Clean Technology and Competitiveness 2.0

Clean technology clearly holds great promise for future economic growth.  However, as development of new clean technologies accelerate in the United States, it remains an open question whether US firms and workers will capture the economic activity or whether the bulk of the benefits will flow elsewhere.  The issue cropped up in the recent passage of the cash for clunkers law which will reward consumers for trading in clunkers for newer fuel efficient cars.  The law will benefit American consumers and carmakers but also benefit carmakers and overseas suppliers selling into the US market.  And, indeed, it shadows the entire issue of clean technology driven growth. While the transformation to a clean economy will pay important environmental and security dividends no matter what, how the economic promise of clean technology ultimately gets divided will vary by country. 

Call it Competitiveness 2.0.  It is the subject of a penetrating article in the current Harvard Business Review by two Harvard professors, Gary Pisano and Willy Shih entitled "Restoring American Competitiveness: Why America Can't Make a Kindle". The professors examine a wide range of technologies from computer equipment to software to clean technology and find America at a growing competitive disadvantage. Both the data they cite and the case studies they include should serve as a wakeup call to anyone thinking about clean technology and the future of the US economy.

While innovative ideas continue to flourish in the United States -- think Twitter, Ning and Facebook--the US has become a technology laggard among the OECD countries in critical measures. The US trade deficit is old news but the authors point out since 2002, the US has been running a deficit even in high tech goods and services. The main export of the US is capital.  And there are precious few bright spots in the technology firmament. 

In the case of the Amazon's Kindle reader, which the authors examine in detail, though engineers in California designed the product, there is simply no US capacity to make the components.  (If the US lacks the capacity to make a Kindle could it make a military computer in a pinch?)  In aircraft, Boeing continues to lead the world but it now relies on a network of global suppliers and has cut its American workforce.  Managing this complex supply chain led the company to delay delivery of its Dreamliner.  All but the highest end computers are now made abroad. And even complex software tasks, from writing software to using it for engineering, are moving overseas.

In clean technology, leadership in battery technology lies abroad. GM's Volt, scheduled for introduction next year, for example, will source batteries from South Korea. While a few companies such as Tesla are developing advanced auto technologies, the US lags Asian and European companies in hybrid and other technology.  With most growth in the world's auto sales likely to take place in China, India and the developing world, companies like Tata and Chery (originally a Chinese knockoff of Chevy) will have a homefield advantage. Chinese, Japanese and Korean companies dominate all PV production of solar cells except in thin films -- the most advanced and promising technology where US firms still lead the way. In smart grid technologies, US companies face roadblocks in the form of an excessively complex and highly regulated utility industry.  Installing new smart grid meters and retrofitting old buildings only gets you so far in terms of new jobs and new businesses.  All told, while the US has the potential, thanks to our still- unmatched system for financing innnovation, to develop the technologies of tomorrow we are, all too often, behind in the technologies of today.

What are the sources of our competitiveness problem? America continues to lag in primary and secondary education. Our universities may be the best in the world, but most of the spots in top PhD programs now go to more motivated students from overseas.  (Community colleges are a US strength that can be scaled as Rob Shapiro has argued and the President recognized today in calling for their expansion.)  The relentless search for low wages continues to send capital out of the US. American firms still can receive tax breaks for moving jobs overseas. Short term thinking, driven by the next quarterly results dominates corporate strategy.

On the macroeconomic level, the US continues to stress consumption over production. This bias, which derives from a strong dollar that keeps imports cheap as long as others lend us the money to buy them, encourages overseas instead of domestic production. A weaker dollar and shift toward a producer and investment-led economy would temporarily lower standards of living, but may be what is required to create the foundation for long term growth. Recently, former NEC head, Laura Tyson, proposed just such a shift in national priorities. While these are complex questions, a real debate over our priorities -- toward consumption--or production is in order. 

In the 1990s, the US made major strides in reversing its competititiveness deficit so that by decade's end it was leading the global economy. However, as Pisano and Shih make clear, those strides were temporary and the problem has returned.  The competitiveness issue, the authors show, is far more problematic today than  at any time in American history.  And if this issue is not satisfactorily addressed, the US will not see wages, standards of living or other metrics of welfare rise. As NDN has long argued and as the HBR authors note as well, stagnant wages combined with rising expectations led to the absurd borrowing that precipitated the latest financial crisis.

In short, if the US is to reap the economic rewards of a clean technology revolution, we need to seriously examine our competitiveness posture and take the steps needed to put us back on track to leading, not lagging the global economy.