Industry Today: The World of Manufacturing

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 Date:2/3/2010

 

News & Views
It’s Tough Going Green
Alan Tonelson argues that green manufacturing ‘cannot be the centerpiece of the far broader industrial revival America’s economy urgently needs.’

We’re near the end of Obama Inauguration Anniversary time, and the media-sphere has been overflowing with report cards, grades, and other evaluations. The president’s economic record has naturally drawn the most attention so far, with the White House obligingly providing a progress report on its stimulus program as well as numerous self-assessments from the president and his team.

Almost unnoticed, however, has been the administration’s evaluation of its vaunted green manufacturing programs, which the president consistently has touted as the cutting edge of his strategy to revive American industry. Its verdict? Nothing explicit, but best described as “incomplete.” And that’s entirely reasonable. The transition to the so-called “clean energy economy” obviously is no overnight project.

At the same time, it’s difficult to avoid concluding that, just as domestic manufacturing is slighted in the overall Obama recovery strategy, green manufacturing surprisingly appears slighted in the Obama manufacturing strategy.

Leaving aside the Detroit automotive bailouts and ongoing Bush-era green manufacturing/clean economy initiatives, the $787 billion stimulus program represents the administration’s main effort so far to strengthen manufacturing in America. Manufacturing revitalization was never billed as its top priority – as opposed to maintaining state and local government services, cutting taxes for individuals, aiding the Great Recession’s hardest-hit victims, and fixing infrastructure (which of course involves some production as well as installation and repair). But the stimulus program certainly accounts for its main expenditures on manufacturing’s behalf.

The administration’s latest (mid-January) report on the program’s economic impact contains no claims about funding provided for manufacturing as a whole (through subsidies or contracts or grants), and no conclusions about the stimulus’ effect on manufacturing output. But the report does contend that 354,000 (just under 18 percent) of the two million jobs created by the program in the White House’s best-case judgment are manufacturing jobs. For comparison’s sake, nearly 30 percent of all the nonfarm U.S. jobs lost since the Great Recession’s official December, 2007 onset have been in manufacturing.

No green manufacturing output estimates are provided by the administration, either, but detailed spending figures are presented. They show that, as of December, 2009, the “clean energy provisions” of the stimulus act accounted for just under 11.4 percent of its total budgetary impact, but less than 1.9 percent of outlays and tax-cut receipts, and 17.4 percent of funds obligated (i.e., available) for such programs and activities.

On the employment front, the administration’s best-case conclusions show that 52,000 direct “clean energy” jobs were created or saved by the stimulus as of year-end 2009 – about 2.6 percent of the total and some 14.7 percent of the manufacturing total. And the White House judges that 11,000 other jobs are being “supported” by the spending of clean energy workers, businesses, and government programs.

Given that the clean energy economy and green manufacturing are in their infancies, these numbers might encourage some manufacturing advocates. Examine them in detail, however, and the picture dims significantly. Specifically, lots of the clean energy spending, tax incentives, and jobs have little to do with green manufacturing.

For example, more than 22 percent of the total $90 billion in clean energy spending and tax credits is allotted to improving the nation’s energy efficiency. Some domestic manufacturing spinoff is inevitable. But the emphasis on weather-izing homes and funding government projects across the country to promote goals like more conservation and lower fossil fuel emissions have scant apparent potential to reindustrialize America.

Another roughly 30 percent of the clean energy effort is devoted to increasing America’s generation of renewable energy, but many of these resources will be spent not on making wind turbines, solar panels, and the like, but on buying and installing them.

Buy American requirements do cover these initiatives, but their effect on domestic manufacturing could be unexpectedly modest. After all, Congress and the administration agreed that these Buy American requirements needed to be implemented in ways consistent with America’s trade treaty obligations. This means that bids from the European Union, Canada, Japan, Korea, Taiwan, and many other economic competitors must be evaluated as if they were bids from American domestic manufacturers. It also means that bids from offshored U.S.-owned factories located in these countries must be considered domestic for all intents and purposes.

In addition, plenty of waivers are provided for procurement officials – including, of course, rules that permit buying products from anywhere if they are not available at all, or available at reasonable prices, from domestic U.S. sources. On the one hand, this particular exemption is simply a nod to common sense. On the other hand, it is likely to result in a flood of imports, given how American producers trail their foreign rivals in many green energy products.

Moreover, serious questions hover over the administration’s capacity or willingness to monitor and enforce existing Buy American regulations. As shown by more than half a century of experience with the Buy American rules governing defense procurement, unglamorous but vital tasks like enforcement are rarely Washington’s strong suit.

The same factors are likely to encourage voluminous imports from the 11.7 percent of clean energy appropriations fostering a “smart grid” for transmitting electricity generated from all sources more efficiently, and for monitoring electricity use more precisely. For the production of the sophisticated meters and sensors and other advanced electronics equipment required by the smart grid has been energetically offshored for decades, or long dominated by foreign-owned overseas manufacturers.

The limited scale of these Obama green manufacturing initiatives illustrates what happens when inspirational rhetoric encounters concrete reality. They also show unmistakably that fostering green manufacturing cannot be the centerpiece of the far broader industrial revival America’s economy urgently needs.

Encouragingly, President Obama seems to have acknowledged this hard truth in his State of the Union. Clean energy initiatives, he admitted, “won’t make up for the seven million jobs that we’ve lost over the last two years.” They won’t make up for most of the lost production, either. Now it’s time for the president to act on these insights, and develop concrete policies that will reinvigorate the rest of American domestic manufacturing.

Alan Tonelson is a Research Fellow at the U.S. Business and Industry Council Educational Foundation in Washington, D.C. A contributor to the Council’s AmericanEconomicAlert.org website, he is also the author of The Race to the Bottom (Westview Press, 2000). The views expressed here are his own.