California Gov. Gavin Newsom speaks during a news conference at World Energy Paramount in Paramount on Monday, May 1, 2023. (File photo by Hans Gutknecht, Los Angeles Daily News/SCNG)
By Fernando Antonio Lozano | Inland Empire Economic Partnership
Last week, Gov. Gavin Newsom signed Executive Order N-8-23 to streamline investments in clean energy infrastructure and development in California.
If these efforts succeed, California will lead the clean energy market for many years. One should not ignore the government’s ability to fund, organize and coalesce the research, infrastructure and development of emerging industries needed to transform our current economy.
One historical example is the Tennessee Valley Authority Act. President Franklin D. Roosevelt signed in 1933 the Tennessee Valley Authority Act to promote economic development in the southeastern United States. The TVA promoted a wide range of investments in states as far west as Missouri, north as Kentucky, east as North Carolina, and south as Mississippi. While the TVA nowadays might be recognized for its electricity-generating industry, the project was ambitious at its inception. Besides generating electricity, the TVA intended to modernize the region through technological agricultural improvements and expanding the region’s infrastructure and manufacturing capacity.
What are the long-run effects of these investments? Patrick Kline and Enrico Moretti answer this question by comparing TVA regions with otherwise similar regions unaffected by the TVA. Their results suggest that investments in manufacturing and infrastructure enhanced manufacturing and agricultural productivity nationally. Importantly, these benefits exceeded the costs of the program. The TVA works as a motivating tale of the entrepreneurial power of the federal, state and local governments.
Government can finance and promote projects that the private sector is not able or willing to do: perhaps because of the scale of the project, perhaps because of the project’s risk. For example, we can think of the Apollo program in the 1960s and its spillovers on our current technology use, or how the National Interstate and Defense Highways Act of 1956 enhanced trade across regions. The Biden Administration is not blind to these historical examples and intends to use the government’s ability to promote new technologies through the Infrastructure Investment and Jobs Act, the CHIPS Act and the Inflation Reduction Act.
Newsom equally intends to position California as a leader in emerging technologies. The state expects to spend more than $180 billion during the next decade on building clean energy infrastructure, roads, and bridges, modernizing our ports and expanding our rail offerings. The biggest asset the state has is its people: an entrepreneurial workforce in a knowledge economy that is the product of the UCs, the Cal State system and the community colleges. Yet knowledge in isolation wavers and stagnates. The government must invest in connecting people, allow ideas to flourish and incrementally develop the emerging industries that will define the economy of the future.
History shows that the government can positively affect a region’s economic development. Newsom’s recent executive order that streamlines investments focusing on clean infrastructure, and coordinates the state’s entrepreneurial endeavors into emerging markets, gives California the edge as the global leader in the new economy.
Fernando Antonio Lozano is Morris B. and Gladys S. Pendleton professor of economics at Pomona College.
The Inland Empire Economic Partnership’s mission is to help create a regional voice for business and quality of life in Riverside and San Bernardino counties. Its membership includes organizations in the private and public sector.