Playing field could become even more precarious

For the nearly eight years I’ve been asking fabricators about the state of metal manufacturing, many have expressed the opinion that a primary contributor to the decline in U.S. manufacturing is an unlevel playing field with China.

In stating their opinions, these fabricators typically mention actions they believe the U.S. government should take to help level the playing field, such as more tax incentives to keep manufacturing in the U.S., removing steel tariffs (remember, these are fabricators, not steel producers),  dealing with unfair currency policies, and taking antipiracy measures. 

During these eight years, several manufacturing czars have been appointed, and job creation bills have been enacted. Stimulus dollars have been allocated to pump money into infrastructure and green initiatives — transfusions for manufacturing and, ultimately, the economy. After all, manufacturing is helping drive our economic recovery. 

Based on what I read this week in the article "America’s Green Innovation Problem," by Ron Atkinson and Devon Swezey, manufacturing and its backseat driver, the U.S. government, must keep all eyes and then some on the road ahead as they move forward with green innovation to avoid an even rockier field. 

According to the article, here's what's happening: With companies such as Applied Materials and IBM establishing green research and development operations in China, it appears that "investment is starting to flow not just to low-cost manufacturing in China, but to high-value R&D as well, threatening the U.S.'s historical 'comparative advantage' in innovation. 

"We shouldn't be surprised at these developments. They represent a trend that has been going on for at least a decade. Such other U.S. companies as GM, Dow Chemical, and Intel, have constructed high-tech research labs in China. According to Chinese government statistics, there are now 750 foreign-funded R&D centers in China — up from 50 in 1997. In comparison, the decade from 1995 saw the share of corporate R&D sites in the U.S. decline from 59 percent to 52 percent, with the share in China and India increasing from 8 percent, to 18 percent, according to a 2006 report by Booz Allen Hamilton and INSEAD.  Overall, as we (authors Atkinson and Swezey) pointed out in the February 2009 Information Technology & Innovation Foundation report The Atlantic Century,  the U.S. no longer leads the world in innovation-based competitiveness. The country ranks sixth —  behind such nations as Singapore, South Korea, and Sweden — and it ranked last among 40 nations in progress on innovation and competitiveness in the most recent decade. China placed first." 

China now offers low wages and high science. It "doesn't need to develop strong domestic companies to have a more innovation-based economy as long as the country manages to attract innovation-based activities from abroad. Low wages (supplemented by an artificially low currency and significant other subsidies) and high science are a powerful combination. 

"These new developments are particularly troubling because they suggest, as Brookings' Mark Muro writes, 'the impending lock-in of a powerful feedback loop of market creation, production, and innovation.' Cleantech clusters are being created in China, but not in the U.S. That's why U.S. government officials who are supporting the importation of heavily subsidized Chinese cleantech products need to recognize that this Chinese 'gift' is actually a Trojan horse — cheaper products now, dramatically fewer high-wage U.S. jobs later." 

The article's authors offer some advice — a roadmap of sorts — to steer clear of the Trojan horse: "The federal government must start the important work of facilitating the development of its own clusters of clean energy innovation in the U.S. To succeed, the U.S. must do two key things. First, it should prioritize major public investments in clean energy innovation, advanced manufacturing, and market creation, something it has been unwilling to do in any of the climate and energy bills currently before Congress. Second, it needs to significantly step up efforts to challenge Chinese mercantilism, whether in green industries or any high value-added industry critical to the country's future.

"Without these measures, the U.S. takes a big risk that the clean energy technologies of the future will not just be produced abroad, but invented there, too."

Sobering thoughts for a country putting a lot of stock in green technology improving its economy.

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