China and Solar and Jobs

Posted: September 19, 2011 in China, Economy, Jobs, Politics

As we are all aware, the Obama administration issued a $500 million loan to a California company called Solyndra.  Solyndra’s business was making solar panels, and the loan was part of Obama’s Green Jobs Initiative.  I say “was” because we are all aware that Solyndra closed its doors, laid off 1100 workers, and filed for bankruptcy protection at the end of August.  Their chief reason behind their actions was that they could not compete with low-cost competitors from China.

American Solar Efforts

According to a paper by the Center for American Progress, the United States is currently ahead of China in installed solar capacity (2.6 GW vs. 700 MW for China), and the U.S. is also ahead of the curve regarding solar equipment, with $1.9 billion in overall net exports in 2010, and a $247 million trade surplus with China, but that is primarily in the raw materials, not in the job-creating manufacturing of finished products.  But U.S. policymakers are gearing up to slash funding for the basic support programs that created this impressive lead, and that means we could easily lose our edge to China.  Compounding this is the failure of not only Solyndra, but several other U.S. solar companies filing bankruptcies recently.  According to a recent NPR interview, even the solar companies that have been established for a while are having a rough time managing their costs, especially compared to their main Chinese competition.

China’s Subsidies

For most of the past decade, the Chinese government has been subsidizing their home-grown solar manufacturers.  They haven’t been working necessarily at innovation but rather at simply providing existing technology at a much lower price than anyone else out there.  This is pattern that has been seen other times in other places.  Japan indirectly subsidized its fledgling auto industry in the 60s, 70s, and 80s, primarily by placing large tariffs on vehicles imported into Japan, requiring compliance with overly stringent regulations, etc.  This allowed their cars to be overly competitive on price, which allowed them to gain market share in the U.S.  Once that market share was established, the subsidies were no longer needed.  China’s auto industry is benefiting from similar regulatory assistance…for U.S. (or other) auto manufacturers to do business in China, they need to enter into an ownership agreement with a Chinese manufacturer.  With regards to solar, the Chinese government is simply subsidizing the companies, allowing them to establish their processes and gain market share without having to worry about cost.  In the aforementioned NPR interview, it was noted that U.S. Department of Energy estimates were that the Chinese government provided more than $30 billion to their solar companies.  Compare that with the $500 million given to Solyndra, as a cornerstone of the Obama administration’s Green Jobs efforts.

What Can Be Done?

Obviously there are as many opinions as there are people with some sort of ability to publicize those opinions (see this blog!), and those opinions are as varied as anything.  Tariffs, regulations, subsidies, further innovation, the suggestions are endless.  Personally, I’m looking at it from the overall economic development (meaning jobs) perspective.  I have argued in this blog, as well as other outlets on the web, that the U.S. really needs to revive, reestablish, restore its manufacturing capacity.  Manufacturing breeds innovation, as evidenced by the innovations we are now seeing coming out of the countries we have outsourced much of our manufacturing to.  We are a country of innovation, and innovation can occur without the symbiotic presence of manufacturing, but where does that leave us?  The U.S. becomes a net exporter of knowledge and innovation…we sell ourselves to the highest bidder and become dependent on others for any and all durable goods.  We effectively become a service economy for others, and not to disparage the service industries, but that is not a recipe for a successful, vibrant, growing economy.  As much as I have been a free market advocate, desperate times do call for desperate measures.  The measures I will outline are desperate and have a slim chance of being implemented, but they are interrelated and offer what I feel is the best chance to not only save the U.S. solar industry, but create green jobs, improve the environment, and stimulate the economy…both directly and as a methodology to apply to other industries within our economy.

First,there needs to be regulatory relief for U.S. firms.  There are many angles to attack in this regard.  The most obvious would be in the form of tariffs on Chinese imports.  Other methods could be in the form of tax benefits, relaxing of labor or environmental regulations, or the imposition of safety/manufacturing standards geared towards U.S. firms.  These sorts of efforts have worked for the Chinese, as well as the Japanese and others.  We know that Chinese environmental protection policy has historically been lax, as evidenced by this Reuters article, and their safety and quality performance hasn’t quite risen to those of the Western economic superpowers.  All one needs to do is hear stories about suicidal working conditions in the plants that make the iPad, or search for Chinese Automotive Crash Test on YouTube to see where they are able to save costs.

Second, I would institute a serious program of subsidies for manufacturing efforts, and by serious I mean on a scale comparable to that of the Chinese.  As the Solyndra case illustrates, there would be an obviously rigorous vetting of applicants, but a major subsidy program is necessary, in my opinion.  China has taken the tack of not going for the innovation initially, but rather letting the companies establish themselves and refine their processes to the point that they can compete with anyone.  As I stated previously, manufacturing does encourage innovation, and the establishment of a stable manufacturing element by the Chinese will only serve to facilitate their own innovations.  Particularly as they gain market share and revenues with which to finance said innovations.  Such a program would be difficult to implement under good economic conditions, but after the debt ceiling debacle in Congress, it would face an extremely rough path.  But as I noted earlier, desperate times call for desperate measures.  Raising the debt ceiling would obviously have to happen.  A comprehensive rewrite of the tax code that standardizes rates, minimizes exemptions and applies to all would probably upset a lot of people, but figuring out the appropriately “fair” rate to apply to everyone would likely improve the tax burden of many while potentially increasing tax revenue to the government.  Pie in the sky thinking, but why not go for a moon shot?

Third, and this would be the most difficult aspect of my glorious program, I would somehow require our elected officials to actually work together.  Our current state of government can barely pass its own budget to stay open, much less agree on a massive financial and regulatory overhaul of international policy.  My inner optimist likes to believe that everyone would recognize how close to the edge we are teetering, recognize that something needs to be done, understand the benefits that can be realized from such a program, and finally come together for the common good to implement such a program.  This is where the public will have to get involved en masse.  We must recognize that a goal of economic development can ultimately benefit everyone individually, as well as their individual projects, goals, and desires.  Everyone needs to compromise a little, with the understanding that success in this endeavor should more than make up for any individual sacrifices that are made.  Once we the people agree on a course of action, we need to decisively act to elect representatives at all governmental levels that will heed our direction and implement these programs.  Extremely uphill battle, but I think we’ve reached the point where we have to make a stand.

Sometimes my inner optimist needs to be slapped in the face with a wet fish, but I want him to be right.

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