Washington needs to be bold when it comes to clean technologies policy

By Clyde Prestowitz

I was recently reminded of a conversation I participated in that took place in vice- president Joe Biden's office in the early days of the first Obama Administration, about how to put together the President's upcoming stimulus proposal. Part of the overall discussion dealt with the role of clean technologies and the possibility of using green jobs as one of the linchpins of the program.

The room split into two camps. On one side, you had environmental activists who argued for a strong government role in helping these relatively nascent industries grow and flourish. On the other side, you had conventional economists making the opposite point that we should allow the markets to determine which industries would succeed. These economists pulled out the old line about the government not picking winners and losers.

I felt a sense of déjà vu. I remembered having this exact same conversation more than 25 years ago when I worked in the Reagan Administration.

After all, we have faced this question before in other industries, especially in the semiconductor industry in the 1980s with regard to Japan. In those days, Japan targeted key industries for development as part of its industrial policy. It protected them at home, provided special investment incentives and preferred financing, and promoted their exports, also with special tax incentives and by maintaining an undervalued currency.

It is important that we remember the lessons learned from our issues with Japan in the 1980s when dealing with China.

In my opinion, this debate shows a continued fundamental misunderstanding of the way the world works. Rather than rehashing the same old debate for the ten thousandth time, we need to realize that many of our trading partners are already intervening in the market. Whether it is China, Japan, Korea, or Germany, all of these countries have long ago put in place policies—dare I say industrial policies—to promote these industries. They see clean tech industries—solar, wind, batteries, and others—as the industries of the future and have put policies in place to support them.

Although China is not the only country that put policies in place to support their clean tech industries, it is one of the most aggressive.

One powerful element of China's industrial policy strategy is the 863 Program, a project launched in March 1986 (863 is the year and date of the project's birth) by China's then paramount leader Deng Xiaoping to drive its technological catch-up effort.

In 2001 this program began to focus intensely on energy, especially new or green energy, setting targets for installing wind turbines, solar panels, hydroelectric dams, and other renewable resources. In 2006 the 863 Program drove China to double its wind power capacity, and then it doubled again the following year and again the year after that. In 2003 China had virtually no solar power industry. By 2008, it was making more solar cells than any other country and taking customers away from American and other foreign companies that had originally invented the technology.

So, what do we need to do in the U.S.?

I believe that we need our own program to support industries we deem important— and I believe clean tech is important. This is not, as the conventional economists claim, picking winners and losers. We are already doing that—we just don't want to say we do it using those loaded terms. Indeed, we should not worry about these criticisms. We need to accept them, move on, and enact policies that will help American manufacturers and promote global innovation.

I would argue that for the government to stand to the side and do nothing is a de facto industrial policy of the worst kind. We are in effect saying we don't care where the next generation of clean technologies are designed and built. We are willing to step aside and let another country dominate a sector. We are also saying we are sticking with the status quo and continuing our reliance on imported oil and dirty coal.

The challenge we face is that if we want the United States to remain competitive globally in clean tech-nologies, we need to do something that is rare in Washington these days. We need to be bold.

There are opportunities to work with China, and the United States government should explore them, just as we would with any other country. But we should remember that the Chinese government has a policy to not just be a leader in a number of technologies, but the leader. The United States must determine how we are going to respond and decide how much we want to be a leader.

With strong action, we have the opportunity to develop a globally competitive industry in a sector that has great promise both economically and environmentally. Without it, we face a future where the United States is sitting on the sidelines.

For the Record is an excerpt of the presentation of Clyde Prestowiz, President of the Economic Strategy Institute, before the U.S. Senate Energy and Natural Resources Committee in June 2012.

November/December 2012

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Washington needs to be bold when it comes to clean technologies policy