Why The McCain Proposal Will Do Nothing For Battery Technology
On Monday, John McCain, in a drive to build his environmental credentials, pledged that if he were elected he would initiate a contest to come up with a car battery design that leapfrogs current technology and makes electric car and plug-in hybrids a reality. The winner would get a $300 million prize, or about $1 per American, which according to McCain is a small price to pay for the benefits this technology would yield.
A politician would only make such a pledge for one of two reasons: (a) he has no insight into how innovation occurs in an economy or (b) he is looking to regain ground with environmentalists following a controversial turn-around on drilling for oil in protected areas. In this case, I have my money on B.
If McCain truly intended to inject a strong dose of steroids into the US battery sector, he would take that $300 million, triple it, and pledge it as research grants and other research incentives. See the problem with ventures based on scientific research and breakthroughs - and folks who follow the pharma sector know this all too well - isn't the end prize if your technology pans out. The problem is to fund your research until you get there, because labs and other required fixtures are incredibly costly to run. This proposal misses the point on the 500-lb gorilla in the room: this game isn't about the payout at the back end, it's about risk mitigation at the front end.
If you came up with the kind of battery McCain has in mind, the $300 million would barely be enough to pay for your IPO roadshow as every single investor in the nation would try to throw money at you. Of course, I'm exaggerating, but you get the point. Promising a $300 million cash prize will do little to at the margin to incent entrepreneurs and small labs to get involved. What they need is a break on their start-up and initial operating costs, so that they can get to a level where they're actually in a position to innovate and even commercialize.