Short takes – on green competition

Here are some interesting stories on green tech competition that have popped up while we were gone:

From the Daily Telegraph in the UK – China powers ahead as it seizes the green energy crown from Europe:

China is running away with the green technology prize. It has conquered a third of the world market for solar cells and is on a breakneck course to build 100 gigawatts of wind turbines by 2020, doubling again the global capacity for wind power across vast stretches of Inner Mongolia and Xinjiang.
. . .
German pioneers Solarworld and Conergy allege foul play and have called for EU sanctions, accusing Chinese rivals of practices that “border on dumping”. China’s finance ministry says it intends to cover half the investment cost of solar projects. It is a life-and-death moment for the German solar industry, pioneers who provide 75,000 jobs and once led the world. “A large number of German solar cell and solar module producers will not survive,” said UBS’s Patrick Hummel.

From the New York Times – China Outdoes U.S. in Making Solar Products

Backed by lavish government support, the Chinese are preparing to build plants to assemble their products in the United States to bypass protectionist legislation. As Japanese automakers did decades ago, Chinese solar companies are encouraging their United States executives to join industry trade groups to tamp down anti-Chinese sentiment before it takes root.
The Obama administration is determined to help the American industry. The energy and Treasury departments announced this month that they would give $2.3 billion in tax credits to clean energy equipment manufacturers. But even in the solar industry, many worry that Western companies may have fragile prospects when competing with Chinese companies that have cheap loans, electricity and labor, paying recent college graduates in engineering $7,000 a year.

Then there is this story from Gizmag on how a new technology being developed at the University of Texas, Austin that may make all current solar tech obsolete — Plan to turn rooftops, walls and windows into cheap solar cells:

Cheaper solar cells – roughly one-tenth the cost of current day prices – could be available within three to five years thanks to a manufacturing procedure that uses nanoparticle ‘inks’ to print them like newspaper or to spray-paint them onto the sides of buildings or rooftops. Even windows could become solar cells thanks to the semi-transparent inks.

Let’s see, 3 to 5 years puts it at about the same point at which the Chinese solar companies say they will be at “grid parity” with fossil fuels. Could be interesting.

Reflections

Following the coverage of Senator Kennedy’s funeral over the weekend, I am struck by one overwhelming impression: that of the best and worst of human nature. The stories told at Friday’s remembrance celebration of the Senator’s graciousness, love of life and friendships with even his political opponents were outrageously funny and illustrated the life he lived.
Yet the comment sections of much of the coverage seems full of the haters — small minded, malicious, petty people who seem to only interested in venting their own little prejudices for all the world to see. It is almost as if these angry people are compelled to try to bring the rest of the world down to their level to justify their lives. This, of course, is the much discussed dark side of the information era – where IT amplifies the ability individuals to make vicious comments anonymously of course as they know what they say would reflect negatively on them.
Teddy Kennedy, Jr. said yesterday, “He was not perfect, but my father believed in redemption.” The haters apparently don’t. Too bad for them.
A few months ago, an elderly neighbor of mine passed away. It did not know him all that well, but was touched by his sparkle, humor and graciousness. At his memorial service I learned of the full and rich life he lived. He was not a “great” man in the sense that historians use that word. But he had “a life well lived,” to quote how his children summed it up.
There are those who live their lives in bitterness and anger–whose hate seems to be their guiding passion. Then there are those who strive for “the better side of our nature.” Those we rightfully label as having a big heart. My neighbor was one of those, as was Teddy Kennedy.
So let the haters flame on. As they stand in contrast to those with big hearts, they are just proving my point. And giving us one more reason to treasure the memory of people like Teddy Kennedy.

The Intangible Economy returns to its economic topics tomorrow.

Whither (or wither) trade?

Over the past couple of months we have been bombarded by articles, essays, commentary, books and book reviews on how economists (and others) missed the economic collapse (too numerous for me to even begin to describe). One of the subtexts of this discussion is how what we all thought would cause the collapse didn’t. The standard scenario has always been that the international financial imbalances – as evidenced by our huge current account deficit – would cause a dramatic decline in the dollar as the world decided that deficit were no longer sustainable.
Even though the international imbalanced did not directly trigger the Great Recession, it remains a concern. With the collapse of trade, some are expressing tentative hopes that the current account problem is being lessened. So here is the real question – will the trade deficit remain at its relatively current low levels? Or will any revival of consumer spending and production return us to the deficits of the past decade? The latest trade figures engendered comments on both sides of that issue (see for example the recent commentary on the June trade figures.) Some argue that the stimulus activity in China is simply adding to worldwide excess capacity and will worsen the imbalances as the recovery takes hold. Mike Mandel points out that the non-petroleum goods deficit is declining and holds out some hope.
Here are the numbers. As the Figure 1 below shows, the total goods deficit peaking in July of last year and has since decreased dramatically. (This is a monthly updated chart of a chart of annual data published earlier).

Figure 1

Intangibles and goods-Jun09.gif
As this figure shows, even with the dramatic change in the goods deficit, it is still about three times larger than the intangibles surplus. The Great Recession has simply returned the goods trade deficit to where it was at the beginning of the decade.
What about the oil story? The good news is true: the non-petroleum goods deficit has been steadily declining. As Figure 2 shows, so is the petroleum deficit.

Figure 2

Oil good intangibles.gif
However, as figure 3 shows, the size of the intangibles surplus is still smaller than either the petroleum or the non-petroleum goods deficits. And as the data shows, the level of the intangibles surplus has been basically flat for some time. Our imports of intangibles grew faster than our exports in 7 of the last 10 years.

Figure 3

Oil good intangibles jul-jun.gif
Thus, if we are to return to balance, we either have to eliminate our goods deficit, eliminate our oil imports or cut each of those by more than half compared to today’s depressed levels. Reducing the goods deficits will require a revival of domestic manufacturing, which is likely to increase energy imports to power that manufacturing. And, it is unclear whether domestic manufacturing has been gaining market share during the Great Recession.
So in the absence of a strong policy push on both energy and manufacturing (which even may not be enough), look for the trade imbalances to continue. Even the recent withering of trade has not been enough to bring about the dramatic correction everyone still fears.

AstroTurf at its worst

Here is an item from today’s Wall Street Journal’s Washington Wire section Lobby Groups to Use Town Hall Tactics to Oppose Climate Bill

Taking a cue from angry protests against the Obama Administration’s health care restructuring, the oil industry is helping organize anti-climate bill rallies around the nation.
The American Petroleum Institute, along with other organizations such as the National Association of Manufacturers opposed to the climate legislation Congress will consider again in the fall, is funding rallies across 20 states over the August recess.

In political circles, ginned up opposition is called AstroTurfing–meaning artificial grassroots. Looks like the practice has hit a new high (or low, as some might put it).

Just one more reminder that politics is a contact (some might say blood) sport.

June trade in intangibles

As expected, the US trade deficit grew in June according to this morning’s data from BEA. Exports increased by $2.4 billion while imports were up even more at a $3.5 billion increase. As a result, the monthly trade deficit rose from $26 billion in May to $27 billion in June. The deficit was not as big as some feared, however. As the Wall Street Journal reports, “Economists surveyed by Dow Jones Newswires had estimated a $28.7 billion shortfall.” Rising oil prices were the cause of much of the increase. Interestingly imports of consumer goods continued to decline. Automotive imports increased.
On the positive side, our surplus in intangibles increased ever so slightly in June–by $55 million. Once again, exports and imports of private business services were up while both inflows (exports) and outflows (imports) of royalty payments were down. As I noted last month, the intangibles trade surplus has been essentially flat for the quite some time.
Our deficit in Advanced Technology Products worsened however. The deficit grew by over $1 billion in June to $4.6 billion as imports of information and communications technologies and opto-electronics rose. Again, this increase may be due to (and a sign of) a recovering economy. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Intangibles trade-Jun09.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:


Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.


Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

Toxic asset problems continue

As you may recall, last year’s bank stabilization (aka “bail-out”) legislation created a Congressional Oversight Panel to keep an eye on the program. This morning, the Congressional Oversight Panel is releasing its latest report on The Continued Risk of Troubled Assets. This report takes issue with the progress made so far in getting the toxic assets off the banks’ balance sheets:

This crisis was years in the making, and it won’t be resolved overnight. But we are now ten months into TARP, and troubled assets remain a substantial danger to the financial system. Treasury has taken aggressive action to stabilize the banks, and the steps it has taken to address the problem of troubled assets, including capital infusions, stress-testing, continued monitoring of financial institutions’ capital, and PPIP, have provided substantial protections against a repeat of 2008. These steps have also allowed the banks to take significant losses while building reserves. Nonetheless, financial stability remains at risk if the underlying problem of troubled assets remains unresolved.

The report also looks at the valuation and disclosure problems:

Part of the financial crisis was triggered by uncertainty about the value of banks’ loan and securities portfolios. Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem. Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and volume of troubled assets on institutions’ books so that markets can function more effectively.

Let me stress that part about changing the accounting rules “did not change the underlying problem.” At best, mark-to-myth simply gave the banks some breathing room. At worst, it is a step backwards – taking us further away from our goal of increasing transparency and thereby reducing uncertainty. As the Panel points out, markets will not be able to operate effectively as long as the value of the assets remain clouded.

Likewise, the regulatory process can not operate without good information. As the report states, “It is impossible to resolve the argument about whether banks are or are not solvent because of the uncertain value of their loans.”

So as long as the true value and scope of the trouble assets remains unknown, both the market and the regulators are flying blind. Not a reassuring situation.

Green and clean in the US?

There was an interesting story in the Washington Post over the weekend (Small Automakers Take Big Electric Leap) about a number of small companies hoping to break into the electric car business, including Coda of Santa Monica, CA:

The Coda car is assembled in China, where six of the company’s employees work. The chassis is licensed from Mitsubishi and made by a Chinese firm, Hafei Automobile Group. Delphi supplies the power steering. BorgWarner provides the transaxle. Lear provides an on-board charging device for the battery. The front and rear bumpers, hood and lights were designed by Porsche’s design studio. The battery — the main focus of Coda’s 15-person engineering team — was made by Tianjin Lishen Battery, one of the world’s largest suppliers of lithium ion batteries to firms like Motorola and Samsung.

If that is the future of green and clean manufacturing in the US, then we are in trouble.

However, the story also talks about Bright Automotive of Anderson, Ind. An offshoot of Amory Lovins’ Rocky Mountain Institute, the company is seeking Department of Energy loans presumably to manufacture in the US. Bright is going after the fleet market with a plug-in hybrid van. Thirty years ago, I worked on an analysis of the electric vehicle market. Back then, we concluded that the fleet market was idea place to start. Looks like Bright has come to the same conclusion.

There are also some countervailing forces that may help keep manufacturing in the US. A story in yesterday’s Financial Times (Crisis and climate force supply chain shift) notes that “Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts.” The reason: rising energy costs and regulations on carbon. As the story notes, “Ernst & Young underlining how as much as 70 per cent of a manufacturing company’s carbon footprint can come from transport and other costs in its supply chain.” That will force companies to pull their supply chains in to a more local level.

I don’t know if such changes will be enough to overcome the fabled “China price” that companies keep chasing (which now may be the “Vietnam price”). But I do know that an aggressive manufacturing policy is needed in the US if we are going to keep green and clean manufacturing in the US. As I’ve noted before, that policy needs to recognize the role of manufacturing in a knowledge economy and take the “high road” path to competitiveness. Either strategy of trying to re-create the “good old days” or to become a “service” economy (which is very different from a knowledge economy) will simply lead to decline.

Measuring innovation

Here is a tidbit from a Business Week story (How Whirlpool Puts New Ideas Through the Wringer) on new product development in the appliance maker:

On average, 100 are introduced to the marketplace. “Every month we report pipeline size measured by estimated sales, and our goal this year is $4 billion,” says [Moises] Norena [director of global innovation]. With Whirlpool’s 2008 revenue totalling $18.9 billion, that would mean roughly 20% of sales would be from new products.

So Whirlpool can measure innovation by amount of revenue generated by new products. That is a standard measure that every industrial nation (except the US) seems to collect. I understand that there is some reluctance to force the collection of such data on innovation — and that this might not be the perfect metric to use. But maybe a good place to start is to help companies understand their own innovation process and begin to measure it internally — like Whirlpool does. Isn’t that what business assistance programs — like the MEP — are supposed to do?