TECH MAY 30, 2013
Last week, the day after announcing that he had paid off his $452 million government loan nine years early, Tesla CEO Elon Musk tweeted that government should no longer provide such subsidies. Asked why he now opposed subsidies that he had so clearly benefited from, Musk tweeted, "Technically, I 'got rich' from Zip2 & PayPal w zero govt anything, put 100% of that into SpaceX, Tesla & SolarCity." He added that a "carbon tax would be a better way" and "Yes, am arguing against subsidies and in favor of a tax on the end bad created. Market will then achieve best solution."
The claim is a curious one coming from a man who has built his fortune through companies that have been heavily subsidized by the federal government. The Tesla Model S electric sedan is, without question, a remarkable achievement. A luxury car that offers high performance and over 200 miles on a single charge, the Model S is plainly a milestone in the transition away from gasoline-powered vehicles. But Musk's suggestion that he could have achieved it through a carbon tax instead of direct subsidies defies credulity.
The argument for a carbon tax is that it corrects distortions in the market due to the externalized costs of emitting carbon, which in turn would allow companies that produce zero-emission vehicles, like Tesla, to compete on a level playing field without further public assistance. This argument allows Musk to elide just how dependent his companies—both those that offer low carbon benefits and those, like SpaceX, that don’t—have been on direct public support for the development and commercialization of the technologies upon which they were built.
While a carbon tax might have provided some benefit to Tesla or Musk's residential solar company, Solar City, there is no imaginable carbon tax that would begin to approximate the value of the $7,500 tax credit that the federal government offers to buyers of electric cars. Or the $2.4 billion dollars that the federal government invested in battery manufacturing through the 2009 stimulus. Or the half-billion dollar loan that financed the factory in which Tesla manufactures the Model S. Or the 20 years of funding from the American and Japanese governments that have resulted in dramatic advances in the lithium batteries that power the Model S.
Nor would any seriously imaginable carbon price make Solar City economically viable. Without the federal investment tax credit and state deployment mandates, which functionally require utility ratepayers to subsidize solar panels, companies like Solar City would not be in business. Moreover, the panels that Solar City sells would not exist were it not for 40 years of government R&D. Those panels have gotten much cheaper over that time thanks to enormous deployment subsidies in the U.S., Japan, and Germany. And Solar City currently sells panels manufactured in China, where huge government subsidies for solar panel factories have helped solar prices fall further still.
Given that Tesla has been the whipping boy for critics of federal investment in low-carbon technology, Musk's defensiveness about the help that his businesses have received from the federal government is perhaps understandable. But the debt that Musk owes to public investment in new technology goes well beyond recent federal investments in low-carbon technologies.
Musk's space transport company, SpaceX, was created using technologies entirely subsidized by taxpayers. NASA has already given SpaceX hundreds of millions in down payments on future launches, and may award hundreds of millions of more in contracts to SpaceX in the future for shuttling cargo and astronauts to the International Space Station. In sum, SpaceX is a company that NASA sought to create and funded up front with cash.
Even the companies through which Musk made his original fortune, PayPal and Zip2, would not have existed had it not been for the hundreds of billions in taxpayer subsidies for the computer sciences, microchips, the technologies that led to the personal computer, and the Internet itself.
Pointing out the taxpayer roots of these technologies takes nothing away from great entrepreneurs, from Steve Jobs to Bill Gates to Elon Musk. The American private sector is vital to the commercialization of technologies when they are ready for the market. But getting them to that place often takes decades—which is why taxpayer subsidies are so critical. Personal computer technologies had already benefited from two decades of public investment in their development and commercialization by the mid seventies, which is why Jobs and Gates were able to invest so little to start Apple and Microsoft. And the roughly $200 million that Musk and other private investors have put into SpaceX is a fraction of the more than $800 billion taxpayers have spent on NASA (in constant 2007 dollars) since 1958.
Not all high-tech entrepreneurs are so cavalier about the government's role. William Janeway, a legendary software and communications venture capitalist, published a book last year arguing that long-term government investments—including those seen as "wasteful" at the time—are essential to economic growth. "Younger VCs don't have the same institutional memory that I and other VCs my age have," he told us. "The Department of Defense developed the platform we all danced on."
Even Gates recently changed his tune. Back in 1998, about the personal computer industry, he said, "There isn't an business industry in American that is more creative, more alive, and more competitive. And the amazing thing is this happened without any government involvement." But over the last two years Gates has organized CEOs, including the CEO of Xerox, to become some of the most outspoken advocates of increasing federal spending on energy R&D.
In reality, virtually every transformative technology of the last 60 years, and many others going much further back, has required substantial public investment in its development and commercialization. Entrepreneurs like Musk get the glory, and are justly celebrated for their vision and determination to bring those technologies to market. But they do neither the nation nor the private sector any service when they forget the critical role that government has played in those triumphs.