The Chinese Don't Owe Me A Turbine Factory

If the Chinese don't owe Americans jobs, they surely do not owe us wind turbine factories. It is very frustrating that stimulus money spent on wind energy installations ended up going in many cases to overseas manufacturers, often to Chinese companies, as noted by the Investigative Reporting Workshop. Though their article pointed to very little in terms of 'why,' aside from comments by Energy Secretary Steven Chu to the effect that this investment was intended as an industry lifeline, and then there was this:

... [Gary Hardke, president of Cannon Power Group, a San Diego-based wind farm developer,] told the Watchdog Institute that the cost of transporting the turbines can top $300,000 so domestic manufacturing would be preferable, but to purchase just a nacelle that is entirely sourced domestically would require reconfiguring the supply chain for some 3,000 components. ...

Why are US companies out in the cold of Hardke's supply chain loop? In the first place, the US has nearly destroyed its wind industry three times in just the past decade, the last time being 2004. By contrast, the governments of China, Germany and Spain all care about staying at the head of the pack in clean energy production and, having behaved accordingly for this same past decade, they have mature, well-integrated clean energy industries.

If the US wants more of its clean energy dollars going to US companies, bearing in mind that all these projects will still create some US jobs, the government must support the clean energy sector as our competitor nations do. You can't create industrial capacity and supply chain integration overnight.

The good news is that the stimulus did indeed save the US wind industry, as noted by clean energy finance specialist Jerome a Paris in a post at this very blog:

... These grants, along with other State-based mechanisms, have allowed the industry to not collapse, and indeed keep on growing. And, as the AWEA (the industry group in the US) notes, the local content of US wind projects has reached 50% last year, compared to 25% in 2004, which represents 85,000 jobs, the majority of which will not be offshore-able (operations and maintenance cannot, by definition, be done anywhere else ...

Another thing the stimulus investment in wind capacity will do for the public, of course, is lower and stabilize electricity costs. So even if it isn't supporting as many good jobs in the US as we might like it to, this investment in modern electrical generating capacity will still be making the income from crappy jobs and unemployment checks go a little farther. If fossil fuel prices go up sharply in the near term, wind energy will be seen for the multi-faceted bargain that it is.

That Other Domestic Electricity Industry

As annoying as it is that I never got my jetpack, it's even more annoying that my computer is still powered by digging up compressed fossil plants (and animals) and burning them, incurring billions in health and other external costs every year. It's 2010 for pity's sake. Forget the jet pack, where's my high-tech energy infrastructure that's way too cool to still be digging up dead things and burning them to light our houses? It's embarrassing, is what.

Though also, if we want every penny of our energy dollar to be spent domestically, right this minute, we could always cheer the government's delusional 'clean' coal obsession, which the Obama administration shares with, apparently, the whole Congress. Did I mention that coal drains billions in health and other external costs out of our economy every year, both where it's burned and where it's mined?

Coal may be a domestic industry, but it's a terrible one. It's one of the industries that if we had any sense at all, we'd be doing away with. Except we can't, because between the unproductive financial services sector sucking the lifeblood of productive industries and the fossil energy companies getting subsidized by the government to strangle new competitors, these dinosaur business models have a last-industry-standing level of influence over future policies.

Lest I be accused of throwing a useful industry overboard due to a concern for the environment (so silly to want to be able to breathe easily 20 years from now, I know,) I'd like to point out that the failure of extractive industries to create lasting prosperity is a well-recognized problem in development economics. It's even true of diamond mining:

... The diamond trade continues to be an industry where wealth is hoarded at the top. Consider the fact that despite a seemingly inexhaustible supply of minerals including diamonds, Sierra Leone is one of the poorest countries in the world. ...

More on that from Jeff Goodell, in the book, "Big Coal", emphasis mine:

... In a landmark 1995 study, Harvard economists Jeffrey Sachs (now director of the Earth Institute at Columbia University) and Andrew Warner discovered a clear negative relationship between natural resource-based exports, including agriculture, minerals, and fuels, and gross domestic product (GDP) growth. Of the ninety-five developing countries that Sachs and Warner investigated, only two resource-rich countries achieved even a 2 percent annual GDP growth rate between 1970 and 1989. Even the oil minister of Saudi Arabia, Sheik Ahmed Yamani, viewed the presence of oil in his country with a fair degree of ambivalence: "All in all, I wish we had discovered water."

On one level, the problem in countries such as Nigeria is obvious: control over natural resources allows a few people to obtain tremendous wealth, giving them huge sway over the economic fortunes of the state and offering enormous opportunity for self-indulgence and corruption. At best, economies that are dependent on natural resources are unstable. When coal or gas prices are up, they're awash in cash; when prices fall, they struggle to keep the lights on in hospitals and gunfire from breaking out in the streets. This kind of economic yo-yoing leads to budgetary and financial fiascoes, in addition to leaving the government open to economic blackmail by the extraction industries: If you don't let me mine that mountain, I'll pull out and leave you all in poverty.

The deeper problem for many of these countries is that the development of natural resources tends to crowd out the growth of other, more sustainable industries, such as manufacturing. Economists have come up with a number of explanations for why this is so, including the so-called Dutch disease, named after a phenomenon observed in the Netherlands during the North Sea oil boom of the 1970s. During that time, the oil and gas industry drove labor costs so high that other industries went out of business. In addition, extraction economies don't traditionally put a very high value on education. Most mining and drilling jobs require more brawn than brains, and the few highly skilled jobs are usually filled by imported workers. Because of this, investment in education is usually minimal. After all, the last thing any coal company wants is an educated, independent-minded worker who might decide to walk out of the mine and start his or her own business. ...

As Goodell points out immediately following, "the resource curse is not inevitable," but it certainly has a terrible hold over a state like West Virginia and he goes on to detail exactly why. This can be illustrated very directly by the case of Coal River Mountain, which would be an excellent, long-term site for a productive wind installation, if Massey Energy does not in fact succeed in leveling the entire mountain to the ground.

How B movie is that, anyway? "Give me what I want or I level ... the Whole Mountain! Bwahahaha!" Very Dr. Evil, so boring. I'd always hoped the future would be cooler than this, but no, I live in a nation run by neofeudalist supervillains who are slowly turning the place into a Third World country.

A Third World Country

I'll let John Michael Greer kick off this dystopian vision segue, emphasis mine:

... [O]ver the next decade or so, the United States is going to finish the process of becoming a Third World country.

I say “finish the process,” because we are already most of the way there. What distinguishes the Third World from the privileged industrial minority of the world’s nations? Third World nations import most of their manufactured goods from abroad, while exporting mostly raw materials; that’s been true of the United States for decades now. Third World economies have inadequate domestic capital, and are dependent on loans from abroad; that’s been true of the United States for just about as long. Third World societies are economically burdened by severe problems with public health; the United States ranks dead last for life expectancy among industrial nations, and its rates of infant mortality are on a par with those in Indonesia, so that’s covered. Third World nation are very often governed by kleptocracies – well, let’s not even go there, shall we?

There are, in fact, precisely two things left that differentiate the United States from any other large, overpopulated, impoverished Third World nation. The first is that the average standard of living here, measured either in money or in terms of energy and resource consumption, stands well above Third World levels – in fact, it’s well above the levels of most industrial nations. The second is that the United States has the world’s most expensive and technologically complex military. Those two factors are closely related, and understanding their relationship is crucial in making sense of the end of the “American century” and the decline of the United States to Third World status.

... As it is, it cannot have escaped the attention of any other nation on the planet that something like a quarter of the world’s dwindling resource production could be made available for other countries, if only the United States were to lose the ability to purchase energy and other resources from outside its own borders. ...

So here, let's revisit Dean Baker's explanation about how the dollar has been overvalued to keep imports cheap for the elites, just like in a Third World country. This makes oil imports cheaper, but trashes the foundations of a productive domestic economy by making all other imports artificially cheap, as well.

Though now that our industrial base has already been well and truly trashed, Ian Welsh explains why correcting the dollar's valuation won't help. In short, he explains, because China accounts for around 83 percent of the US' non-oil trade deficit and they've demonstrated a willingness to spend up to 10 percent of their GDP keeping their currency pegged to ours. Hence, the only real effect of a revaluation would be to increase imported fossil fuel costs in an economy almost totally dependent on said fuels. Disaster.

This still tilts the balance in favor of wind power, which it will increasingly be possible to purchase domestically if the government will just stick with creating a market for it, unlike oil. The US can't drill, baby, drill itself out of this trap. Can't. No amount of market demand can create sufficient domestic supplies of oil, or equivalent liquid fuel substitutes, no matter how much anyone wants that.

More Sustainable Industries, Such As Manufacturing

The US also can't spin a wealth-generating economy out of land speculation bubbles, like the commercial real estate mess (via) that's about to come crashing down, coming in after the first residential housing bubble, but maybe in time to join the option ARM reset bubble.

Selling each other real estate, like selling each other derivatives, is just a slightly fancier way of selling each other things at WalMart. The real money concentrates in the hands of the few who own the exchanges and the manufacturing entities that add value to raw commodities.

While owning an exchange forum for goods or services is beyond most people's means, getting a share of the manufacturing dollar, in some capacity, is doable. But no, the powers that be decided for a whole generation of Americans that it wasn't important to keep jobs like that around anymore.

Now, America has less class mobility than Europe. The United States is in fact developing a permanent underclass of minority males raised in poverty who have neither educational opportunities nor living wage, blue-collar job opportunities, and this is going to tank the productivity of the country's overall workforce in the not-very-long run. Consider this, from the article on our new jobless era that I referred to yesterday:

... In the mid-20th century, most urban black men were employed, many of them in manufacturing. But beginning in the 1970s, as factories moved out of the cities or closed altogether, male unemployment began rising sharply. Between 1973 and 1987, the percentage of black men in their 20s working in manufacturing fell from roughly 37.5 percent to 20 percent. As inner cities shed manufacturing jobs, men who lived there, particularly those with limited education, had a hard time making the switch to service jobs. Service jobs and office work of course require different interpersonal skills and different standards of self-presentation from those that blue-collar work demands, and movement from one sector to the other can be jarring. What’s more, Wilson’s research shows, downwardly mobile black men often resented the new work they could find, and displayed less flexibility on the job than, for instance, first-generation immigrant workers. As a result, employers began to prefer hiring women and immigrants, and a vicious cycle of resentment, discrimination, and joblessness set in. ...

Yeah, who'd guess that downward mobility would breed resentment? I still resent like hell that I make a lot less than I did 10 years ago, for example, and I'm not shy of complaining about it as often as it seems even remotely in context. I'm guessing that the Tea Party movement is only the beginning of the kind of resentment that an extended period of downward mobility is going to build up in the US.

Then, if the recession is lousy on men, with both previous articles pointing out that the ills they reference are hitting male opportunities and employment harder, well, women weren't making as much as men in the first place and still aren't, even when we have college degrees. So families relying on women's incomes, (disproportionately clustered in a lower-paying service sector that isn't helpful to the trade deficit,) aren't going to be, on average, as well off. Multi-generational households, or lots of roommates, are going to become the new normal, out of necessity, unless people decide they'd rather watch their families and friends beg in the streets.

Again, a healthy economy can't be run on one group of people selling each other things that another, barely connected group of people made, not even if the first group sells the manufacturers the raw materials with which to do it. It can never work out well that way for the same reason it doesn't work for African countries who sell raw metals overseas to then have to use the same income to purchase pans, tools and cell phones fabricated from those metals. Only in agriculture and other subsidized dumping industries will producers put goods on the market at below the costs of their inputs, and this is done precisely to put other producers out of business; it isn't a sustainable business model and prices must always eventually be raised to cover production costs.

New value of some type has to be generated somewhere in a local economy, if it is not entirely self-sufficient, so its members can afford to buy what they use from other economic groupings that are producing new value.

China Gets It. Can The US?

A productive manufacturing economy is provably working to bring China's population out of poverty at a dizzying rate, while the US middle class is slowly eroding and sinking back into poverty. They understand, and they're busily working on the next pesky problem of how to keep a rising middle class from demanding any say in governance.

The US government, by contrast, has collapsed into nihilism and navel-gazing (via) like there's no tomorrow. Except this is tomorrow, and later, and down the road.

Our economy right now is the tomorrow that followed a decade of hostile neglect of productive industries, and more decades before that of slick, public economists peddling free market snake oil about how buying things cheaply is more important than making things and selling them for a fair price. Every kind of demand creation for manufactured goods now creates as much, or likely more, demand for jobs overseas as it does in the US, making it ever harder to stimulate the economy through spending from any source.

Now, unemployed former machinists can still afford cell phones, but must live at home with their parents. Or their kids. Or their parents and their kids. And all this prospective family togetherness would be great, except for the poverty, the poor nutrition, the despair, and the bad health that's probably going to accompany it.

I say probably because there are ways out of this mess. Most of the robust solutions that involve passing a law, as Sara Robinson wrote, aren't going to be implemented. Though the country could take this opportunity to do things such as reorganize more businesses into worker-owned cooperatives. That would at least get more value circulating within local economies than the absentee landlord model favored by the corporate sector, that same corporate sector that keeps accumulating privilege without responsibility and has thoroughly corrupted the government.

One way or another, the reins of the economy have got to be taken out of the hands of the people who caused this mess, and they aren't from China or any other country. America's financial crisis has been a do-it-yourself project of which other countries can be accused at most of having opportunistically taken advantage of.

Which is to say that if the US wants a domestic wind industry, or any other kind of stable, domestic manufacturing industry, with which to spend its money, our government must stop pretending that it's someone else's fault we don't have one.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future