How Greens Misunderstand Markets

Due to the fact that I have subscribed to Outside Magazine for years, I receive an unintended torrent of green-think. What was once primarily a monthly periodical about outdoor sports has morphed, over the years, into a cause-focused publication with offices now located in Santa Fe, New Mexico.

Thus, I happened to read a piece from the magazine's January issue concerning an MIT scientist named Daniel Nocera. His speciality is evidently having tuned up a rather well-known idea- the fuel cell.

Yes, the same fuel cell that powered the Apollo spacecraft to the moon and back what, nearly 40 years ago?

In Nocera's case, according to the magazine's glowing, fawning tribute, he adds a "chemical catalyst (cobalt and potassium phosphate) to plain water....splits the molecules using just a volt or so of electricity. Coming up with a scheme like this has been a holy grail of chemistry."

Well, not so fast. Nocera is quoted as saying he's actually still five years away from this approach actually working as promised. Details include non-trivial matters such as "a better way to compress hydrogen for storage and building a more efficient and inexpensive fuel cell."

Wow. Storing hydrogen in your basement? Or, what, next to the furnace? Sounds totally safe to me. Sure, I want a mini-Hindenburg in my house, don't you? While you're at it, bring in that gasoline can from the garage and park it next to the furnace or hot water heater, too.

I found it odd that the article gives one the impression that it's here, it works, and Nocera is a God of science and the green movement, but then informs us that it's really half a decade away, by the scientist's own, probably overly-optimistic estimate. And there is that nasty-sounding cobalt compound. Wonder how safe that is to store, transport and handle in every home in America, or around the globe?

But that's not what really got my attention.

After extolling how Nocera's approach will turn every home on the planet into an energy source by splitting water into hydrogen and oxygen during the day, using sunlight, then powering the home at night by reversing the fuel cell's process to reunite them and release energy, the article concludes,

"Moving forward, Nocera believes, is really a matter of commitment. If Americans could get serious about funding renewable energy- instead of "throwing money down the drain in stock markets"- the innovations would come.

"We went to the moon! Doesn't it seem easier to do what I'm doing here?" "

My use of bold in the quoted portion of the text in the prior paragraph is meant to highlight Nocera's, and Outside Magazine's evident misunderstanding of capital markets.

In the beginning of the article, much is made of private companies either funding Nocera's research, or wanting to partner with him. This is how the piece starts to portray him as a sort of environmental engineering Deity.

How, then, are we to square that initial positioning with Nocera's own rejection of capital markets? He clearly feels that money invested in equities is simply "throwing money down the drain in stock markets."

Hey genius! Guess what?

If ordinary investors don't buy equities of the companies attempting to partner with you, or funding your research, you're nowhere.

In fact, the article, has a sort of 'wink and a nod' attitude that Nocera knows best, and anyone lucky enough to be giving him research money or allowed to partner with him should just trust him to know best.

And being perched in a professorship at MIT seems ironic, because Nocera isn't taking any risks at all. Commercialization of his technology might be five years away, or it might be ten. Who knows? Nocera has a job and funding, either way.

Henry Ford did it the harder way. He built a prototype and went into business.

True innovation doesn't hide out in an academic ivory tower, where risks and failures go unpunished, breakthroughs are always just over the (funding) horizon, and failure actually provides you with a longer runway to play around on your pet project without having to deliver commercialized results.

I'd have a lot more respect for Nocera, and he'd probably have more credibility, if he dealt with MIT to get some control or interest in his IP, left the university, put his own money and career where his mouth is.

As it is, he asks rhetorically if what he's doing isn't easier than going to the moon? I don't know, is it?

More importantly, why isn't Nocera convincing equity investors in his own startup?

Oh, right. That's going to the 'stock market.' Bad! Bad! "Throwing money down the drain."

Nocera and Outside don't appear to buy into, much less understand, the concept of ideas competing for capital in free markets. If Nocera really wanted funding, he'd compete for investor money, promising more tangible progress and returns.

Instead, he seems to believe he should just be handed funds to continue to work at his pet fuel cell project, because, well, he says so. And he knows best.

This sort of antagonistic attitude to capital markets, which have the potential to fund innovation, won't get Nocera very far. For all we know, he's hiding some serious complications that, were he to try to commercialize his process via the equity capital route, would become known, and result in a funding failure.

That's why free capital markets are such a great tool. Money flows to those who present the most credible, profitable cases. Not just to those who privately think their idea is a social good, and maybe the best social good, so it must be funded.