agricultural land. First, the process of assembling the parcels needed for this scale of project is much more difficult and expensive than opponents realize. Controlling the land is key to success. Second, I have not heard anyone objecting to the new housing developments along Olive Lane, yet they experience the same environmental exposures; the same can be said about much of South and West Davis. And third, farming is no longer economically viable on Nishi. Its isolation makes agricultural activities too expensive—it is time to move on.

Instead, we need to ask if this development is not approved, what will be built instead? We have already seen the type of developments popping up in West Sacramento, Roseville, Elk Grove and even “north North Davis”, i.e., Spring Lake in Woodland. As Davis suppresses growth here, less desirable developments pop up there. Are we really “thinking globally, acting locally” when we close down any new developments by demanding perfection? We cannot return to the bucolic days of the University Farm. Let’s keep real control of our future instead of pushing it off to someone else.

Richard McCann is a member of the City’s Utilities Rates Advisory Committee and Community Choice Energy Advisory Committee. He is a partner in M.Cubed, a small environmental and resources economic consulting firm. His opinions are solely his own and are not endorsed by URAC or CCEAC.

On Mankiw: The shrinking pie slice

Gregory Mankiw observed how many political standards this year are myths. I don’t agree with all of them, but one particularly jumped out at me. He noted that manufacturing output is up 47% over the last 20 years, but employment is down by 29%. His point is that increased productivity is good and needed to improve our standard of living, and I agree with his presumption.

That would be all fine and good if those gains had rolled through to workers to a significant degree. If all of the gains had gone to labor, wages and benefits should have gone up by 107% over twenty-years–more than double. However, looking at the Bureau of Labor Statistics Employment Cost Index (which includes benefits as well as wages), total wages and benefits rose only 71% over that period. The other 37% accrued to the owners of the manufacturing firms. It’s that shift in the balance of benefits from productivity that is driving political discontent, as I wrote about earlier. Labor’s share of the growing pie is shrinking.

Getting to the harder question about stranded assets

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John Farrell at the Institute for Self-Reliance argues that existing utility fossil-fuel plants should not be given “stranded assets” status. While his argument about “stranded assets” makes sense from a society wide economic sense, it doesn’t conform with the utility regulation world in which “stranded assets” is actually relevant. Having gone through California’s restructuring and competitive transition charge (CTC) (I’m the only person outside of the utilities to conduct a complete accounting of the CTC collection through 2001), it’s all about what’s on the utility’s books and what the regulatory commission agrees is an acceptable transfer of risk. And based on what happened with Diablo Canyon in 1996 (the correct treatment would have recognized that PG&E had collected its entire investment at the regulated rate of return by 1998—I did that calculation too), it’s not promising.

So I suggest focusing on the shareholder/ratepayer risk sharing arrangement and how that should be changed in the face of the oncoming utility 2.0 transformation as a more fruitful path. We have to change the underlying paradigm first. That there are benefits from retiring generation assets is not a hard argument to win—that was the case in 1996 in California. The harder one is that the past regulatory compact should be changed and that it won’t somehow impact future investment in the distribution utility.