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Elon Musk’s offer to rebuild Puerto Rico’s electricity grid is a game-changer

  • Elon Musk has offered to bring Tesla to Puerto Rico to fix and improve the island's power grid.
  • This represents a new way for investors to look at disaster response beyond just lending cities money in new bonds.
  • The American people seem more open to this kind of approach than they have in many years.
A resident sits on his porch underneath a damaged power line as recovery efforts continue following Hurricane Maria in Ceiba, Puerto Rico, October 4, 2017.
Lucas Jackson | Reuters
A resident sits on his porch underneath a damaged power line as recovery efforts continue following Hurricane Maria in Ceiba, Puerto Rico, October 4, 2017.

Elon Musk has a remarkable sense of timing. But even by his standards, his offer to help salvage and upgrade Puerto Rico's power grid in the wake of Hurricane Maria is a master stroke:

In one sense, the damage to Puerto Rico's infrastructure from the storm and years of neglect makes Musk's offer to help an obvious move.

But this isn't just another example of Musk using his Twitter feed and other media to take advantage of events in the 24-hour news cycle. The opportunity he and Tesla appear to be willing to take on wouldn't have been possible without more than two decade's worth of changing American attitudes about big government and its limitations.

Before Hurricane Andrew hit Florida in 1992, the idea that the President of the United States or the federal government as a whole could be publicly criticized in mainstream circles for their response to a storm was really unheard of. But then-presidential candidate Bill Clinton seized on President George H.W. Bush's seemingly detached response and delays in storm relief and storms have been politicized ever since. President George W. Bush certainly learned that lesson the hard way after Hurricane Katrina in 2005, which marked a turning point in his approval polls from which he would never recover.

Katrina also produced a national consensus that the Bush team had failed in the storm's wake and the solution was finding a way to getting a better government. The war in Iraq was also starting to go stale in the public's mind at that time, so the Republican losses in the 2006 midterm elections that followed both that development and Katrina were no surprise.

But even before the politics got in the way, the conventional wisdom was that only the federal government with all of its resources could be expected to execute all significant levels of natural disaster relief and rebuilding. With the exception of the most ardent anti-government types, that has been the accepted truth.

Until now.

Let's start with the charity/aid aspect. One example that stood out was a recent piece in USA Today that showed how faith groups were taking the lead in providing aid to Harvey victims, albeit with FEMA coordination.

"Now along comes Musk, and suddenly investors have another way to look at Puerto Rico. Bond debts or no bond debts, Tesla could make a project on the island profitable for its investors even just as a demonstration of what the company could do for better paying municipal customers elsewhere."

But the relief effort is being joined, and in some cases led, by corporations. There are also extensive data being published showing that the private sector essentially did a good job in response to Hurricanes Harvey and Irma. After Hurricane Maria, Apple, Google, Pepsi, Coca-Cola, Burger King, Goya, all stepped up and Wal-Mart is again setting the pace with up to $5 million in cash and product donations to Maria victims alone.

And along with the private sector stepping up to the plate, there are signs that the government may be realizing one part of the charity job it should stop doing altogether. That is, ending the practice of making ordinary American taxpayers continue to underwrite national flood insurance for sometimes richer Americans who choose to build homes in flood areas. President Trump even mentioned the idea of putting an end to subsidized national flood insurance for new homes built in those areas from now on.

Just like that, we have evidence that the government and the public have become used to the private sector doing more and the public sector doing less after disasters... as long as it works.

Like I said, timing is everything.

And, just to be fully honest, let's not ignore the fact that these companies stand to earn some very valuable positive public relations from all of his and even a bit of powerful advertising.

But now Musk is taking that idea and moving it a crucial step further. Because he and Tesla are focusing on making an investment in Puerto Rico's recovery.

The investment community's response to Hurricane Maria in Puerto Rico has been in special focus because of the island's heavy debt and President Trump's comment that those debts would need to be "wiped out."

Now along comes Musk, and suddenly investors have another way to look at Puerto Rico. Bond debts or no bond debts, Tesla could make a project on the island profitable for its investors even just as a demonstration of what the company could do for better paying municipal customers elsewhere. Again, that takes us to a new place from just the valuable public relations effect Wal-Mart and other companies gain from pitching in cash and material after disasters.

And Musk isn't alone. Google parent Alphabet has just secured FCC approval to float large balloons over Puerto Rico to restore cellular service. Again, whether Alphabet does this for free or at cost isn't the point. It's going to be demonstrating its abilities to create an investment worthy tool for disaster recovery.

This is a new approach in many ways, but perhaps this is actually the beginning of a return to America's historic roots. The best example is probably what happened after the 1906 San Francisco earthquake destroyed much of the city and the private sector began to rebuild quickly and without waiting for much government direction or aid.

Now that rebuilding effort wasn't perfect, but the speed with which the city bounced back is a well documented case of effective recovery. And the savvy response of one San Franciscan named A.P. Giannini, who just happened to run a bank in the city, was essential to that recovery. Giannini broke with his fellow bankers in the city and set up shop on the docks near San Francisco's North Beach and began extending loans right then and there. His actions not only were a crucial factor in the city's recovery, it started the process of turning his small local bank into the huge multinational Bank of America.

Will Musk become Puerto Rico's Giannini? He certainly could in many ways. But so could some of Musk's peers like Google, which undoubtedly could find a way to profit not from tragedy, but from leading the recovery from tragedy.

The best news is that people like Musk et al. are not only willing to try, but Americans and the current White House seem to be very willing to let them.

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Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.