Where to start…

Posted: September 15, 2011 in Economy, Jobs, Politics

It was recently announced that the US House of Representatives was looking into the $528 million loan given to the solar panel company, Solyndra, as part of the Federal Government’s Green Jobs Initiative. Originally, the idea was that low cost loans would be granted to companies that could create the ever-elusive “green jobs” to help kick-start both the overall economy as well as the green economy in particular. Generally, a noble goal. In Solyndra’s case, it was going to hire people to make solar panels designed for both large scale (commercial) and smaller scale (individual residential homes) installations. Again, a noble goal. Unfortunately, and here’s where I do not know all of the information on timing, Chinese firms that manufacture solar panels started undercutting the prices of Solyndra’s panels. I don’t know if it was simply a natural effect in China’s materials cost for the panels (discovery of a large source of the necessary raw materials), or if it was a Chinese government-sponsored effort to reduce their firms’ costs in order to gain market share, but the end result is that Solyndra couldn’t compete on price, laid off their 1100 workers, and closed their doors.

This was an obviously bad series of events on multiple levels. First, 1100 workers were laid off. In and of itself, not a good thing. Second, the company had a manufacturing presence, and manufacturing jobs are truly needed to prop up the base of our economy. Something worthy of a separate post, but if the US divests itself entirely of its manufacturing base, we lose not only blue collar jobs, but we also lose the innovation that tends to accompany manufacturing, and we make ourselves dependent on others for our stuff…in effect we become not only a service economy but we wind up working in service of others. Third, this company was highly touted by Obama as a representative of how the green economy is supposed to develop. Fourth (and related to the third), there are now allegations that the loan was rushed to meet White House timelines for promotions, events, and the like, and may not have been properly vetted. This, of course, serves to give the Administration a black eye and negative publicity to not only the green economy, but to the Administration’s economic stimulus efforts as a whole.

Generally, I am a free-market advocate. Minimize the restrictions and let the business happen. However, that attitude only works when all players are playing by the same set of rules. In the 70s, 80s and 90s, first Japan and then other Asian countries applied government controls to their manufacturing efforts, primarily related to electronics and automobiles. These governmental interventions in the market allowed these foreign firms the ability to price their goods much lower than those produced in US factories, and thus began the decline of our manufacturing capacity, either by outsourcing to overseas locations or by simple decline in market share. We may have reached a point where we need to reapply government controls to our manufacturing market to help reestablish our manufacturing capacity. I’m not talking about blind price subsidies, but a mix of import duties and carefully studied and applied pricing subsidies. A situation where profit-minded companies (which should be all of them!) see a subsidy and see that as an opportunity to charge whatever they’d like, knowing that the subsidy will make up the difference is counter-productive. For better or worse, there is ample evidence that this sort of government policy can work. Look at the Japanese auto manufacturing industry, or the electronic industry in places like Singapore, or even the solar panel industry in China.

Human nature being what it is (at least in the US), any such program of tariffs and subsidies will need to be precisely structured and applied, and those managing and benefiting from the program will need to be closely monitored to minimize the potential for abuse, and there needs to be a defined series of milestones that reduces the level of support over time as the industries become able to stand on their own two feet.

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