The writer is a senior researcher at Harvard Business School’s institute for strategy and competitiveness
It is increasingly clear that the crises we face today — in climate, energy, and security — can only be tackled through ambitious projects. But how can we raise the capital for them? Usually, it is only when the market bubble reaches absurd proportions that non-specialist investors become willing to invest in underground transportation, hypersonic travel, nuclear energy or in-orbit space factories. Indeed, the bubble often acts as a much-needed R&D incubator for the world.
Even though these novel technologies don’t create market returns as quickly as investors would like, they do help develop the systems we are lacking. But we need orders of magnitude increases in the funding of high-risk infrastructure projects if we are to avoid catastrophic climate impact. We need trillions, not billions, of funding for ambitious deep tech projects such as offshore energy production, high-speed transport systems and more environmentally-friendly industry. If this is the case, we should be treating market instability as gravely concerning.
One of the biggest threats to climate adaptation is investor liquidity. Energy, environment and defence technologies are often thought of as countercyclical and a hedge to geopolitical instability. However, global economic exposure to a bear equities market will drastically limit capital flow into these sectors. Despite some recent market positivity, such as the announcement of early-stage venture capital firm Lowercarbon Capital — dedicated to investing in companies that reduce carbon emissions — raising a $350mn fund, the outlook for private market backing of urgent innovation remains bleak.
How, then, do we pay for next-generation frontier technologies? The obvious answer is “the government”. But a public sector solution is unfortunately not so straightforward. Creating infrastructure mega-projects requires more than just capital; it requires co-ordination and co-operation across sectors, geographies and administrations.
The International Space Station is the world’s most expensive and successful infrastructure project, with an estimated cost of more than $100bn for its development, assembly and operations over a decade. This is a landmark example of the strategic deployment of “co-opetition”: the process of co-operating with your competitors to achieve goals you could not reach alone. During the post-cold war construction of the space station, the competitors in question were the US and the former USSR.
In the private sector, fierce rivals Ford and General Motors collaborated in 2013 to share novel data technologies for autonomous vehicles, to the benefit of both the environment and their bottom lines.
If the world is to achieve its future goals of climate, energy and security resilience, we need full “co-opetition” between the west, China, Russia and other adversaries with whom we share common problems. This outcome is increasingly unlikely. The recent move by Roscosmos, the Russian Federal Space Agency, to pull out of the Space Station is an indicator of declining co-operation between adversaries even where it once existed.
Nasa’s chief economist reflected on this shift in a speech at last month’s space symposium, highlighting the urgent need for global unity to drive progress. Extrapolating from aerospace and defence to other frontier industries, what is clear is that without engaging adversaries, the likelihood of transformation diminishes greatly.
The best years of economic exuberance and global co-operation were squandered on digital marketplaces and luxury goods in the metaverse. At a time when we most need high-performing private and public sectors, we are instead facing bear markets and the return of great power competition. All the more reason why investors and governments should heed the call to innovate.