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Prestowitz: To be green or not to be

As he prepares to meet with Hu Jintao at the White House, President Obama would be well advised to scan New York Times reporter Keith Bradsher’s report from Beijing last week about the United States’s third largest solar panel maker off-shoring its production to China. The piece a big spotlight on the single most important ...

Feng Li/Getty Images
Feng Li/Getty Images

As he prepares to meet with Hu Jintao at the White House, President Obama would be well advised to scan New York Times reporter Keith Bradsher’s report from Beijing last week about the United States’s third largest solar panel maker off-shoring its production to China. The piece a big spotlight on the single most important cause of America’s current high unemployment and relative economic decline.

That cause is not our mediocre K-12 education system, our high, marginal corporate tax rate, our federal budget deficit, our business regulatory system, our health care and retirement systems, our crumbling infrastructure, or our soaring federal debt. Rather, it is the fact that we have no economic or technological strategy.

We, of course, have a military and national security strategy and devote enormous resources and talent to developing, maintaining, and executing it. But for the United States, national security has nothing to do with economics and our productive base. We wouldn’t consider offshoring the production of our fighter jets, CIA drones, and warships. But when it comes to solar cells, wind generators, and other advanced technology we almost beg companies to move their production out of the U.S.

As Bradsher reported, Evergreen Solar will close its main factory in Devens, Massachusetts and lay off 800 people by the end of March as it shifts its production to a joint venture with a Chinese partner in Wuhan, China. Nor is this the only example. In the past year, both GE and BP have announced the closing of their U.S. solar panel plants and the off-shoring of their production to China. Silicon Valley based Solyndra has also announced the closing of one of its two plants and a delay in the expansion of the other. Top U.S. producer First Solar is also one of the world’s largest makers, but it has long done most of its production in China and elsewhere abroad. 

Thus, Evergreen closing up its U.S. operations and laying off the workers is not particularly noteworthy. What is striking, however, is the explanation given for the move. In all the other cases, there was talk of lower labor costs and a more pro-business regulatory environment in China. Evergreen, on the other hand, just said flatly that China based producers receive a variety and scale of subsidies and special loans from state owned banks that are far beyond anything provided by either the state or federal governments in the United States. But these are just a small part of the Chinese government’s spending on expansion of solar energy use that has turned China into the producer of over half the world’s solar panels and resulted in economies of scale that make China the low cost global location for solar panel production.

It’s not that there is no special financial support for solar panel production in the United States. Evergreen has actually received $43 million of special aid and loans from the state of Massachusetts, and during a May visit from Obama Solyndra received a $535 million federal loan guarantee. But this aid is so inadequate in the face of the amount of money available in China and of China’s rapidly mounting advantage in economies of scale that both companies felt they had no choice but to shutter U.S. operations.

Big as it is, however, the money gap is only a manifestation of a much bigger mental gap. China has a clear economic strategy aimed at achieving leadership in and dominance of what it sees as the industries and technologies of the future which definitely include alternative energies. To that end it is pouring resources into backing a lot of efforts in the belief that at least a few will emerge as winners.

By contrast, although Obama has spoken a lot about his desires for green energy development and jobs, and the U.S. government has taken a few halting steps such as the loan guarantee to Solyndra, the United States, while it may have hopes, simply does not have anything approaching a comprehensive, integrated alternative energy strategy.

The reason why can best be explained by an example. At the start of the Obama administration I was invited to participate in a meeting of White House and other economists to discuss green energy development policy possibilities. The White House wanted to stimulate development of U.S. production of wind turbines, solar panels, and advanced batteries both for the purpose of cutting greenhouse gas emissions and for the purpose of creating jobs to replace those lost as mid-west auto plants closed in the wake of the Great Recession.  I and others present said that such objectives were achievable but only if the administration were prepared at least to match the subsidies and market protection then being offered by the likes of China, Korea, Japan, Germany, and a few others. This raised the immediate objection from leading White House economists that such matching efforts would amount to "big" government "picking winners and losers" instead of relying on market forces to determine the outcome of the alternative energy races.

I pointed out that in these particular markets there were virtually no true market forces because all the leading governments were pouring investment into them and taking other measures to stimulate alternative energy demand. So the choice wasn’t between market forces and industrial strategy. Those who had no strategy and who relied strictly on market forces would not long be in the market.

That is what the Evergreen and other stories above are now proving.

The United States can no longer afford its outdated conventional economic wisdom — if it ever could. The idea that while companies compete countries do not is just plain wrong. Countries like China, Brazil, Korea, and Germany area ll very much competing, and we must compete back. The further idea that those countries that subsidize and protect key industries are only hurting themselves is just arrant nonsense. They may or may not be hurting themselves, but they are surely hurting us and other economic partners who compete in those industries.

If the president really wants to create green jobs, he had better get an economic strategy… fast.    

 Twitter: @clydeprestowitz

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