An interesting Week in Review article took a look at what it characterized as a back-door industrial policy emanating from the Obama Administration, particularly in some of the advanced battery factories in and around Michigan. It had the unfortunate title of “Does America Need Manufacturing?”, which is self-evident as long as Americans still desire to consume goods. Unless we’re handed free money indefinitely, we will have to produce something of value in exchange for all those goods produced abroad.
So given that America must have a manufacturing strategy, the question then becomes whether or not one exists. The advanced battery technology grants suggest that there is the stirrings of one.
Over the last two years, the federal government has doled out nearly $2.5 billion in stimulus dollars to roughly 30 companies involved in advanced battery technology. Many of these might seem less like viable businesses than scenery for political photo ops — places President Obama can repeatedly visit (as he did early this month) to demonstrate his efforts at job creation. But in fact, the battery start-ups are more legitimate, and also more controversial, than that. They represent “the far edge,” as one White House official put it, of where the president or Congress might go to create jobs.
For decades, the federal government has generally resisted throwing its weight —and its money — behind particular industries. If the market was killing manufacturing jobs, it was pointless to fight it. The government wasn’t in the business of picking winners. Many economic theorists have long held that countries inevitably pursue their natural or unique advantages. Some advantages might arise from fertile farmland or gifts of vast mineral resources; others might be rooted in the high education rates of their citizenry. As the former White House economic adviser Lawrence Summers put it, America’s role is to feed a global economy that’s increasingly based on knowledge and services rather than on making stuff. So even as governments in China and Japan offered aid to industries they deemed important, factories in the United States closed or moved abroad. The conviction in Washington was that manufacturing deserved no special dispensation. Even now, as unemployment ravages the country, so-called industrial policy remains politically toxic. Legislators will not debate it; most will not even speak its name.
By almost any account, the White House has fallen woefully short on job creation during the past two and a half years. But galvanized by the potential double payoff of skilled, blue-collar jobs and a dynamic clean-energy industry — the administration has tried to buck the tide with lithium-ion batteries. It had to start almost from scratch. In 2009, the U.S. made less than 2 percent of the world’s lithium-ion batteries. By 2015, the Department of Energy projects that, thanks mostly to the government’s recent largess, the United States will have the capacity to produce 40 percent of them. Whichever country figures out how to lead in the production of lithium-ion batteries will be well positioned to capture “a large piece of the world’s future economic prosperity,” says Arun Majumdar, the head of the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E). The batteries, he stressed, are essential to the future of the global-transportation business and to a variety of clean-energy industries.
There’s more on Dow Chemical’s role in domestic manufacturing here. They’ve been working on battery and other hi-tech manufacturing in a series of public/private projects.
The first point is that the government picks winners and losers all the time. Often the winners are doing the picking for the government. If that process results in the burgeoning of an industry which can provide a stable base for millions of middle-class workers in the industrial Midwest, rebuilding communities around high-skill factory work, it’s better than picking oil as a winner, or finance.
The other point, made by Marcy Wheeler, is that this is a good story to tell, a story of the public sector encouraging this transformation of a battered industrial Midwest into a knowledge/technology/manufacturing sector.
In the long run, the bailout of GM will play a key role in whether electric vehicles take off in this country or not. That’s because you need a certain amount of investment in the infrastructure–plug in stations–before electric vehicles can become widely viable. Had the only players here been Nissan and Fisker, you would have had cities and utility companies raising the same questions battery manufacturers were: a question about market and long-term commitment that would justify investing funds into that infrastructure. But the fact that GM has been leading a lot of these negotiations (it has been talking to cities and utilities for years), the fact that it didn’t drop the Volt program even as it went through bankruptcy, and the fact that the US government was a partial owner of GM as it conducted these discussions made it a lot easier to kick start investment in infrastructure [...]
Finally, the article doesn’t look at policy choices the federal government makes that can affect the viability of this market. Obama has pushed manufacturers to agree to increased CAFE standards which, to some degree will require a sustained commitment to this technology.
Reimagining America’s manufacturing sector as a battery technology leader is an under-the-radar positive development. As Marcy says there are a lot of public policies around it that can complement it (increased gas taxes, deployment of EV infrastructure, not harming the nascent industry through free trade agreements that could dissipate it), and we can hope those paths will be taken.