Tuesday, January 18, 2011

Green Energy is not a Job Creation Engine

Ed Glaeser, in The New York Times' Economix blog has a very interesting discussion on a topic that is local to both Boston and Portland: government support of green energy companies.

Evergreen Solar announced last week that it was closing its plant in Devens, Mass., laying off 800 workers, and moving production to China.

Evergreen’s factory had received more than $40 million in subsidies, which led many to see the plant closing as lesson in the futility of green energy and industrial policy. But what does Evergreen’s story really teach us about solar energy, public subsidies and the future of American manufacturing?

Glaeser argues (as have I) that the idea that there will be a long-term manufacturing base tied to green energy is not reasonable.  He goes on to say that what Boston should be is a hub (get it?) for new ideas and new technological innovation.

Evergreen Solar’s story begins in 1994, when three alumni of Mobil’s solar division broke away to form their own company. They started in a 2,500-square-foot lab in Waltham, Mass., which has long housed innovative industry, including America’s first integrated textile mill and the Waltham Watch Company, which pioneered high-quality watches with interchangeable parts. Today, Waltham is a venture-capital hub that succeeds by providing abundant commercial real estate and easy access to the scientific community of greater Boston.

Proximity to cutting-edge ideas was surely an advantage for Evergreen Solar in the early days because its principals worked with Emanuel Sachs, a distinguished mechanical engineer at the Massachusetts Institute of Technology, who invented the “string ribbon” process for making solar cells.

“String ribbon” technology was Evergreen’s big idea; it offers the possibility of far more affordable photovoltaic cells. Evergreen began selling “string ribbon” solar panels in 1997 and moved to a much larger space in Marlboro, Mass., in 2000.


Evergreen Solar’s move to China was supported by a $33 million loan from the Chinese government, and it has suggested that the Chinese production was cheaper because “solar manufacturers in China have received considerable government and financial support.”

But surely China’s skilled, low-wage labor force is a far more important source of its low costs. Japan’s success in the 1980s was also attributed to its activist industrial policy, but subsequent research found that government subsidies backed losers more often than winners.


America has had many high-tech breakthroughs over the last half-century, but those innovations rarely provided abundant employment for the less educated workers who need jobs most. The Devens closing reminds us that even when ideas are “made in America,” production is almost always cheaper in China.

Failed public investments, like the money spent in Devens, reflect the fact that public officials are rarely skilled venture capitalists and that governments pursue many objectives that lead them away from solid investments. It’s easy to see why any governor would be excited about a green-energy manufacturing plant in a less prosperous area of his or her state. But the same forces that made Devens political catnip meant that it was unlikely to be a long-term success.

Manufacturing solar panels in Devens never played to Massachusetts’s core strength: the creativity that emerges naturally when smart people are clustered together. Forty years ago, greater Boston was suffering from the same deindustrialization that afflicted all older American cities. The region came back, buoyed not by renewed manufacturing plants, but by technological innovation, much of which was connected to the region’s rich research community.

Evergreen Solar’s early years were an example of the synergy between schools and start-ups, and greater Boston’s universities will surely continue to spin off new companies. Professor Sachs, for example, has moved on to 1366 Technologies, a solar company in North Lexington, Mass., financed by a Waltham-based venture-capital fund.

Massachusetts’s edge lies in ideas, not products. Those ideas are best produced in creative clusters, built around cities, where knowledge moves easily from inventor to entrepreneur. The only production that really needs to occur in greater Boston is the early-stage manufacturing that can be an important part of the research process. Mature companies, like Evergreen Solar, naturally move their factories to lower-cost areas.

This is what I have said about Portland using Intel as an example: as basic manufacturing has moved overseas, the cutting edge, high tech and innovative stuff has remained.  I suspect that if there is a future in green energy in Oregon it is in exactly these types of activities that are closely tied to R&D.  The problem with Portland is, unlike Boston, there is no great engine of R&D and human capital like Harvard, MIT, Boston U, Boston College, etc.

This also speaks to what I describe as government's role in providing the foundation for growth but not trying to hard to pick the winners - because doing so is a mugs game. As Glaeser points out, even Japan, the poster child for effective government intervention in the economy, wasn't good at predicting winners.

Education, research and infrastructure. We are doing okay on the last, but failing terribly on the first.

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