The following is a guest post from Andrew Smolski of OilPrice.com.
Alternative energy (or renewable energy) is a new manufacturing industry paradigm that is in its infancy. However, the discussion is not new, and it looks as if the United States has positioned itself to be behind history on what can be a very promising industry for a stumbling economy. After the oil shortages in the 70’s, government officials began discussing energy policy as a matter of national security, but this misses the point of a globally competitive economic world. It was too early then to begin thinking that China could out-invest the United States in order to produce an alternative energy manufacturing industry. Yet, now we must come to terms that the free market ideology is disallowing America from utilizing tried and true techniques of infant industry construction as laid out by Alexander Hamilton, the first Secretary of the Treasury of the United States. This article will attempt to show that what is needed now and what will aid in rebuilding the economy, is a change in paradigm that constructs energy companies under regulatory principles so that America will remain competitive in a rapidly changing economic climate.
Let us begin with the thought process of Alexander Hamilton in order to frame the argument of building a new industry within the United States correctly in order to compete on the global market. The gist of the argument is that in order for new industries to start up losses have to be guaranteed by the government in order for industry, and at the time the merchant class, to take the risk of investing to be competitive. Governments are not businesses and have properties more like non-profit organizations. They have the ability to hold and maintain debt even above yearly revenue or GDP in order to stimulate economic activity. Hamilton called this the infant industry argument, and it was due to the fact that if America wanted to compete it had to be able to safeguard the industries it thought would be best positioned against other countries who were enacting similar policies. The free trade argument against this is to an extent quite ridiculous, because what person would not want their initial investments guaranteed. And also this does not mean supporting bail-outs of large banking institutions who are not a new industry, but only for infant industries. Nor does it mean remaining with centralized power plants that lose 6.5-7.5% of energy due to long distance transmission. Those things would be fallacious to the argument. What it means is that the government has a duty to utilize tax revenue in order to secure American economic competitiveness and not, to use the words of Ha-Joon Chang, “kicking away the ladder”, at such a critical economic moment in American history.
So, in America at the moment according to the Renewable Energy Status Report, in 2010 10.9% of domestic primary energy production was renewable with a 5.6% increase from 2009, which shows growth and also a demand in the market. As well, pointed out by Michael Heiman and Barry Solomon, “renewable energy is typically more labor-intensive per dollar invested in the construction phase and cheaper to operate.” Further along they also show that there exists a difference between saying and doing, where 40 percent say they would pay more for Green Energy and only 1 percent actually do. This brings us back to the argument of being willing to take a loss at the outset, having a cheaper price in order to produce clients until the price can come down because of the aggregate demand. The problem has been in states who have enacted market reform instant of infant industry creation policies to produce this change, such as New Jersey, did not move towards renewable energy and the market reform only raised the rates on clients. So, obviously business is not willing to take the risk and therefore government regulation, investment, and policy is needed in order to make these risky jumps onto new frontiers.
This had led to something quite astounding and should be ridiculous to every American, that China now leads the world in installation of wind turbines and solar thermal systems. With a $211 billion investment in 2010 for renewable energy, it is on the rise and should not be discounted to have conversations about drilling in the Gulf of Mexico or whether or not the EPA should remain. There is a reason T Boone Pickens is investing heavily in wind farms, and another reason why they aren’t going to Texas; poor State and Federal Government policy. Companies do not do externalities or infrastructure, and when they do it is with government support and money, so without the transmission lines, Pickens sent his turbines to Canada. The overemphasis on tax cuts as the only way to spurn private business has become a mantra that is corrosive and harming American capabilities to deal properly with the economic crisis and get people back to work. As stated before, renewable energy is labor intensive and we have an employment rate at 16-17% if we include discourage and part time workers. That’s talking jobs.
To end this out, what we have in America is a political discourse and ideology that disallows proper economic domestic policy. Alternative energy is a boom industry that needs government stimulus in order to cover the initial losses that would be incurred by private industry. All the ingredients exist to utilize this industry to bring back manufacturing to America, a sector that has been rapidly losing jobs. In 2007 prior to the recession 217,000 manufacturing jobs were lost, a trend that is continued with more outsourcing every year. This isn’t because labor was priced out of the market, it is because high-technology has no domestic economic policy to support large-scale investment and construction. The argument is against both sides of the aisle in congress and the executive who have lacked the political will against the onslaught of propaganda. Alternative energy will not kill the petroleum industry, as long you have heard of something called plastic, nor will it be some socialist evil over-centralizing, but it will allow America to rebuild an economy that hangs on the edge of a cliff.
By Andrew Smolski of OilPrice.com