Electronomics: How the Smart Grid Will Power Wealth, Pt. II

See also Part I: Investing Wisely in the Age of Obama.

Part II: Electric Infrastructure, Innovation and Economic Growth  

America's current electricity grid has a lot in common with the nation's interstate highway system, a mid-20th century creation driven by our country's love affair with oil.

Both networks were built out in the 1950s, ‘60s and ‘70s. Like the highway system, our transmission network runs about 150,000 miles. The highway system, however, has been continually repaved and maintained with taxpayer money. The transmission grid, on the other hand, has not been upgraded or refurbished despite more than three decades of wear and tear. The recent neglect of the electricity grid is particularly surprising, given the 300 percent surge in bulk power transactions between 1998 and 2004.

But now – thanks to the government's impending economic stimulus package – both sets of infrastructure will be receiving hefty financial infusions designed to repair crumbling roads or cracked transformers while generating rapid employment and lasting prosperity at the same time.

In theory, this is classic Keynesian economics at work: spend public-sector money on labor-intensive projects in a crisis even if it runs up a budget deficit, create jobs, improve incomes, restore spending and consumption, rejuvenate growth, and work off the budget shortfall through increased tax receipts and spending restraint.

Beyond the Stimulus Package

Nobody knows if the impending stimulus from Washington, D.C. will play out in this textbook way. But when you look at other great infrastructure transformations in history – railroads, airlines, telecommunications and the Internet, for example – yo u see another and perhaps equally beneficial economic pattern emerge.

As each one of these massive and complicated systems was built or overhauled, much-needed standards were put in place. This, in turn, encouraged a host of breakthrough companies to exploit the newly architected or re-architected infrastructure in fresh, profitable and unpredictable ways. Simply put, new infrastructures create new ways to do business. And the countries, companies and individuals that move quickly in the wake of this construction or re-construction activity can gain competitive advantage that can last for decades.

Exploiting New Infrastructure Build Outs

After the country agreed on "standards" for the width of railroad tracks, for example, the transcontinental railroad was completed in the late 19th century. This infrastructure advance served as a catalyst for Andrew Carnegie's steel company, which began churning out millions of ultra-strong rails for the rest of the nation's train network.

At the same time, Sears Roebuck came into existence, determined to use America's budding railroad system as the conveyor and conduit for its mail-order catalogue business. Sears was the original Amazon – the first to create a virtual superstore that used a new infrastructure for ordering and fulfillment. It employed that early insight to dominate mail order retailing for a half century.

Almost 100 years later, a visionary entrepreneur and Yale graduate named Fred Smith saw opportunity after the nation's commercial airline routes were deregulated. The unorthodox result was the hub-and-spoke system and the birth of Federal Express, which absolutely, positively delivered packages the next day – no matter what.

In the 1980s, after the monopolistic telecommunications infrastructure was broken apart and Ma Bell was told it had to compete, a feisty upstart company by the name of MCI surfaced and began offering consumers choice in the form of refreshing and low-cost calling plans and programs.

And in the late 1990s, when it became obvious that navigating the vast and unplumbed depths of the Internet required more than a mere browser, Google and its high-powered search technology made its presence felt on computer screens around the world.