About a year ago, President Barack Obama toured Solyndra, a top manufacturer of
solar photovoltaic (PV) systems. It was a centerpiece of cleantech and how it
would reinvigorate jobs. As a sign of importance of the company, the Department
of Energy provided a $535 million loan guarantee. Unfortunately, it has turned
out to be a disaster. This month, Solyndra filed for bankruptcy, shut down its
manufacturing facility and terminated about 1,100 employees. The problem? Well,
it looks like China has been even more aggressive with its alternative energy
investments. The result has been a substantial drop in solar cell prices.
Besides Solyndra, two other major U.S. solar firms have imploded during the past
month, which include Evergreen Solar (PINK: ESLRQ ) and Intel- backed (NASDAQ:
INTC ) SpectraWatt. In a way, China's government is playing a game the U.S.
perfected years ago. After all, federal subsidies have been crucial for
industries like aerospace, semiconductors and even the Internet. Of course,
these are markets we still dominate at least for now. Already, Congress has
launched an investigation of Solyndra and the FBI has raided the offices. No
doubt, many Republicans see this as an example of the perils of federal
involvement in new industries. Even some high-ranking Democrats are concerned
about the situation. So in light of the acrimonious budget battles, the Solyndra
debacle is likely to be a political lightning rod to push back hard on federal
activism. In fact, venture capitalists also have been getting antsy about
cleantech deals (keep in mind that Solyndra received more than $1 billion in
private funding). Just look at Kleiner Perkins Caufield & Byers. Once a leader
in cleantech, the firm seems to be more interested in social networking
companies like Twitter and Zynga. Keep in mind that the headwinds will not only
come from the U.S. Europe also is cutting back on cleantech. With the sovereign
debt crisis and slowing growth, it is hard to justify these types of long-term
investments. OK, it's true that the U.S. still has cutting-edge businesses.
Facebook and Google (NASDAQ: GOOG ) certainly are shining examples of
innovation. Yet if there is to be real growth for the whole economy,
manufacturing is necessary. Actually, this is the contention of Andrew Liveris,
CEO of Dow Chemical (NYSE: DOW ). He recently wrote a book about this called
Make It In America: The Case for Re-Inventing the Economy . In it, he says that
services jobs are simply not enough. Instead, the U.S. needs to focus on
advanced engineering, which will help propel growth in categories like
materials, construction and energy. Consider that one manufacturing job leads to
five new jobs , according to a recent piece in The New York Times . But somehow,
Americans basically have an out-dated impression of manufacturing. It's often
associated with smokestacks and dirty factories. Who really wants this stuff?
But if you visit a state-of-the-art manufacturing facility, you will see a very
clean operation, skilled workers and sophisticated equipment and robotics.
Often, there will be research facilities nearby, where engineers are busy
innovating. But for the most part, you'll see most of this in places like
China. Then again, the country has spent two decades pursuing an aggressive
policy to promote manufacturing. This has been through tax incentives, cheap
land, training assistance, education support and subsidies. So is it any wonder
that U.S. multinationals, such as Dow and General Electric (NYSE: GE ), have
moved operations offshore? Consider this: Based on data from Bureau of Economic
Analysis, China's manufacturing as a portion of gross domestic product is more
than 25%. As for the U.S., its share is a meager 11.7%, which compares to 28%
back in the 1950s. What can be done? According to Liveris, the U.S. government
needs a comprehensive policy. This means getting serious about education, tax
policy, R&D credits and loan guarantees. He believes it's the only true way to
get things back on track. It's a smart approach, but there are some big
hurdles. First of all, Liveris' strategy will take at least a decade to get
traction. What's more, U.S. multinationals probably will not bring back
manufacturing operations from other countries. Why? They realize the importance
of having manufacturing in Asia and its growing consumer markets. So all in all,
the calls from Liveris and other American CEOs are not likely to get much
attention. Rather, policymakers want to find any way to cut back on spending to
reduce the deficit. And in the end, it likely will mean the U.S. will see
further long-term deterioration in manufacturing putting even more pressure on
job creation. Tom Taulli is the author of "All About Short Selling" and
"All About Commodities." You can also find him at Twitter account @ttaulli .
He does not own a position in any of the stocks named here.
No comments:
Post a Comment