An Energy Policy We Can Stick To: Andy Grove, Former Chairman of Intel, Applies His Analytic Mind, Steeped in Business and Science, to National Energy Policy-And Comes Up with a Solution Whose Goals Are 'Stickiness' and 'Resilience' and Whose Power Is Electric

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Twenty-five years ago, when I was CEO of Intel, I had an unusual experience while visiting a customer. It was during a period of tight availability of microprocessors, our main product. This was not an unusual state of affairs. Supply and demand ebbed and flowed as the computer business had its ups and downs. Sometimes we had too many chips sitting in inventory; other times, like this one, we had too few. My main purpose in visiting was to reassure the customer that we were working hard to boost production and that relief was on the way.

A strange sight greeted me as I entered the lobby. A large group of employees was waiting, standing around in a semicircle, with the CEO, an old friend, in the center--on his knees. The employees behind him held up a sign that said, "Please feed the chip monster. He is very hungry."

As flashbulbs popped, I realized the purpose of this setup. We were the sole supplier of the microprocessor this customer needed, and my promises and apologies were not going to help much. The staging was done in good spirit, but I felt deeply embarrassed--which may be why I remember the scene so vividly, even after all these years.

The episode came to mind earlier this year when I read about President Bush's visit to Saudi Arabia. His main mission was to ask the Saudis for greater petroleum output. According to press reports, his request was unceremoniously rejected by the oil minister, who did not even appear to be embarrassed. Such an exchange would have been inconceivable as recently as a decade ago. Our standing in the world of oil has fallen a long way in a short time.

In fact, we may be at a critical juncture, the kind that can creep up, in a gradual and insidious way, on companies and industries, and even on societies. Invariably, the actions that are needed to change course at such times are painful. Leaders rarely appreciate the gravity of their situation, and even when they do, they are loath to take appropriate action.

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After World War II, the United States was the global leader in the production and distribution of energy. In time, other countries rebuilt their war-ravaged economies. As their oil consumption increased, our prominence, both on the demand and the supply side, was gradually diluted. Our relative decline accelerated in the 1970s, after the Organization of Petroleum Exporting Countries (OPEC) was formed and then again when it flexed its muscles by precipitating the oil shock. Later, in the early 1990s, some of the developing Asian economies started to grow at a rapid rate, requiring a prodigious amount of petroleum. Consequently, our significance as a customer started to decline in the same manner as our significance as a supplier did earlier.

Let's put this situation in perspective. Google's share of the U.S. search market is more than half. This allows the firm to wield tremendous influence over the very nature of the American advertising market. Google may even have the power to transform and redefine how advertising is carried out. OPEC has a similarly dominant share of the worldwide oil market, and it may have a correspondingly large influence on its customers.

But the stages on which Google and OPEC play are dramatically different. Advertising is a big and important business, but energy is the lifeblood of all economies. Like drinking water or oxygen, we simply cannot be without it. So a supplier of energy can have significant control over customers--even nations.

The availability of petroleum may well determine whether an economy grows or declines. You can see this striking relationship by comparing the rise of China's economy with the rise in its demand for petroleum. The availability of petroleum can determine employment levels, which, in turn, for a nation like China, can determine national political stability.

The Goal That Failed

As America's energy situation began to change, so did our official energy strategy. …