Archive for the ‘Economy’ Category

Frustrating yet interesting. There’s so much happening in many northern European countries (Norway, Denmark, etc.) that could theoretically be applied to the US, but don’t have the proverbial snowball’s chance of happening. One key example is the area of renewable energy. Regardless of the method of generation (and frankly it doesn’t even have to necessarily be renewable energy), to operate in the most efficient fashion possible will require a comprehensive Smart Grid. And to make that happen, we need the regional and national will to go ahead and implement one. You hear all the arguments about how Big Brother will be watching, yadda yadda yadda, and that’s the key right there. As a nation, we regularly elect government officials that we wouldn’t invite into our homes to babysit our children! We don’t trust them with THAT much authority and power. So goes similar criticism of government-run healthcare, higher taxes for social programs, and so on. Norway has something like a 60% tax rate, and because of the revenue said tax rate generates, they offer comprehensive healthcare, a year of maternity AND paternity leave for a newborn, 3 months of vacation, and so on. Why? Because their political leaders can be trusted to not screw around with the power they have been bestowed with. The statment “power corrupts and absolute power corrupts absolutely” has been modified in Washington to be “power corrupts and absolute power is actually pretty neat!” If we could figure out how to judge (and ultimately elect) politicians based on their character instead of just their political views, we’d probably be in much better shape as a country. So please, I don’t particularly care about your political views, just as you probably don’t care about mine. But as we approach the fall elections (and surprisingly I’m less concerned about the Presidential election than I am about the Congressional elections), don’t just knee-jerk select the candidate who is affiliated with your party. Research the candidates and try to vote for those who exude a character worthy of the power that would be bestowed upon them.

Holiday greetings from Afghanistan! I apologize for the lack of posts, but I was enjoying a much-deserved vacation back in the States with the fiancee and our dogs. But that was then and I am now back in the ‘Stan, awaiting my second Christmas away from the family. At least I have a job…for the time-being.

Nothing is Recession Proof…Not Even War

For whatever talk there has been of a recovery, things are still contracting. An interesting progression has been the impact to the Department of Defense, the military, and the contractors (of which I am one) that support their efforts. In the Air Force Squadron and Group I am embedded with, there have been troop reductions, both in lower numbers of replacement troops coming into the theater and some currently deployed troops having their rotation cut short. Deployment cycles are also being shortened…Air Force units typically work on 6 month rotations, but the Army units we support have conducted 12 month deployments. Those are being shortened to 9 month deployments. On the contracting side, the overseas war efforts have been the life preserver buffering against a distinct lack of jobs in the States. Now that Iraq has wound down to its current levels of activity, competition for contractor jobs (particularly in the construction, engineering, and planning fields) has gotten much more intense. The contract I am currently on recently went out for bid and a joint-venture underbid my current employer. Talking with my co-workers, compensation packages are ranging from 35% to 50% cuts compared to the current contract. Because of my current financial obligations, that brings me dangerously closely to not being able to cover my expenses. Many of my co-workers (who aren’t necessarily in the same straits that I am) have decided that putting up with the conditions, the danger, and the dysfunction simply isn’t worth the offered compensation. The hiring manager for the joint-venture has told people that it doesn’t matter if they leave, because he has a bunch of resumes waiting. As you might suspect, I am aggressively pursuing my options…globally. I’m already overseas…I’m not likely to find much worse than Afghanistan.

The Progression of Clean Technology

I have argued in several forums that (using the example of solar, and the failure of Solyndra and others), that government can serve a vital role in the development and adoption of new technologies, in this case clean-tech and alt-energy. The problem (well, one of them) that hit Solyndra was that the government provided funding for an actual development venture, before ensuring that the technology was fully deployable and that there was a market for the ensuing products. That’s the problem with funding the production side of things…you actually do have to make a profit or the venture will fail. Look at all of the technology that arose from the 60s, 70s and 80s via Cold War defense research. Internet. Cellular communications. Aeronautics. Lightweight materials. The Federal Government put out a request for these types of innovations, and provided the R&D funding to make it happen. Being that these requests were borne out of what was effectively a war-time need, there was a ready-made market and the manufacturing side of the businesses tended to be handled without direct Federal funding (beyond purchase orders). And once again, the Department of Defense is taking the lead on this, only this time it is not just war-time technology but the kind of clean technology that has potential applicability far outside of the battlefield. In an article in The New Republic, the authors make the exact same point.

(T)he U.S. Department of Defense (DoD)–one of the largest institutional technology and energy users in the country…is using its power of procurement to at once create markets and drive the deployment of both existing and new technologies.

This is exactly how the Federal Government is supposed to work. A need or goal is identified, R&D funding is provided, and the private sector can innovate as it sees fit. Then, the initial market is supported by the Federal Government, thus providing both stability for the firms manufacturing and providing the technology, it allows for proper field-testing and refinement of the technology, and demonstrates the technology’s potential applicability for other uses. I know that I am oversimplifying, but that’s the whole point. Don’t bog it down by over-thinking things. Set up an environment that fosters creativity, ensure that adequate resources are available to support the creative efforts, and let the magic happen. Battery technology is a huge potential target for this type of effort. Electric vehicles, hybrids, and the like are rapidly arriving in the market, but the one thing keeping pure EVs (as opposed to hybrids or “range-extended” EVs) from truly taking over the marketplace is that current battery technology doesn’t support the type of range that most people would expect from their vehicle. Likewise, part of the premise behind solar farms, wind farms and smart grids is the ability to generate clean power, store it, and then utilize it when the demand is there. A possible concept would be for the Federal Government to fund battery research, with the goal of deploying energy storage “facilities” in support of a nation-wide network of regional smart grids that generate power from solar, wind, whatever, and can then store it until it’s needed. Having the planned roll-out of a new energy infrastructure in this country would both create the market and drive the deployment of the technology. Plus, the added engineering and construction jobs that would support such an effort couldn’t hurt.

Strange Bedfellows

A recent article in Governing serves to highlight the evolution of clean-tech industries, and the unique circumstances they find themselves in. Much of the clean-technology that is being developed requires some sort of manufacturing element, and (as with rust-belt industries such as automotive), Southern states like Tennessee, Mississippi and Georgia are courting these industries with tax incentives, regulatory relief, and low costs of living. It is a strange confluence of a (generally) left-leaning desire for clean-technology and a (generally) right-leaning ability to offer lower taxes and a less-burdensome regulatory environment, combined with available land and facilities and a workforce able to provide manufacturing services. Some examples of this include: Nissan built a plant to build its all-electric Pure EV car, the Leaf; Sharp has a solar panel manufacturing plant that employs 400 people; Volkswagen constructed a new auto plant that employs a number of green-technologies (green roof, reclaimed water, solar power, etc.) and one of the deciding factors was hearing of the nearby Oak Ridge National Laboratory working on a biofuel public/private venture; finally, Tennessee is installing a major solar farm east of Memphis. The concern noted in the article (and it is a very valid concern) centers on continued funding for the region. Given that the populace of the region tends to vote right-leaning, the concern is that continued public funding support of these and other similar efforts could be in jeopardy. The hope is that the population would, if nothing else, see the effective job creation arising out of these efforts…again, efforts focused on R&D or on a supportable market…and not risk kicking out the golden goose. Besides, if we can clean up the air, lessen our dependence on foreign oil, and save money on our electric and gas bills, it seems like a reasonable trade-off to me.

Sez me…

I consider myself to be a Republican, but lately I’ve found myself leaning a bit more Libertarian on the social end of the scale.  In terms of economic activity, though, I’ve been consistently trumpeting a need for properly targeted, funded, and administered government stimulus program to help create jobs.  Knowing the unemployed having the most difficult time finding work (at least in my neck of the woods) are those who worked in construction and engineering-related fields, and combined with the amply documented state of deterioration of our country’s various infrastructure elements, my focus has been a multi-faceted, long-term infrastructure construction program.  In addition to the direct economic activity of job creation, equipment sales, tax revenues and such, we reap the added benefits of more reliable, safer, and more environmentally friendly infrastructure facilities.  Energy efficient schools.  Safe bridges.  Smart grids.  Mass transit.  Cost savings on maintenance and repairs.  Seems pretty win-win to me.

A lot of recent economic discussion has focused on China, that their economy is about the only global growth activity out there and they need to find a way to stop manipulating their currency to ensure that their economic growth remains sustainable.  Basically, if they grow too quickly, they could ultimately outpace demand and their growth could quickly drop off and leave a lot of people hanging.  But the more interesting recent news is coming out of Japan.  It seems that they’ve been able to grow at a sustained clip adequately to bring an end to the recession that gripped the country since the March earthquake and tsunami.  A Reuters article via Yahoo Business News highlights this, but also raises concerns.  The author notes that the recent Thai floods present another risk to their manufacturing supply chains, networks which only recently returned to nearly full capacity after the Tsunami.  To top that off, the euro debt crisis serves to minimize external demand for Japanese goods.  Citing several economists, the author notes that in Japan the onus for economic activity “…is now on public spending in the nation’s biggest rebuilding effort since World War Two to sustain the recovery.”  In fact, Japanese economists say that the bulk of contribution to GDP in the near future will not come from external growth but rather from publicly funded reconstruction efforts.  The expectation is that this internal activity will serve to sustain Japan’s economy until the global economy recovers enough to reestablish external demand for Japanese goods and services.

Sounds like something that could work here in the US as well, don’tcha think?

A Case of the Stupids

Posted: October 31, 2011 in California, Economy, Jobs

So…California is suffering from extended periods of high unemployment.  Frankly, much of the nation is suffering similarly, but California’s size and economic prominence begets additional scrutiny.  Anybody who pays any attention to economic development, politics, the business world in general, or governmental regulations in general, knows that California is not an easy place to do business.  Between taxes, environmental regulations, labor regulations, and overall cost of living, there are compelling reasons to NOT set up shop in California.  Furthermore, most of the California media do semi-regular stories on businesses in California that have pulled up stakes and fled to more welcoming business climates such as Texas, Alabama, Oklahoma and North Dakota.

So you can imagine my shock upon reading this article on the San Diego Union-Tribune’s website.  To sum up, a local developer wants to develop a mixed-use apartment complex at the waterfront edge of San Diego’s downtown area.  Normally, that might be a welcome development (no pun intended) that would generate some much-needed construction work.  Unfortunately, across the street from the project site is a heavy industrial factory operated by Solar Turbines.  Solar manufactures gas turbines that are sold the world over, and their site has been used as a manufacturing facility going back to the 1920s.  Approval of the apartment project would pretty much preclude further operations at the Solar plant, because the acquisition of any new equipment would trigger environmental reviews…reviews that likely would not pass muster with residential uses a mere 100 feet away.  Solar does have an additional facility in a different part of San Diego, but to shift the waterfront operations to their other facility would require a substantial dollar investment…a much greater investment than it would in many other parts of the country.  According to Solar’s president, D. James Umpleby,

“The primary issue is that we have invested hundreds of millions of dollars in machine tools. If we were in fact to invest the millions it would take to leave this site, it wouldn’t be a prudent business decision to put the plant in the state of California. Heavy manufacturing has left California for the last 30 years. We’re one of the last heavy manufacturers here. If in fact you looked at the business climate, environmental regulations, costs, taxes, everything that goes into heavy manufacturing in San Diego County — if you invested the money, quite frankly, you probably would not stop until you hit the fence line (of the state).”

To further muddy the waters, San Diego in general and downtown in particular suffers from a glut of housing.  Downtown took part in the condo boom of 2003-2007, and a good number of the unsold properties were converted to rental units.  I have a hard time believing that vacancy rates are low enough to justify another rental housing project, and I definitely have a hard time trading existing, long-term established jobs for what would amount to temporary, short-term jobs.  This is an ugly situation, and I can only hope that the City of San Diego, the San Diego Unified Port District, and the Centre City Development Corporation (Downtown San Diego’s redevelopment agency) take a cold hard look at reality and realize that the loss of Solar would far outweigh any benefits that another apartment development would bring to the waterfront.

A recent article that appeared in the San Francisco Chronicle talked about President Obama’s new program called “Joining Forces.” The premise behind this is simple: get a commitment from companies to train and hire post 9/11 veterans. From the government’s perspective, he is asking the Department of Defense and the Department of Veterans’ Affairs to design what would amount to a reverse boot camp, to prepare troops to leave the military and figure out how to translate their military training into civilian-oriented job credentials. That is all well and good, and it is nice to see some acknowledgement that, if you plan to reduce the size of the military, those who separate from the military will need to find gateways into civilian life.

The problem is that we don’t have any jobs for these people to go into when they separate from the military. My fiancee is going on four years of looking for full-time work as an Operations/Human Resources manager in San Diego (yes, she’s looking nationwide), and she has an advanced degree and legitimate experience in her field. Someone coming out of the military might have some specialized technical knowledge (helicopter mechanic, as an example), but for the most part they will probably be able to claim some fairly generic project management type experience and not much else. Doing what I do here in Afghanistan, I interact with many of our military personnel. Often it is while waiting to catch a helicopter flight from one base to another, where I’ll have an opportunity to simply chat with someone. As a civilian over here, I’m often asked why I would be over here. The main reason is that I was laid off and out of work for 9 months before I got this job. I spent 9 months not just looking for a job nationwide, not just being rejected nationwide, but being ignored nationwide. I wasn’t even getting a “thanks but no thanks” email to better than 80% of the jobs I applied to. So when I would get these soldiers asking me about getting out of the military, I most often would reply that they should stay in, at least until they start hearing news that companies are actively hiring in their desired fields. Those who had specialized experience that could be utilized in a civilian contractor capacity (like a military dog handler) I would encourage to go that route, but generally I encouraged them to stay in a deployed state.

The article notes that there are more than 1 million service members are expected to separate from the military as the wars in Iraq and Afghanistan wind down, and as of this past summer, of the millions of unemployed Americans, more than 1 million of those were ex-service members. The fact that there hasn’t been meaningful job growth in our country for quite some time means that no matter what sort of training and transition assistance is given to these service members, without jobs to apply to, they are just going to add to the unemployment numbers. Our elected officials from both sides of the aisle need to stop bickering and agree on some sort of job creation program. If they don’t take action soon, continued high unemployment will only stifle consumer confidence, and that will be the final push to officially drive us back into recession.

The Problem

Two facts. First, the collective infrastructure in our country is falling apart. Bridges, freeways, railways, schools, water lines, the power grid, nuclear power plants, gas refineries, the bulk of the individual components within this collection of elements that make up our infrastructure are 20 to 50 years old. Second, we are facing a distinct lack of jobs in our country, a condition that has and will continue to repress any attempt at an economic recovery. Nobody disputes these two facts.

The Solution

The Federal government (along with State and local governments) is trying to figure out how to stimulate the economy to create jobs and bring down unemployment. Personally, I feel they are going at it the wrong way. Let’s look at just who is out of work. Granted, this downturn has affected pretty much every sector of the economy, but construction, real estate, banking, and industries that have involvement in that field (i.e. equipment manufacturers, local governments, etc.) have definitely borne the brunt of the job cuts. These are the people who are also having the biggest difficulty finding new work, for two reasons. First, there is little to no activity in this sector. Second, the experience and skills that most of these unemployed have do not lend themselves to easy cross-training into those few areas of the economy that still show signs of life. I’m not saying that we should simply create jobs to give these people an easy way out of unemployment (and I consider myself to be one of “these people”), but there is a genuine need for repair, upgrading, reconstruction, etc. of our infrastructure, and it has the potential to be a long term effort. This is where the key is. It isn’t just a “make work” program like the old Cold War Soviet jokes about people counting trees in Siberia. A lot of it is direct work for government agencies, but the bulk of these facilities are existing, and any new facilities proposed under such a program would likely be justified (new ethanol refineries, new schools, smart grid power distribution, etc.), so it is “legitimate” work. Plus, this gives everyone the opportunity to create, encourage, develop, implement green technologies, increased energy efficiency, and potentially lessen our dependence on foreign oil. Obviously, this will require the spending of massive amounts of public funds, and will likely increase our national debt substantially. The thing a lot of people don’t want to admit is that this is how we’ve managed to recover from pretty much every economic downturn we’ve suffered. The construction of the interstate system. The moon shot and space race. The Cold War. These are all examples of the federal government underwriting the efforts of private companies to develop something, be it a road, a space ship, or a missile defense system. Have there been problems? Of course. Combine money and power and there will always be some people who will try to put themselves ahead of the public good…despite the fact that in most cases these same people would’ve made out nearly as good if they played by the rules, and those who went to prison (looking at you, former US Rep from San Diego, Randy “Duke” Cunningham) ultimately came out far worse than if they’d played by the rules.

How To Do It

There are different nuances that will apply to the different industries…it most certainly isn’t a one-size fits all approach. That being said, for the most part it will not involve government agencies hiring lots of people for their payrolls. As I have noted previously, jobs permanently dependent on public funding (i.e. government employees) are simply not sustainable, so we’re not looking to create massive construction departments within Caltrans or the State University of New York system. Also, we don’t want the government attempting to create industries via direct subsidies. Solyndra is a perfect example of how a government program shouldn’t simply attempt to create an industry.

Regarding the actual construction of the infrastructure, there needs to be a long-term funding program (i.e. a 6 year highway bill) that construction firms can bid on. Private companies generally are more efficient and cost effective than government agencies, and they tend to generate more economic activity. The long-term nature of this program would give them assurance that there would be steady activity that they could bank on…invest in people, invest in equipment, make long-term plans.

Regarding the inevitable “green” element of this, this is where we go back to the space race/Cold War approach. Government provides a description, parameters, whatever for what they’re looking for (smart grid, more efficient cars, whatever), and provide funding for the research and development element of it. This allows companies to figure out what is viable both from a development perspective as well as a use/implementation perspective. The government then has the opportunity to establish the primary demand for the new technology (wind power, hydrogen fuel cell cars, etc.). This serves two purposes. First, it provides a revenue stream for the providers of these new technologies. Second, it provides a sense of stability that encourages a support network to develop around the technology. A prime example of this would be alternative fuel cars. The average car today can drive 300 miles on a tank of fuel, someone is rarely more than a few miles from a refueling station, and it takes just a few minutes to refuel the vehicle and travel another 300 miles. Hydrogen fuel cell cars have the potential to travel 300 miles on a tank, and it takes less than 5 minutes to refuel them. The problem is that hydrogen filling stations are very few and far between. Pure electric vehicles such as the Nissan Leaf or the Tesla Roadster can “refill” (recharge) on pretty much any plug you can find in any building, but their range typically does not exceed 100 miles on a charge and it can take several hours at best to get a partial charge. Government providing a set of standards or operating criteria and letting the auto manufacturers develop products that comply with those criteria would be the preferable step. To provide the proper support and encourage proper establishment of the technology, government would be a primary user/purchaser of the technology. All city and county vehicles would utilize this new technology, and the government would encourage the development of “refueling” facilities in support of this new technology. By providing stability of revenues for the developers and a useability experience consistent with what the general public can be accepting of, it will encourage the widespread implementation of this new technology. Furthermore, private investment (meaning purchase of these new vehicles) will ramp up and lessen the need for continued public underwriting of the effort…much as has occurred with regular gasoline powered cars.

To make all of this work, it will require not just money, but elected officials and policy makers being willing to leave politics behind, as well as investors and business owners willing to not be greedy and actually put the money into development. If we can agree to avoid the short-term, instant gratification disease that usually accompanies these types of efforts (see defense contractors in the 80s and 90s), I genuinely feel that everyone will come out better than they went into it.

In the midst of all the doom and gloom out there, we are faced with contradictory news that kind of makes you wonder which way to turn to dodge the oncoming train.

Manufacturing – The Great Hope

Despite the unfortunate yet spectacular collapse of Solyndra, manufacturing as a whole actually grew in September.  According to Reuters (via Yahoo news), “(M)anufacturing grew more quickly in September as production and hiring increased, suggesting that factories would help keep the economy from slipping into a new recession.”  The Reuters article continues, citing the Institute for Supply Management’s index of factory activity rising from 50.6 to 51.6, where predictions had the index dropping to 50.5.  In particular, the auto industry is watching sales volume grow for most nameplates.  As reported by Autoblog, the largest slides for year over year by month were shown by Saab (which has been clinging to life support ever since the GM bankruptcy), and Toyota and Honda, both of whom are still working to ramp production levels back to normal after the Japanese earthquake, tsunami, and nuclear reactor meltdown back in March.  Combining its divisions, Chrysler actually managed to top Toyota and regain the #3 sales slot for September, behind Ford and GM.

But back to the Reuters article.  They noted that construction spending had also risen…1.4 percent in August due to state and local government building projects.  They also noted that small business borrowing in August rose to its highest levels since April 2008.  Ultimately, though, they acknowledged manufacturing’s 12% of GDP and 11% of non-farm employment, and the expectation that continued expansion combined with cash-rich businesses spending money on machinery and equipment would stave off a double-dip recession.  As I, and many others have noted in many diverse forums, the potential for manufacturing activity to generate indirect economic activity is great, and any serious job creating efforts must include substantial resources aimed at invigorating and expanding the manufacturing base in this country.

The Great Uncertainty

While the employment figures in the sector are very promising, there are still reasons to be concerned.  First, despite the uptick in manufacturing numbers, orders have declined for three straight months.  If manufacturing output doesn’t begin to grow, those recently hired may not have jobs for too much longer.  Second, the Euro Zone debt crisis isn’t going away.  Discussion regarding Greece has pretty much changed from “if there’s a bankruptcy” to “when there’s a bankruptcy.”  With much of the European banking industry tied up in either Greek government securities or in contributions to the European Financial Stability Facility, a Greek default could trigger a domino effect through first the Euro Zone, then Asia and the US.  Such a banking crisis would effectively be a repeat of the 2008-2009 fiscal meltdown in the US, and drive the world back into a credit crunch and an overall slowdown.  Bank stocks, in fact most global stocks are trading dangerously close to bear market levels.

Obama’s Jobs Bill

As expected, Republicans in the House of Representatives have declared Obama’s jobs bill DOA as a complete package.  As reported by Reuters, not only has the House stated that they would only pass portions of the bill, both Republicans and Democrats in the Senate have stated that the bill is likely to fail there, too.  Personally, I’m not thrilled about the proposed tax increases but the incentives and infrastructure programs appear to be sufficient to offset the likely negative impact of the tax increases.  In any respect, we’re pretty much as the last option before total meltdown and collapse.  With Asia and Europe teetering on their own cliff edges, anything that moves us back from our edge is not only good for the US economy but will likely have a calming effect on the global economy.  And in all honesty, public spending will further increase the national debt, at least in the short term.  Passing tax increases to boost revenue, even a small amount, will help ease credit concerns over our debt load.  Removing those concerns will add to the calm and stability, and maximize the ability to realize the full benefits from the actual economic stimulus activities.  Sadly, the weak link here will be our elected officials.  As I have stated before, our elected officials need to start looking past their own wants and needs and consider the needs of the country.  I think we’ve gotten close enough to the edge of the cliff that ideas solely from one side of the aisle or the other either will not be sufficient on their own, or won’t take hold quickly enough to avert a complete collapse of the economy.  Finding a middle ground where elements from both sides of the aisle can be implemented is what I see as the only way to provide the confidence to stabilize our economy.  And this stability is what will hopefully keep the rest of the global economy from falling into the abyss.

I’m hoping this is the light at the end of the tunnel, but with our elected officials unable to decide which way to steer, if it is the oncoming train then we’re pretty well screwed.

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.

In a previous post, I laid out what I thought would be the best possible jobs program that had the proverbial snowball’s chance of actually creating jobs and generating economic growth. My rationale exhibited elements of both Keynesian thought (government spending) and Reagan-esque/Tea Party mantra (people working will generate revenue which will go back into the economy, thereby creating more jobs, and create more revenue, and so on and so on). I know that Democrats would be less than enthused about the idea of spending the money on private sector firms and letting them do business with as little regulatory impediment as possible. Conversely, I know that Republicans would be every bit as frustrated at the notion of further government spending on giant public works projects. Frankly, it is that element of annoying those on both sides of the aisle that tells me I might actually be onto a workable idea.

So. Having finished up a good workout at the gym, I decided to see what was happening in the world and fired up NPR’s website. The top center article was an article about the SF/Oakland Bay Bridge project undertaken by Caltrans. The focus of the article wasn’t that it was a prime example of the type of long-term infrastructure project that I (and President Obama) have talked about. Rather, the focus of the article was that a good portion of the fabrication and manufacturing work was outsourced to China. In the article, California Assemblyman Luis Alejo (D-Salinas) states, “When you have a project of that size here in California, it has a multiplier effect…it gives thousands of families those jobs, and then those paychecks and their subsequent spending ends up going back into our economy. And so now all that money has permanently disappeared from California.” That certainly sounds familiar…and it’s a Democrat that’s agreeing with me! In the article, it noted that the contractor who won the bid was approximately $400 million cheaper than the next bidder, partially due to the fact that (as an example) Chinese steel polishers make approximately $12 per day. A district director for the United Steelworkers Union noted that it was impossible for American workers to compete with workers earning only $12 per day. And he’s correct.

In the course of dissecting the unemployment figures, there have been discussions floating around the media and the internet (Linkedin is a prime source) as to whether America needs to revive/maintain its manufacturing base. Personally, as you may have surmised, I fall into the camp of revive/maintain. I feel this way for several reasons (many of those out of work come from manufacturing-related industries, manufacturing breeds innovation, without a manufacturing base we become a contributory economy, without manufacturing we become dependent on/at risk from other countries for our manufactured goods, etc.), but I’m not blind to the fact that manufacturing in the US has a hard time competing on a global stage. On one hand, you’ve got places like Malaysia, India, and yes, China paying their workers a microscopic percentage of what US workers make, while the government not only subsidizes the companies’ work but also passes all sorts of regulatory measures designed to maximize protection and competitiveness of those same companies. China even requires foreign companies who want to do business in their markets to enter into an agreement with a local firm (who would otherwise likely be a competitor), usually involving some level of ownership interest by the Chinese firm in the foreign firm (very true in the Chinese automotive industry, for example). On the other hand, businesses actually operating in the US are subject to extremely rigorous regulations in the financial, labor, and environmental elements of business, not to mention much of the manufacturing work is done in union shops. Where other countries minimize restrictions and maximize support, we seem to do the opposite.

It will certainly upset the true believer, free market members on the right, but it may be time to consider some protectionist actions. If nothing else, simply imposing increased import duties on imported products. Possibly even going all the way to sectoral reciprocity, where we would impose regulations/conditions/restrictions on products (for example) from China that were effectively identical to those that China would impose on similar products from the US. On the other hand (see, I’m really good at finding that middle ground that can piss everybody off!), I would certainly look at abolishing the unions. There may have been a time when they were genuinely effective at protecting workers, but the combination of the labor laws that are currently in place, the other regulations that govern the workplace (i.e. safety, environmental, etc.), and the seemingly instant transparency of the media (CNN, TMZ, Drudge Report, internet), I question whether the unions are genuinely necessary to ensure that the workers are not wholesale taken advantage of. On a semi-related note, there have been some new manufacturing jobs created, primarily in the automotive industry. Foreign automotive manufacturers from Toyota to Mercedes Benz to Hyundai to Volkswagen have set up major (and sometimes multiple) manufacturing facilities in the United States. And the one thing that most, if not all of them share…they are not unionized. And despite not being unionized, the workers at these manufacturing facilities don’t seem to be abused, exploited or otherwise placed in harm’s way or taken advantage of. As with other suggestions I’ve made, the majority of the ideas I’ve shared should ultimately be temporary in nature. Once the economy has found its footing and developed positive momentum, these measures should be slowly dialed back so as to restore general market activities.

Ultimately, it boils down to the fact that we are suffering a jobs crisis. Every economy needs some sort of core or base, and a base that consists of manufacturing and other similar/related uses ensures that not just the economy but society as a whole rests on a stable and supportive base. Even on a temporary basis, I believe that these types of measures can definitely have a positive effect and do it quickly

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.