By the way, Rodrik is now the Albert O. Hirschman Professor at the Institute of Advanced Studies. I can recommend the new biography of Hirschman by Jeremy Adelman.
This paper reminds me of one published recently (July 4th) by Prof O’Riain – ‘New Industrial Policy for Ireland’. Both are long on ‘wishy and washy’ – but somewhat short on the practical.
It took me 24 pages to discover the nub of this Green Technology malarky: “reduce greenhouse gases’, and later on page 27 – ‘ the purpose of Green Technology is to further the public good at large (I sincerely hope so) not the interests of … … bureaucrats and private firms (which IS EXACTLY the purpose). But no matter! Hump the taxpayer – again!
Rodrik witters on somewhat about US green technology policies and Solyndra (a spectacular failure in the solar panel manufacturing sector). Had these been left out, the paper would have been improved considearbly – though it would still has major problems.
Look. Its very simple – if your a physicist or a physical chemist, you cannot, ever, finesse the laws of thermodymanics. And since Green Technology is expressly about attempting this finesse – then all attempts to produce an energy source which does not comply with these laws will end in failure. All – without exception! QED.
So, that is where economists have to start if they are to evaluate ‘new’ greenish technologies (or more likely a variation of an existing). Is what is being proposed a violation of those pesky thermodynamic laws, or not? If not, they are worth a very careful analysis. If not – promptly shred the paperwork and dismiss the supplicants – making sure you also smash their begging bowl. All those bozoes want is a taxpayer handout. Its maddening.
There is a ‘nice’ little dialogue embedded in the paper where there are mentions of ‘picking winners’ (of successful technologies) and ‘losing the losers’ (of unsuccessful ones). What is ‘success’ or ‘failure’ anyways? It is generally accepted that ‘picking winners’ is a losing enterprise – but reviewing the historical evidence – ‘losing the losers’ almost never happens! They just ‘endure’ – at the taxpayers expense, that is. Interesting that.
If a government extracts part of their taxpayers economic surplus and then distributes a proportion of it in the form of subsidies, or whatever, to private companies – that’s what? Social welfare? Sure looks like it. And there is plenty of ‘theorizing’ in the paper about ‘returns’. Returns of what exactly?
It appears that modern commercial enterprises are now dependent (to some extent, either small or large) on the transfer of taxpayer’s surpluses so that these may be re-distributed as salaries and bonuses for executives, payment of bond interest and somewhat later as a dividend to stockholders. If this is correct, then things have reached a ‘delicate state’ and a bad financial shock may have bad consequences for the taxpayer. “Oh! We have one of these – ongoing!” “Gee whiz!”
Back to basics. Our Permagrowth economic paradigm is based on a foundation of the massive, continuous, consumption of fossil hydrocarbons. There just is not any alternative energy source available on this planet which is a direct substitute for hydrocarbon fuels. None. So any move away from this fuel – toward so-called re-newables (actually the correct term re-usables) using so-called Green Technologies just ain’t gonna cut it!
Nice try Prof Rodrik! At whom are your arguments being directed? And to what purpose? These are the searching questions we taxpayers have to ask – continuously, of our politicians and policy makers. Not that, I expect an honest answer mind.
@ DO’D: Do many folk read A O H?
@BW Snr.
I would think quite a few [emphasis on few] in the social and human sciences.
On the topic of interest I would prefer more research on nuclear and how to take the toxic residue to Mars! Not building them on the fault lines of the tectonic plates would also be sensible …
@PL
Ta for link to good bio.
@ DO’D: The nuclear (small scale thorium reactor) technical issues have been resolved – but its a ‘toxic topic’. And unfortunately for some goodly reasons. Unless we can replace hydrocarbon fuel base-load electricity generation with nuclear, western developed nations will face real economic – hence political predicaments. Give it a decade from now.
‘CARTOON OF THE DAY – ‘€XITS’
Unemployment in Europe:
Everybody’s business
1 August 2013 International Herald Tribune Paris
1. There are no clear benchmarks for RDI success. Development is not deterministic. Heuristics concerning ‘hit rate’ of teams and key individuals help bit from the viewpoint of investors but do not change this fact.
2. The critical element in growing tech businesses is distinct IP coupled with ‘situational awareness’. Monitoring the patent landscape coupled with business intelligence studies generally provide this. Key people add to it. Control of standards committees in regulatory authorities helps maintain it. Solyndra appears to have lacked this – technological developments in China concerning low-cost polysilicon technology apparently outflanked them. This raises serious questions about their leadership and the quality of their investors including the Obama administration.
3. One thing this (draft) paper seems to lack is evidence of understanding of the relevance of intellectual property (IP). In the preamble about dissemination and the striving for state-level advantage there are no references whatever to this. Whatever the field – smartphones, medical devices or clean technology, IP and the resources to enforce it and leverage it are everything. Sadly too often, government investment in ‘winning’ technology fields – biotech, ICT, nanotech and ‘renewables’ in the case of the Irish state – pay only superficial attention to this aspect.
4. There is a conflict at the root of government support for R&D in cleantech fields (as in any other field). R&D performers cannot expect significant returns on investments in any such field without a strong track record (thought leadership) coupled with a portfolio of patents in a field of commercial relevance. In the case of Ireland (unlike all other countries) all state-funded R&D performers in receipt of significant state support are academic ones. Academic R&D performers are sometimes driven to disclose their innovations via academic publication and patenting, generally in advance of serious commercialisation efforts (which themselves frequently produce tepid results given the lack of committed experienced entrepreneurs to drive the inventions towards embodying products and cashflows). What is the point of that?
5. There is wittering on in this paper about “embeddedness”. As a non-economist and a simple businessman the impression I get is of people with limited understanding of what business in actually about, for entrepreneurs, company promoters and government. To me (as a simple businessman) the proposition is very simple:
a. The state and its servants lack the skills, experience and mandate to build and operate sustainable profitable business capable of generating a mix of private and national wealth
b. The state needs to harvest tax from businesspeople like myself – fair enough
c. The state can choose to be a stakeholder in businesses built by a myriad of simple businessmen like me. It can contribute financially; it can advise; it can network; it can influence. But that’s it. The very considerable risks are actually run by people like myself and my brethren. This is the natural order.
Cleantech business is important because it is a response to a disruptor, that is, the discovery of climate change and the flurry of regulation and penalties and opportunities this has created. Contrasting the response of societies with medium term collectivist outlooks (e.g. Germany) with those with short term individualistic outlooks (e.g. UK/Ireland) to climate change, we see totally different behaviours and attitudes both at the individual level (“turn off your idling engine you idiot – you are wasting fuel” vs UK/Ireland indifference) and at state level (contrast the UK’s lukewarm Green Deal vs Germany’s KfW Efficiency House schemes).
In summary, societies with short term outlooks (Anglo countries) don’t seem to ‘get’ green technologies in the way that those with longer term outlooks (Germanic Europe; Japan; India; China) do. As an example, Irish state funding support for startups is overwhelmingly focused on two fields – software and life sciences. Cleantech does not rate significantly, as the history of Irish support for indigenous ocean energy RDI indicates. I suspect this will be seen as a mistake in retrospect but making such judgement is not my place. Meanwhile simple businessmen will respond to state indifference in Anglo jurisdictions by switching cleantech RDI projects to jurisdictions where concepts like sustainability are understood better. I think this is a pity.
@ Tony,
just a few remarks from my side.
There was no “technology development” for raw poly Silicon in China.
Please look at the plot, this was produced for 30 $/kg in 2000, as it is now.
The producers (the usual suspects Shin-Etsu, Wacker, MEMC, who also produce 80% of the global silicon wafer market) were just a little slow to built new factories, they had been burnt before. Until about 2006, the majority of the poly-Si went into the high-quality wafer market. A cut throat business with a herfindahl index > 0.2
But for CdTe and CIGS people like Solyndra, to assume, that intermittent shortages / high prices would stay this way, was very naive.
This boom was fed by the German feed-in tariffs, plain and simple. look at the numbers for 2010 in wiki/Solar_power_by_country
A 20 year guarantee of a certain prices makes the investment for private people calculable, especially with KfW credits.
There is very little of valuable IP in the Silicon-PV technology. The process is short, you don’t really need highly paid German engineers for that, and the efficiency per area has long petered out
(wiki/File:Best_Research-Cell_Efficiencies.png)
The dramatic cost decay in the last years was just raw economy of scale: 20% lower cost for every factor 2 in cumulative production. There is very little “technological progress” beyond that.
CdTe has, and CIGS claims somewhat lower production costs (ca 25%, hyper simplified), but come at 15% lower efficiency (12 vs 14 for commercial thin film) and with some potential environmental concerns.
But the cost for the modules is now at just 0.55 Euro/Wp. Total installation costs are at 1.65 (we are just putting some on my father’s roof). And the costs for the frames and installation do not really scale substantially.
That means, that in Germany there is nearly exclusively Silicon installed, and most (>90%) of the module production and jobs are already gone again.
Utterly predictable, from my point of view. When my former employer went bankrupt, about 1/3 of my colleagues went into the PV solar business. I tried to get a positive view of it, but this was so clearly doomed.
And this “industrial policy” came with a price, about 140 billion to be paid in higher electricity costs by German end users (28 c/kWh, vs 8 in the US), distributed over the next 20 years.
@Francis
I think you summarise the unconcentrated PV panel business very well. It is a mature commoditised technology. There is some work still to do in reduction of balance-of-system costs which mass deployment of PV in the German and Japanese and Chinese markets is doing.
Funny enough when a consulting firm I managed was wound up two ex-colleagues also went into the renewables business -with disappointing results. In Ireland that predominantly means dealer-installer type construction businesses with no ability or aspirations to develop technology or products. Also a cut-throat business. I helped punt a concentrating solar startup for a bit myself until myself and the VC realised that my colleagues preferred faith-based rather than fact-based strategy. Oops!
All non-niche energy generation and many energy management businesses have utility-type margins. It is therefore very hard to justify developing and/or commercialising anything novel and risky given that prognosis for reward. Strategic considerations of energy independence need to be invoked i.e. states need to be stakeholders or little of substance ever happens.
Fortunately greentech/cleantech is a very broad sector of which energy generation is a small part. Sustainability is a huge challenge, in food, construction, transport, water, healthcare, employment… There are endless areas where cleantech opportunities are intrinsically profitable and where differentiating IP can be generated. States are not great at picking winning areas to invest in, but experienced entrepreneurs are. (the vast majority of economists really haven’t a clue – with all due respect Mr Rodrik’s paper is testimony to that). Despite the difficulties the backing of people rather than technologies poses in formulating transparent, fair public enterprise policies, that is what qualified investors tend to do. Why should states differ?
From an Irish perspective, lessons are seldom learned and while the solar flameout burnt investors in several big countries, in high tech it’s more the rule than the exception that the pioneers seldom endure.
Think of the big-name tech firms (Apple, Microsoft, Google) – they mainly built models on improvements on what preceded them in new business areas. Charles Edison was said to be a better inventor than businessman and General Electric emerged in the early 1890s from the merger of his company with a rival’s.
Ireland can harness ocean energy by buying the technology not trying to develop it.
Armchair generals in Dublin picking winners in the high tech area haven’t a very inspiring record. I’s lousy!
Last June scientists at the University of Manchester reported on a breakthrough in research on the magnetic properties of a material called graphene.
Russian-born scientists Andre Geim and Kostya Novoselov had isolated the one atom thick carbon layer at Manchester in 2004 and they shared a Nobel Prize win in 2010.
When in 2004 my University of Manchester colleagues and I discovered graphene, a material one carbon atom thick with extraordinary industrial potential, I set about trying to patent it.
When I approached a representative of a multinational electronics company, I received a put-down that I recall whenever I am asked about patents. “If after 10 years we find graphene is really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us.”
As an executive from his main competitor told me this year: “He did not need to be rude but unfortunately this is how it works.” By then I knew enough about patents to appreciate the original advice. While I was outraged by its tone, it did save the taxpayer a lot of money in costs.
One forecast says the graphene industry will be worth £300bn by 2022. It’s as hard as diamond but stretches like rubber.
Among the 200 most prolific patent owners, UK has 4 compared with 63 in the US, 54 in China, 21 in South Korea and 23 in Japan. The FT says this disparity between academic output and patents is known as “the European Paradox”. The continent is good at producing cutting-edge scientific research, but is not so good at turning it into marketable products.
Patenting is one (small) part of an IP strategy. Despite U Manchester’s testosterone-charged parable, there are big first mover benefits to patenting – but not in isolation from the many other activities needed to make patenting support an organisation’s chosen business strategy.
Before some readers get too confused, thefollowing is partially an answer to Robert and Michael in an earlier post „New CEPR site“, which was interrupted so rudely.
And from the the overall topic (not the new CEPR web portal) it belongs more here anyway.
claiming priority (always a favourite game between academics : – ) over Krugman,
by citing their 2009 paper http://faculty.insead.edu/fatas/wall/wall.pdf
and at the end coming back to Dani Rodrik mentioned here, as somebody with, from their perspective very different opinion, : – ) finishing the circle, back to here.
The paper summarizes in a neat way all these concepts of „technological frontier“, „catch up“, convergence, most of us subscribe to. And this was for a long time also behind our expectations for the European Union. If only we facilitate the catch-up of all those countries, especially at the periphery, who were disadvantaged by history, or that they didn’t have coal and iron, something just historically important in some transitory phase 1850 – 1950, subsidising some infrastructure via the EU, we would all become equally prosperous and just one big happy european family. Without being mean in any way to other countries outside the EU.
With a little help of older brothers like France, Germany, UK, this could be achieved much easier than the hard way of
“Countries like China, Korea, Japan and Singapore that have build up their physical capital at rates of 30-45% of GDP every year, have high growth rates of above 6%. “
While, just as Goldman Sachs in their famous BRIC paper No. 99 sold to gullible customers, the poor guys have to toil away building up the physical capital, in Europe we just let the “institutional quality” diffuse, and things will be fine.
2. doubts
When I read the Fatas posting, I did not doubt the general direction of the blog post, and the older paper. Who of us would doubt that democratic institutions, low corruption, absence of violence, etc., are good for growth and wealth?
It actually irked my interest, … six factors …. How important is each of them?
So I went, downloaded the Worldbank data of the six factors, gdp data from the CIA agglomerater, some formating, throwing out some loonie points of islands with a few hundred inhabitants, the usual, everybody of you can do for herself as well.
Counting all 6 factors at equal weight as described, hmmmm,
I don’t see any “threshold”, nor does a more than linear fit (R^2 = 0.303 in the most simple form) really improve the picture.
If I then go for a multiple regression of all 6 factors, something everybody of you should be able to perform, with e.g. Excel solver, you get MINUS 0.53 for ControlofCorruption and MINUS 0.28 for VoiceandAccountability.
Ooops
You can then put restrictions on for non negative values, and you end up with some strong 0.89 correlation for “GovernmentEffectiveness” and a very minor 0.22 for Political StabilityNoViolence, And RegulatoryQuality and RuleofLaw do not play any rule. If you do the regression to just this nebulous “GovernmentEffectiveness”, you get a R^2 of 0.66, twice the value for the fatas analysis.
What is then all this garbage good for? And the you can go on, … who is determining this “GovernmentEffectiveness” based on what data, all nebulous
And being thoroughly disgusted with this cargo cult pseudo science I actually develop some sympathies for the chinese government, which demands that the Worldbank puts an end to publishing this nonsense.
I ll put this here in this considerable detail, because it is so typical. In about 80% of the cases (100 % for LSE and folks like de Grauwe), when I go for details of economic statements and papers, it ends like this.
Rodrik’s article is disappointing. If it was genuinely about the industrial policy infrastructure required to deliver ‘green’ energy sources as a global alternative to the use of conventional fossil fuels , then a reference case study on the rush to biofuels, that previously hailed ‘silver bullet’ of an ecologically sustainable energy policy which has revealed itself, regionally and globally, as a series of economic, environmental and social disasters of ‘unintended consequences’ with all the residual stickiness of ‘path dependency’ to boot, might be instructive. Or he might have focused on the ‘unexpected’ – the emergence of shale gas, its impact on US energy prices and trading policy and its longterm implications for the ‘green growth’ paradigm. Instead, Rodrik provides an apologia for the policy and political fiasco that was Solyndra, retrospectively constructing a shaky scaffolding in its support long after the house has fallen down. Such an approach, no doubt, would have found favour in the court of King Philip II of Spain, renowned for his obstinate belief in the genius of his policies irrespective of how badly they floundered in their execution. A twentieth century Hirschmann might be less impressed.
Further, underpinning any argument with the old ‘catastrophic climate change’ trope is counterproductive. It suggests more research is warranted by this author into the inevitable messiness of scientific, economic and political debate about how climate change –related issues should be prioritised and on what basis specific actions and policy change are called for. Politically, the climate change debate is particularly polarised within the US, in a further reflection of the crisis in US democracy generally. The risk to analysts in aligning with climate jeremiads is that useful points of analysis are inevitably compromised. Besides, it is unnecessary. As Roger Pielke Jr. pointed out in a recent article, the majority of the general public in the US (and in Europe) have long since accepted that global warming is of genuine concern. Public opinion data also indicates, however, that the catastrophist message and the dogmatic approach which accompanies it simply turn people off, and are impeding necessary debate on longterm policy direction and wider public engagement with the issues.
Meanwhile, it looks like Ireland could be creating its own opportunity for a ‘Solyndra-moment’ in the not too distant future. The NTMA Amendment Bill, published in mid-June, places the government’s New Era plan on a statutory footing and provides the New Era Minister of State, Fergus O’Dowd – a highly respected parliamentarian throughout his opposition career and deservedly so – with access to the residual 6.4bn euro from the National Pensions Fund for the promotion of New Era economic development and job creation projects. The target is to deliver 100,000 jobs of the ‘green and sustainable’ variety over the next five years. When New Era was first launched by Fine Gael back in 2009, the target was also 100,000 jobs over a five year period, on an investment portfolio of 11bn euro. There’s something here I don’t quite get, but then I’m not an economist so what would I know? Nonetheless, despite Fergus O’Dowd’s credentials as a politician of real substance, I am more than a little concerned about what may happen to the last few euros jingling in the bottom of the national piggy bank, particularly if quick results are being looked for…in the run up to the next GE.
veronica
made me look up that Rodrik actually spends 10 of 29 pages of text kind of weaseling out that Obama is not the kind of radical change some people hoped for.
In stark contrast, as somebody who has in general significant sympathies for energy conservation and alternative energies, I nevertheless feel somewhat strange, that me paying about 2000 Euros for these german feedin tariffs (160 b / 80 m people) is just one little one line item in this paper,
while my gut feelings say that this is about 50% of the whole global package.
It would have been nice if Dani would have put some price stickers on all the many items he mentions.
To abuse pension funds for some vague industrial policies, huugh.
“One of those German intellectuals, I thought, always trying to figure everything out.”
: – )
erm,
I forgot to mention the price of about 1 Euro per US capita for the solyndra debacle ,
to put this into relation to the 2000 Euro, and counting, I was signed up for.
@ Francis,
I was a member of the Pensions Board (the regulatory body for the private pensions sector in Ireland whose remit also included advice to its parent Department, Social Welfare, and the government of the day, on pensions policy) throughout the mid-1990s. At that time, the Board was engaged in a comprehensive review of existing pensions policy. A separate review exercise had also been established by the then government to look at public sector pensions provision and to advise on reform in that area.
The Pensions Board review process enjoyed the benefit of some excellent economic consultancy advice, particularly in the early stages of scoping and defining the issues that needed to be considered. Establishment of a pensions reserve fund was one of the key ideas that ultimately emerged from the review process. Originally, the idea was directed to non-public service pensions. The concept was to create a fund that would bridge an anticipated shortfall between what workers had saved (or not) for their retirement through private pension provision and what the state could afford to supply as supplementary income support based on contemproary levels of tax and social insurance revenue. For demographic reasons, and other projected changes in the likely composition of the labour market etc., it was anticipated that this gap might prove too large – the so-called ‘pensions timebomb’. Hence, the fund. There was intense debate amongst board members around the issue of how to prevent profligate governments from ‘raiding’ the fund each and every time they ran into trouble. If the fund was to fulfill the purpose for which it was intended, protection from pillaging governments before it had a chance to mature was deemed essential. This concern was reflected in the legislation which eventually established the NPRF, which was intended to cover both private and public sector future pensions provision.
As far as I recall, 17bn of the Fund has since been used to plug the hole left by the banking collapse. In the circumstances, it would seem unreasonable to object to investing what remains of it in domestic projects, provided these can be anticipated to yield some form of return, though I’m not sure that the economic arguments for this bear scrutiny? In any case, the government has meanwhile directly raided citizens’ private pension incomes in the name of supporting its so-called job creation initiatives. Many private pension funds, particularly defined benefit schemes, are on the point of collapse and there are dire warnings of a looming pensions crisis.
However, in the immediate respect of the Fund, my concern, and as a (more cynical) friend of mine suggests, is that what we may be looking at here is the creation of a pre-election jobs ‘slush fund’, with a real risk that the remains of the Fund will be frittered away on ill-considered initiatives that may look (and sound) good in the short term, but will eventually fail.
As for that 2,000 euro extra on your electricity bill, I’ve given up trying to understand German energy policy. But, I guess, as long as the costs of the policy, especially in terms of high electricity charges, remain affordable…?
Hi Veronica,
I think it is a general rule, that all pension funds a government has its hands on, will sooner or later somehow disappear, you are certainly not alone, Germany and most other mainland countries lost them in the 2 wars, Argentine, Hungary, the US 2000 “lockbox” discussions, ….
As long as it is not firmly out of the hands of government, in strictly individual accounts, it will be raided. I think my US 401k is save, but I did think about it a few years ago. And I scoffed at the German Riester Rente plans.
That defined benefit (DB) pensions are a thing of the past, because most companies sooner or later will have some crisis, even GM and IBM, is also not new.
When IBM changed their company pensions from DB to defined contributions (DC) around 2000, in a way that got a lot of older IBM folks pretty upset, because they felt to be stiffed out of what they considered a much more generous entitlement (some calculated up to 50%). I thought, better a smaller spar saved outside, than a larger dove, you will not get in the end.
They even tried to organize a union at US Fishkill IBM, imagine that!
So I talked a little bit, over lunch, how we do the union thing in Germany, less antagonistic, half the board seats for the unions, …
Some IBM managers, hearing it, apparently didn’t like it.
2 hours later I had my first level Siemens manager sitting on my desk, trying to shut me up, politely. I didn’t realize how serious that was, and mumbled something about “free speech”.
On the very same day I had a short, precise, one-directional meeting with my second level Siemens manager, who told me in no uncertain terms, that I better keep my mouth shut, or I would be back to Germany very quickly, what I didn’t want at that time.
When I came back to my 2-person office, all postings at my office door, all completely unrelated, were ripped off, stuffed under the door, and replaced by an IBM order, that all not strictly work related postings need written permission by an IBM manager. I’ll got the message.
When, back in Germany, my company changed the pensions from DB to DC in 2007, at a loss of about 30%, dependent on how you calculate it, folks here were upset too. I was happy, because I knew that it would protect it in the case of bankruptcy, via a national non-government protection scheme (PSVaG), somewhat tricky to explain.
But how do you explain that to naïve co-workers, without stinking up the place talking about the looming bankruptcy?
When I got my public pension scheme entitlements slashed in 2004 by about 15% (only 1/3 to a half visible to the normal public) with Agenda 2010, I certainly was not happy about that too, but I felt better to have something I can believe to be realistic instead of promises, I knew to be not possible. The demographic is what it is, and I don’t believe in productivity miracles.
A lot of countries in Europe, not only Ireland, will face that moment of truth as well, in the near future, and the politicians will blame the European Union and not to forget the Germans for it.
But the Euro and the ECB will not serve as a vehicle to keep their 80 % net replacement ratio for pensions, when I get only 43%. To believe that is day dreaming.
To say anything about the right course of action for your pension fund, I would need a lot more detailed knowledge, I don’t have and will not acquire. Maybe you are better off with locking some of it away, with a very bad (means: negative) yield, but not totally squandered.
Wringing it somehow out of the hands of government, let it count against their mortgages, something like that, maybe that inspires you to some new ideas.
To the German energy policy
This is, unfortunately, not that difficult to understand. As long as the additional costs were at or below 1 c/ kWh, until about 2009, how do you argue, that it is not affordable, or gosh, that it is not cost efficient? Let the Greenies ride their hobby horse.
And then we got other things to worry about, people see the subsidy as their birth right, and the classic luddite argument with all the jobs allegedly created by that.
Kind of “We are good people, doing God’s work, being holier than you” in e.g. Ireland.
And people like me, who mention that this is
a) getting really expensive with 5.3 c/kWh now, and
b) screwing up formerly working energy markets and inflicting problems on neighbor countries,
are just disturbing the social peace.
It takes here the similar 3 – 5 years, until people realize that things got really out of control.
The way I see what this energy commissioner Oettinger is doing, is that he is trying to lever EU laws to rule into necessary German EEG law changes, which the German polity seems to be unable to do itself. Maybe somewhat cynic. This is not the way it “should” be done, but, hey, the sequester in the US is also actually a pretty efficient way to solve political gridlock.
@ Francis,
Appears to be a near universal problem of the traditional culture of large organisations: Either ‘Exit’ or ‘Loyalty’; but no ‘Voice’ allowed.
Have a notebook and pencil at the ready. Few inconvenient numbers in there.
I inoculate a single cell into a sealed growth chamber. The cell divides in 60 seconds – and so on. If it continues like that, the chamber will be completely full of cells in 60 minutes. And cell growth stops at that point.
Q: How long does it take – in minutes, for the chamber to be half full (or half empty) of cells?
Greentech, or Cleantech or whatevertech. It just ain’t gonna cut it!
Hi Veronica,
for me your Spiegel article actually marks progress.
First of all, time delays and cost overruns are normal in new engineering projects. The problems here are all solvable, just a little later and at somewhat higher costs, the usual, but it will be done, because most are already sunk costs : – )
This is in strong contrast to stuff like fusion, to explain the perspective, I am taking here.
In contrast to what they did with PV in 2004 (hiking the subsidy by 25% to feed the bubble; it took me an hour to find this reference: http://www.pv-stammtisch.de/app/download/5797381425/2013+-+Einspeiseverg%C3%BCtung+2000+bis+2013.pdf)
they do not say anymore, oooh, its becoming more expensive, how much do you need, but tell them, either they can produce for 15 c , or they can take a hike. Let them gain some experience and come back, when they can produce for 15.
Progress !!
The younger guys go and try to find some better (paid) and hopefully more stable work, the older guys hang tough.
Here in Germany I can and do actually raise my voice, since 3 decades.
What I just realize, the herfindahl-index I mentioned above, is actually called the herfindahl-hirschman index, because Hirschman was actually first with it.
@ BW2
The chick at your link, posing with the machine gun, looks kinda cute, but I would not go to bed with something like this, and I don’t take discuss politics at sites like that.
Hi, Francis. That’s Princess Leia Organa of Alderaan – from Star Wars. Now the deep philosophical question is: “Is she real – or is she not?”
That site is quite safe. Its primarily economics/finance – with some odd bits now and again. The principal, Eric Janszen, was one of those small number of folk who ‘predicted’ the 2008 downturn. I’d pay attention to what he says. He does stray a bit from time to time, but if you know what to look for. And what to ignore!
Greentech – or whatever you wish to call it, is an offshoot of hydrocarbon fuels. Absent sufficient of those fuels, Greentech is a Dodo. I regard the whole Green/Clean sector as just another scam to take taxpayers Euros – via all sorts of hinkey tax dodges.
EU and Eurozone are headed for a ‘hard landing’. 2017 looks promising.
Hi Tony Owen, all
1. first quarter century review of German research subsidies
2. fusion / ITER
3. the death of the big central research labs
1. first quarter century review of German research subsidies
I have here in on my desk a book, printed 1979, “Geplante Forschung” (planned research), van der Daele et al., which reviews the first quarter century of the major research program German engaged in, after the War.
Political control, biotech, informatik “Computer Science”, cancer, environment, fusion, heavy ions
I bought that about 1987, a quarter century ago, and it was kind of interesting to read it again, and to see how often actually not that much did change. Until 1990 we had in Germany that “technology push” mantra as well.
And it spells out pretty clearly, that trying to trace product revenue to all the subsidies was pretty spurious at that time as well.
2. fusion / ITER
Fusion, energy production seemingly unlimited, is the holy grail since 60 years. They always promise, that it is just around the corner, just 30 years more, since 60 years.
What we succeeded in, is that now we spend the research money on just one site worldwide, the “ITER”. Every player is chipping in, EU, US, China, Russia, Korea, Japan, India. Everybody chips in 9%, and the hosting site EU another 36% in expectation of local contracts, spill offs, visits to the local bakers and butchers, increase in local real estate value, and some other blah, blah.
Everybody is happy, that he is not missing out on anything the others might learn, and we spend about half the money total, because of the arrested scientific arms race, and divided up by 7.
An excellent deal.
The original usual shameless budget was 5 b, now we are at 16, in the end it will be 30 billions, but divided by 30 years, that is just 1 b/ yr, divided by 2 for the EU and 500 m EU people, makes about 1 Euro per year and capita, Solyndra class : – )
And even the Irish have 2 guys on the team, heading some group, and feeling important
For quite some time after WWII, it was on vogue, that every large company had a very large central research division, usually some 5 – 10% of the cost, until people did some cost calculations, that those folks were fabulous in producing papers and patents, but did not really contribute that much to actually produce the stuff, the company sold.
AT&T slashed the Bell Labs, IBM cut their Yorktown Heights site to a quarter, Siemens their ZFE.
Everytime these folks loose contact to the real production, they develop a life of their own, and forget to contribute to the revenue, and I don’t see how public research in Ireland would be any different.
Patents as part of securing research directed at real specific products have their place, but as primary product I fail to see this succeeding somewhere.
To build a “national strategy” on this, is lunatic, IMHO.
But I would like to hear of some specific examples, if there are any.
Francis I agree with you about the recent history of big corporate RDI labs. Go back further (early industrial revolution until 1870 – 190 or so) and you found that the core inventions underpinning many manufactured products were in-sourced from independent inventors, some mad, some bad, but some of them professional, productive and financially successful. In the late 19th century ‘industry’ moved to integrate invention in-house as a more reliable and cost-effective alternative, resulting in ‘design departments’, ‘drawing offices’, and similar language appearing. This growth in internal research, design and engineering functions continued until the 60’s or so, when the trend to ‘lean’, and later ‘business process re-engineering’ and ‘outsourcing’ led to the dissolution of such functions and a return to reliance on independent inventors and to licencing-in designs from elsewhere. But more often than not, independent inventors now operated through product design agencies, engineering consultancies and similar.
There are problems with both approaches. Reliance on outsiders for RDI and other aspects of IP is largely incompatible with building shareholder value in tech businesses through creating huge fortresses of patents, ‘tradecraft’ and proprietary knowledge (e.g. Apple, Intel, Samsung, Dyson). On the other hand, the cost of creating and running productive, cutting-edge RDI functions and of maintaining large patent portfolios is so large that only highly profitable and sustainable tech businesses can afford this, while nimbler more inventive outsiders often blindside huge integrated companies.
One of the many advantages of a focus on patents is the connection with the ‘real world’ that targeted patenting enforces. Sadly, targeted patenting (i.e. mandated invent-to-order within a field of relevance) is not recognised in the world of academic RDI where invention is still regarded as a serendipitous event rather than a systematic activity. The key here is that patenting is not about “securing research”. This is merely one part of a far larger activity – managing IP. This is done for leverage and influence, as a way of securing the ability to trade in certain sectors (e.g. smartphones and similar consumer telecoms), and most importantly to build shareholder value.
23 replies on “Green Industrial Policy”
Exit? Voice? or Loyalty?
Great options -ain’t they?
This paper reminds me of one published recently (July 4th) by Prof O’Riain – ‘New Industrial Policy for Ireland’. Both are long on ‘wishy and washy’ – but somewhat short on the practical.
It took me 24 pages to discover the nub of this Green Technology malarky: “reduce greenhouse gases’, and later on page 27 – ‘ the purpose of Green Technology is to further the public good at large (I sincerely hope so) not the interests of … … bureaucrats and private firms (which IS EXACTLY the purpose). But no matter! Hump the taxpayer – again!
Rodrik witters on somewhat about US green technology policies and Solyndra (a spectacular failure in the solar panel manufacturing sector). Had these been left out, the paper would have been improved considearbly – though it would still has major problems.
Look. Its very simple – if your a physicist or a physical chemist, you cannot, ever, finesse the laws of thermodymanics. And since Green Technology is expressly about attempting this finesse – then all attempts to produce an energy source which does not comply with these laws will end in failure. All – without exception! QED.
So, that is where economists have to start if they are to evaluate ‘new’ greenish technologies (or more likely a variation of an existing). Is what is being proposed a violation of those pesky thermodynamic laws, or not? If not, they are worth a very careful analysis. If not – promptly shred the paperwork and dismiss the supplicants – making sure you also smash their begging bowl. All those bozoes want is a taxpayer handout. Its maddening.
There is a ‘nice’ little dialogue embedded in the paper where there are mentions of ‘picking winners’ (of successful technologies) and ‘losing the losers’ (of unsuccessful ones). What is ‘success’ or ‘failure’ anyways? It is generally accepted that ‘picking winners’ is a losing enterprise – but reviewing the historical evidence – ‘losing the losers’ almost never happens! They just ‘endure’ – at the taxpayers expense, that is. Interesting that.
If a government extracts part of their taxpayers economic surplus and then distributes a proportion of it in the form of subsidies, or whatever, to private companies – that’s what? Social welfare? Sure looks like it. And there is plenty of ‘theorizing’ in the paper about ‘returns’. Returns of what exactly?
It appears that modern commercial enterprises are now dependent (to some extent, either small or large) on the transfer of taxpayer’s surpluses so that these may be re-distributed as salaries and bonuses for executives, payment of bond interest and somewhat later as a dividend to stockholders. If this is correct, then things have reached a ‘delicate state’ and a bad financial shock may have bad consequences for the taxpayer. “Oh! We have one of these – ongoing!” “Gee whiz!”
Back to basics. Our Permagrowth economic paradigm is based on a foundation of the massive, continuous, consumption of fossil hydrocarbons. There just is not any alternative energy source available on this planet which is a direct substitute for hydrocarbon fuels. None. So any move away from this fuel – toward so-called re-newables (actually the correct term re-usables) using so-called Green Technologies just ain’t gonna cut it!
Nice try Prof Rodrik! At whom are your arguments being directed? And to what purpose? These are the searching questions we taxpayers have to ask – continuously, of our politicians and policy makers. Not that, I expect an honest answer mind.
@ DO’D: Do many folk read A O H?
@BW Snr.
I would think quite a few [emphasis on few] in the social and human sciences.
On the topic of interest I would prefer more research on nuclear and how to take the toxic residue to Mars! Not building them on the fault lines of the tectonic plates would also be sensible …
@PL
Ta for link to good bio.
@ DO’D: The nuclear (small scale thorium reactor) technical issues have been resolved – but its a ‘toxic topic’. And unfortunately for some goodly reasons. Unless we can replace hydrocarbon fuel base-load electricity generation with nuclear, western developed nations will face real economic – hence political predicaments. Give it a decade from now.
‘CARTOON OF THE DAY – ‘€XITS’
Unemployment in Europe:
Everybody’s business
1 August 2013 International Herald Tribune Paris
http://www.presseurop.eu/en/content/cartoon/4022871-everybody-s-business
@BW Snr
Agree
Some comments on the Rodrik paper as follows:
1. There are no clear benchmarks for RDI success. Development is not deterministic. Heuristics concerning ‘hit rate’ of teams and key individuals help bit from the viewpoint of investors but do not change this fact.
2. The critical element in growing tech businesses is distinct IP coupled with ‘situational awareness’. Monitoring the patent landscape coupled with business intelligence studies generally provide this. Key people add to it. Control of standards committees in regulatory authorities helps maintain it. Solyndra appears to have lacked this – technological developments in China concerning low-cost polysilicon technology apparently outflanked them. This raises serious questions about their leadership and the quality of their investors including the Obama administration.
3. One thing this (draft) paper seems to lack is evidence of understanding of the relevance of intellectual property (IP). In the preamble about dissemination and the striving for state-level advantage there are no references whatever to this. Whatever the field – smartphones, medical devices or clean technology, IP and the resources to enforce it and leverage it are everything. Sadly too often, government investment in ‘winning’ technology fields – biotech, ICT, nanotech and ‘renewables’ in the case of the Irish state – pay only superficial attention to this aspect.
4. There is a conflict at the root of government support for R&D in cleantech fields (as in any other field). R&D performers cannot expect significant returns on investments in any such field without a strong track record (thought leadership) coupled with a portfolio of patents in a field of commercial relevance. In the case of Ireland (unlike all other countries) all state-funded R&D performers in receipt of significant state support are academic ones. Academic R&D performers are sometimes driven to disclose their innovations via academic publication and patenting, generally in advance of serious commercialisation efforts (which themselves frequently produce tepid results given the lack of committed experienced entrepreneurs to drive the inventions towards embodying products and cashflows). What is the point of that?
5. There is wittering on in this paper about “embeddedness”. As a non-economist and a simple businessman the impression I get is of people with limited understanding of what business in actually about, for entrepreneurs, company promoters and government. To me (as a simple businessman) the proposition is very simple:
a. The state and its servants lack the skills, experience and mandate to build and operate sustainable profitable business capable of generating a mix of private and national wealth
b. The state needs to harvest tax from businesspeople like myself – fair enough
c. The state can choose to be a stakeholder in businesses built by a myriad of simple businessmen like me. It can contribute financially; it can advise; it can network; it can influence. But that’s it. The very considerable risks are actually run by people like myself and my brethren. This is the natural order.
Cleantech business is important because it is a response to a disruptor, that is, the discovery of climate change and the flurry of regulation and penalties and opportunities this has created. Contrasting the response of societies with medium term collectivist outlooks (e.g. Germany) with those with short term individualistic outlooks (e.g. UK/Ireland) to climate change, we see totally different behaviours and attitudes both at the individual level (“turn off your idling engine you idiot – you are wasting fuel” vs UK/Ireland indifference) and at state level (contrast the UK’s lukewarm Green Deal vs Germany’s KfW Efficiency House schemes).
In summary, societies with short term outlooks (Anglo countries) don’t seem to ‘get’ green technologies in the way that those with longer term outlooks (Germanic Europe; Japan; India; China) do. As an example, Irish state funding support for startups is overwhelmingly focused on two fields – software and life sciences. Cleantech does not rate significantly, as the history of Irish support for indigenous ocean energy RDI indicates. I suspect this will be seen as a mistake in retrospect but making such judgement is not my place. Meanwhile simple businessmen will respond to state indifference in Anglo jurisdictions by switching cleantech RDI projects to jurisdictions where concepts like sustainability are understood better. I think this is a pity.
@ Tony,
just a few remarks from my side.
There was no “technology development” for raw poly Silicon in China.
Please look at the plot, this was produced for 30 $/kg in 2000, as it is now.
The producers (the usual suspects Shin-Etsu, Wacker, MEMC, who also produce 80% of the global silicon wafer market) were just a little slow to built new factories, they had been burnt before. Until about 2006, the majority of the poly-Si went into the high-quality wafer market. A cut throat business with a herfindahl index > 0.2
But for CdTe and CIGS people like Solyndra, to assume, that intermittent shortages / high prices would stay this way, was very naive.
This boom was fed by the German feed-in tariffs, plain and simple. look at the numbers for 2010 in wiki/Solar_power_by_country
A 20 year guarantee of a certain prices makes the investment for private people calculable, especially with KfW credits.
There is very little of valuable IP in the Silicon-PV technology. The process is short, you don’t really need highly paid German engineers for that, and the efficiency per area has long petered out
(wiki/File:Best_Research-Cell_Efficiencies.png)
The dramatic cost decay in the last years was just raw economy of scale: 20% lower cost for every factor 2 in cumulative production. There is very little “technological progress” beyond that.
CdTe has, and CIGS claims somewhat lower production costs (ca 25%, hyper simplified), but come at 15% lower efficiency (12 vs 14 for commercial thin film) and with some potential environmental concerns.
But the cost for the modules is now at just 0.55 Euro/Wp. Total installation costs are at 1.65 (we are just putting some on my father’s roof). And the costs for the frames and installation do not really scale substantially.
That means, that in Germany there is nearly exclusively Silicon installed, and most (>90%) of the module production and jobs are already gone again.
Utterly predictable, from my point of view. When my former employer went bankrupt, about 1/3 of my colleagues went into the PV solar business. I tried to get a positive view of it, but this was so clearly doomed.
And this “industrial policy” came with a price, about 140 billion to be paid in higher electricity costs by German end users (28 c/kWh, vs 8 in the US), distributed over the next 20 years.
@Francis
I think you summarise the unconcentrated PV panel business very well. It is a mature commoditised technology. There is some work still to do in reduction of balance-of-system costs which mass deployment of PV in the German and Japanese and Chinese markets is doing.
Funny enough when a consulting firm I managed was wound up two ex-colleagues also went into the renewables business -with disappointing results. In Ireland that predominantly means dealer-installer type construction businesses with no ability or aspirations to develop technology or products. Also a cut-throat business. I helped punt a concentrating solar startup for a bit myself until myself and the VC realised that my colleagues preferred faith-based rather than fact-based strategy. Oops!
All non-niche energy generation and many energy management businesses have utility-type margins. It is therefore very hard to justify developing and/or commercialising anything novel and risky given that prognosis for reward. Strategic considerations of energy independence need to be invoked i.e. states need to be stakeholders or little of substance ever happens.
Fortunately greentech/cleantech is a very broad sector of which energy generation is a small part. Sustainability is a huge challenge, in food, construction, transport, water, healthcare, employment… There are endless areas where cleantech opportunities are intrinsically profitable and where differentiating IP can be generated. States are not great at picking winning areas to invest in, but experienced entrepreneurs are. (the vast majority of economists really haven’t a clue – with all due respect Mr Rodrik’s paper is testimony to that). Despite the difficulties the backing of people rather than technologies poses in formulating transparent, fair public enterprise policies, that is what qualified investors tend to do. Why should states differ?
From an Irish perspective, lessons are seldom learned and while the solar flameout burnt investors in several big countries, in high tech it’s more the rule than the exception that the pioneers seldom endure.
Think of the big-name tech firms (Apple, Microsoft, Google) – they mainly built models on improvements on what preceded them in new business areas. Charles Edison was said to be a better inventor than businessman and General Electric emerged in the early 1890s from the merger of his company with a rival’s.
Ireland can harness ocean energy by buying the technology not trying to develop it.
Armchair generals in Dublin picking winners in the high tech area haven’t a very inspiring record. I’s lousy!
Last June scientists at the University of Manchester reported on a breakthrough in research on the magnetic properties of a material called graphene.
Russian-born scientists Andre Geim and Kostya Novoselov had isolated the one atom thick carbon layer at Manchester in 2004 and they shared a Nobel Prize win in 2010.
Prof Geim wrote in the FT on patents in 2012:
http://www.ft.com/intl/cms/s/0/071a7a40-c3aa-11e1-966e-00144feabdc0.html#axzz2amDmIJfx
One forecast says the graphene industry will be worth £300bn by 2022. It’s as hard as diamond but stretches like rubber.
Among the 200 most prolific patent owners, UK has 4 compared with 63 in the US, 54 in China, 21 in South Korea and 23 in Japan. The FT says this disparity between academic output and patents is known as “the European Paradox”. The continent is good at producing cutting-edge scientific research, but is not so good at turning it into marketable products.
heres Cass Sunsteins review of the Hirschman book
http://www.nybooks.com/articles/archives/2013/may/23/albert-hirschman-original-thinker/?pagination=false
@MH re patenting.
Patenting is one (small) part of an IP strategy. Despite U Manchester’s testosterone-charged parable, there are big first mover benefits to patenting – but not in isolation from the many other activities needed to make patenting support an organisation’s chosen business strategy.
Before some readers get too confused, thefollowing is partially an answer to Robert and Michael in an earlier post „New CEPR site“, which was interrupted so rudely.
And from the the overall topic (not the new CEPR web portal) it belongs more here anyway.
Let us start with the recent „great wall“ post of fatas & mihow, http://fatasmihov.blogspot.de/2013/07/china-getting-close-to-hit-great-wall.html
claiming priority (always a favourite game between academics : – ) over Krugman,
by citing their 2009 paper http://faculty.insead.edu/fatas/wall/wall.pdf
and at the end coming back to Dani Rodrik mentioned here, as somebody with, from their perspective very different opinion, : – ) finishing the circle, back to here.
The paper summarizes in a neat way all these concepts of „technological frontier“, „catch up“, convergence, most of us subscribe to. And this was for a long time also behind our expectations for the European Union. If only we facilitate the catch-up of all those countries, especially at the periphery, who were disadvantaged by history, or that they didn’t have coal and iron, something just historically important in some transitory phase 1850 – 1950, subsidising some infrastructure via the EU, we would all become equally prosperous and just one big happy european family. Without being mean in any way to other countries outside the EU.
With a little help of older brothers like France, Germany, UK, this could be achieved much easier than the hard way of
“Countries like China, Korea, Japan and Singapore that have build up their physical capital at rates of 30-45% of GDP every year, have high growth rates of above 6%. “
While, just as Goldman Sachs in their famous BRIC paper No. 99 sold to gullible customers, the poor guys have to toil away building up the physical capital, in Europe we just let the “institutional quality” diffuse, and things will be fine.
2. doubts
When I read the Fatas posting, I did not doubt the general direction of the blog post, and the older paper. Who of us would doubt that democratic institutions, low corruption, absence of violence, etc., are good for growth and wealth?
It actually irked my interest, … six factors …. How important is each of them?
So I went, downloaded the Worldbank data of the six factors, gdp data from the CIA agglomerater, some formating, throwing out some loonie points of islands with a few hundred inhabitants, the usual, everybody of you can do for herself as well.
Counting all 6 factors at equal weight as described, hmmmm,
I don’t see any “threshold”, nor does a more than linear fit (R^2 = 0.303 in the most simple form) really improve the picture.
If I then go for a multiple regression of all 6 factors, something everybody of you should be able to perform, with e.g. Excel solver, you get MINUS 0.53 for ControlofCorruption and MINUS 0.28 for VoiceandAccountability.
Ooops
You can then put restrictions on for non negative values, and you end up with some strong 0.89 correlation for “GovernmentEffectiveness” and a very minor 0.22 for Political StabilityNoViolence, And RegulatoryQuality and RuleofLaw do not play any rule. If you do the regression to just this nebulous “GovernmentEffectiveness”, you get a R^2 of 0.66, twice the value for the fatas analysis.
What is then all this garbage good for? And the you can go on, … who is determining this “GovernmentEffectiveness” based on what data, all nebulous
And being thoroughly disgusted with this cargo cult pseudo science I actually develop some sympathies for the chinese government, which demands that the Worldbank puts an end to publishing this nonsense.
I ll put this here in this considerable detail, because it is so typical. In about 80% of the cases (100 % for LSE and folks like de Grauwe), when I go for details of economic statements and papers, it ends like this.
Rodrik’s article is disappointing. If it was genuinely about the industrial policy infrastructure required to deliver ‘green’ energy sources as a global alternative to the use of conventional fossil fuels , then a reference case study on the rush to biofuels, that previously hailed ‘silver bullet’ of an ecologically sustainable energy policy which has revealed itself, regionally and globally, as a series of economic, environmental and social disasters of ‘unintended consequences’ with all the residual stickiness of ‘path dependency’ to boot, might be instructive. Or he might have focused on the ‘unexpected’ – the emergence of shale gas, its impact on US energy prices and trading policy and its longterm implications for the ‘green growth’ paradigm. Instead, Rodrik provides an apologia for the policy and political fiasco that was Solyndra, retrospectively constructing a shaky scaffolding in its support long after the house has fallen down. Such an approach, no doubt, would have found favour in the court of King Philip II of Spain, renowned for his obstinate belief in the genius of his policies irrespective of how badly they floundered in their execution. A twentieth century Hirschmann might be less impressed.
Further, underpinning any argument with the old ‘catastrophic climate change’ trope is counterproductive. It suggests more research is warranted by this author into the inevitable messiness of scientific, economic and political debate about how climate change –related issues should be prioritised and on what basis specific actions and policy change are called for. Politically, the climate change debate is particularly polarised within the US, in a further reflection of the crisis in US democracy generally. The risk to analysts in aligning with climate jeremiads is that useful points of analysis are inevitably compromised. Besides, it is unnecessary. As Roger Pielke Jr. pointed out in a recent article, the majority of the general public in the US (and in Europe) have long since accepted that global warming is of genuine concern. Public opinion data also indicates, however, that the catastrophist message and the dogmatic approach which accompanies it simply turn people off, and are impeding necessary debate on longterm policy direction and wider public engagement with the issues.
Meanwhile, it looks like Ireland could be creating its own opportunity for a ‘Solyndra-moment’ in the not too distant future. The NTMA Amendment Bill, published in mid-June, places the government’s New Era plan on a statutory footing and provides the New Era Minister of State, Fergus O’Dowd – a highly respected parliamentarian throughout his opposition career and deservedly so – with access to the residual 6.4bn euro from the National Pensions Fund for the promotion of New Era economic development and job creation projects. The target is to deliver 100,000 jobs of the ‘green and sustainable’ variety over the next five years. When New Era was first launched by Fine Gael back in 2009, the target was also 100,000 jobs over a five year period, on an investment portfolio of 11bn euro. There’s something here I don’t quite get, but then I’m not an economist so what would I know? Nonetheless, despite Fergus O’Dowd’s credentials as a politician of real substance, I am more than a little concerned about what may happen to the last few euros jingling in the bottom of the national piggy bank, particularly if quick results are being looked for…in the run up to the next GE.
veronica
made me look up that Rodrik actually spends 10 of 29 pages of text kind of weaseling out that Obama is not the kind of radical change some people hoped for.
In stark contrast, as somebody who has in general significant sympathies for energy conservation and alternative energies, I nevertheless feel somewhat strange, that me paying about 2000 Euros for these german feedin tariffs (160 b / 80 m people) is just one little one line item in this paper,
while my gut feelings say that this is about 50% of the whole global package.
It would have been nice if Dani would have put some price stickers on all the many items he mentions.
To abuse pension funds for some vague industrial policies, huugh.
I found
http://www.newyorker.com/arts/critics/books/2013/06/24/130624crbo_books_gladwell?currentPage=all
pretty inspiring. It ends with:
“One of those German intellectuals, I thought, always trying to figure everything out.”
: – )
erm,
I forgot to mention the price of about 1 Euro per US capita for the solyndra debacle ,
to put this into relation to the 2000 Euro, and counting, I was signed up for.
@ Francis,
I was a member of the Pensions Board (the regulatory body for the private pensions sector in Ireland whose remit also included advice to its parent Department, Social Welfare, and the government of the day, on pensions policy) throughout the mid-1990s. At that time, the Board was engaged in a comprehensive review of existing pensions policy. A separate review exercise had also been established by the then government to look at public sector pensions provision and to advise on reform in that area.
The Pensions Board review process enjoyed the benefit of some excellent economic consultancy advice, particularly in the early stages of scoping and defining the issues that needed to be considered. Establishment of a pensions reserve fund was one of the key ideas that ultimately emerged from the review process. Originally, the idea was directed to non-public service pensions. The concept was to create a fund that would bridge an anticipated shortfall between what workers had saved (or not) for their retirement through private pension provision and what the state could afford to supply as supplementary income support based on contemproary levels of tax and social insurance revenue. For demographic reasons, and other projected changes in the likely composition of the labour market etc., it was anticipated that this gap might prove too large – the so-called ‘pensions timebomb’. Hence, the fund. There was intense debate amongst board members around the issue of how to prevent profligate governments from ‘raiding’ the fund each and every time they ran into trouble. If the fund was to fulfill the purpose for which it was intended, protection from pillaging governments before it had a chance to mature was deemed essential. This concern was reflected in the legislation which eventually established the NPRF, which was intended to cover both private and public sector future pensions provision.
As far as I recall, 17bn of the Fund has since been used to plug the hole left by the banking collapse. In the circumstances, it would seem unreasonable to object to investing what remains of it in domestic projects, provided these can be anticipated to yield some form of return, though I’m not sure that the economic arguments for this bear scrutiny? In any case, the government has meanwhile directly raided citizens’ private pension incomes in the name of supporting its so-called job creation initiatives. Many private pension funds, particularly defined benefit schemes, are on the point of collapse and there are dire warnings of a looming pensions crisis.
However, in the immediate respect of the Fund, my concern, and as a (more cynical) friend of mine suggests, is that what we may be looking at here is the creation of a pre-election jobs ‘slush fund’, with a real risk that the remains of the Fund will be frittered away on ill-considered initiatives that may look (and sound) good in the short term, but will eventually fail.
As for that 2,000 euro extra on your electricity bill, I’ve given up trying to understand German energy policy. But, I guess, as long as the costs of the policy, especially in terms of high electricity charges, remain affordable…?
Hi Veronica,
I think it is a general rule, that all pension funds a government has its hands on, will sooner or later somehow disappear, you are certainly not alone, Germany and most other mainland countries lost them in the 2 wars, Argentine, Hungary, the US 2000 “lockbox” discussions, ….
As long as it is not firmly out of the hands of government, in strictly individual accounts, it will be raided. I think my US 401k is save, but I did think about it a few years ago. And I scoffed at the German Riester Rente plans.
That defined benefit (DB) pensions are a thing of the past, because most companies sooner or later will have some crisis, even GM and IBM, is also not new.
When IBM changed their company pensions from DB to defined contributions (DC) around 2000, in a way that got a lot of older IBM folks pretty upset, because they felt to be stiffed out of what they considered a much more generous entitlement (some calculated up to 50%). I thought, better a smaller spar saved outside, than a larger dove, you will not get in the end.
They even tried to organize a union at US Fishkill IBM, imagine that!
So I talked a little bit, over lunch, how we do the union thing in Germany, less antagonistic, half the board seats for the unions, …
Some IBM managers, hearing it, apparently didn’t like it.
2 hours later I had my first level Siemens manager sitting on my desk, trying to shut me up, politely. I didn’t realize how serious that was, and mumbled something about “free speech”.
On the very same day I had a short, precise, one-directional meeting with my second level Siemens manager, who told me in no uncertain terms, that I better keep my mouth shut, or I would be back to Germany very quickly, what I didn’t want at that time.
When I came back to my 2-person office, all postings at my office door, all completely unrelated, were ripped off, stuffed under the door, and replaced by an IBM order, that all not strictly work related postings need written permission by an IBM manager. I’ll got the message.
When, back in Germany, my company changed the pensions from DB to DC in 2007, at a loss of about 30%, dependent on how you calculate it, folks here were upset too. I was happy, because I knew that it would protect it in the case of bankruptcy, via a national non-government protection scheme (PSVaG), somewhat tricky to explain.
But how do you explain that to naïve co-workers, without stinking up the place talking about the looming bankruptcy?
When I got my public pension scheme entitlements slashed in 2004 by about 15% (only 1/3 to a half visible to the normal public) with Agenda 2010, I certainly was not happy about that too, but I felt better to have something I can believe to be realistic instead of promises, I knew to be not possible. The demographic is what it is, and I don’t believe in productivity miracles.
A lot of countries in Europe, not only Ireland, will face that moment of truth as well, in the near future, and the politicians will blame the European Union and not to forget the Germans for it.
But the Euro and the ECB will not serve as a vehicle to keep their 80 % net replacement ratio for pensions, when I get only 43%. To believe that is day dreaming.
To say anything about the right course of action for your pension fund, I would need a lot more detailed knowledge, I don’t have and will not acquire. Maybe you are better off with locking some of it away, with a very bad (means: negative) yield, but not totally squandered.
Wringing it somehow out of the hands of government, let it count against their mortgages, something like that, maybe that inspires you to some new ideas.
To the German energy policy
This is, unfortunately, not that difficult to understand. As long as the additional costs were at or below 1 c/ kWh, until about 2009, how do you argue, that it is not affordable, or gosh, that it is not cost efficient? Let the Greenies ride their hobby horse.
And then we got other things to worry about, people see the subsidy as their birth right, and the classic luddite argument with all the jobs allegedly created by that.
Kind of “We are good people, doing God’s work, being holier than you” in e.g. Ireland.
And people like me, who mention that this is
a) getting really expensive with 5.3 c/kWh now, and
b) screwing up formerly working energy markets and inflicting problems on neighbor countries,
are just disturbing the social peace.
It takes here the similar 3 – 5 years, until people realize that things got really out of control.
The way I see what this energy commissioner Oettinger is doing, is that he is trying to lever EU laws to rule into necessary German EEG law changes, which the German polity seems to be unable to do itself. Maybe somewhat cynic. This is not the way it “should” be done, but, hey, the sequester in the US is also actually a pretty efficient way to solve political gridlock.
@ Francis,
Appears to be a near universal problem of the traditional culture of large organisations: Either ‘Exit’ or ‘Loyalty’; but no ‘Voice’ allowed.
As for Germany’s energy policy problems, interesting piece in Spiegel online:
http://www.spiegel.de/international/germany/german-offshore-wind-industry-goes-from-boom-to-bust-a-914158.html
Just now – and again, something turns up.
http://www.itulip.com/forums/showthread.php/25716-Chris-Martenson-dispels-the-U-S-oil-independence-by-2020-meme
Have a notebook and pencil at the ready. Few inconvenient numbers in there.
I inoculate a single cell into a sealed growth chamber. The cell divides in 60 seconds – and so on. If it continues like that, the chamber will be completely full of cells in 60 minutes. And cell growth stops at that point.
Q: How long does it take – in minutes, for the chamber to be half full (or half empty) of cells?
Greentech, or Cleantech or whatevertech. It just ain’t gonna cut it!
Hi Veronica,
for me your Spiegel article actually marks progress.
First of all, time delays and cost overruns are normal in new engineering projects. The problems here are all solvable, just a little later and at somewhat higher costs, the usual, but it will be done, because most are already sunk costs : – )
This is in strong contrast to stuff like fusion, to explain the perspective, I am taking here.
In contrast to what they did with PV in 2004 (hiking the subsidy by 25% to feed the bubble; it took me an hour to find this reference:
http://www.pv-stammtisch.de/app/download/5797381425/2013+-+Einspeiseverg%C3%BCtung+2000+bis+2013.pdf)
they do not say anymore, oooh, its becoming more expensive, how much do you need, but tell them, either they can produce for 15 c , or they can take a hike. Let them gain some experience and come back, when they can produce for 15.
Progress !!
The younger guys go and try to find some better (paid) and hopefully more stable work, the older guys hang tough.
Here in Germany I can and do actually raise my voice, since 3 decades.
What I just realize, the herfindahl-index I mentioned above, is actually called the herfindahl-hirschman index, because Hirschman was actually first with it.
@ BW2
The chick at your link, posing with the machine gun, looks kinda cute, but I would not go to bed with something like this, and I don’t take discuss politics at sites like that.
Hi, Francis. That’s Princess Leia Organa of Alderaan – from Star Wars. Now the deep philosophical question is: “Is she real – or is she not?”
That site is quite safe. Its primarily economics/finance – with some odd bits now and again. The principal, Eric Janszen, was one of those small number of folk who ‘predicted’ the 2008 downturn. I’d pay attention to what he says. He does stray a bit from time to time, but if you know what to look for. And what to ignore!
Greentech – or whatever you wish to call it, is an offshoot of hydrocarbon fuels. Absent sufficient of those fuels, Greentech is a Dodo. I regard the whole Green/Clean sector as just another scam to take taxpayers Euros – via all sorts of hinkey tax dodges.
EU and Eurozone are headed for a ‘hard landing’. 2017 looks promising.
Hi Tony Owen, all
1. first quarter century review of German research subsidies
2. fusion / ITER
3. the death of the big central research labs
1. first quarter century review of German research subsidies
I have here in on my desk a book, printed 1979, “Geplante Forschung” (planned research), van der Daele et al., which reviews the first quarter century of the major research program German engaged in, after the War.
Political control, biotech, informatik “Computer Science”, cancer, environment, fusion, heavy ions
I bought that about 1987, a quarter century ago, and it was kind of interesting to read it again, and to see how often actually not that much did change. Until 1990 we had in Germany that “technology push” mantra as well.
And it spells out pretty clearly, that trying to trace product revenue to all the subsidies was pretty spurious at that time as well.
2. fusion / ITER
Fusion, energy production seemingly unlimited, is the holy grail since 60 years. They always promise, that it is just around the corner, just 30 years more, since 60 years.
What we succeeded in, is that now we spend the research money on just one site worldwide, the “ITER”. Every player is chipping in, EU, US, China, Russia, Korea, Japan, India. Everybody chips in 9%, and the hosting site EU another 36% in expectation of local contracts, spill offs, visits to the local bakers and butchers, increase in local real estate value, and some other blah, blah.
Everybody is happy, that he is not missing out on anything the others might learn, and we spend about half the money total, because of the arrested scientific arms race, and divided up by 7.
An excellent deal.
The original usual shameless budget was 5 b, now we are at 16, in the end it will be 30 billions, but divided by 30 years, that is just 1 b/ yr, divided by 2 for the EU and 500 m EU people, makes about 1 Euro per year and capita, Solyndra class : – )
And even the Irish have 2 guys on the team, heading some group, and feeling important
http://www.irishtimes.com/news/science/star-power-the-irish-role-in-a-french-nuclear-reactor-1.1473884
3. the death of the big central research labs
For quite some time after WWII, it was on vogue, that every large company had a very large central research division, usually some 5 – 10% of the cost, until people did some cost calculations, that those folks were fabulous in producing papers and patents, but did not really contribute that much to actually produce the stuff, the company sold.
AT&T slashed the Bell Labs, IBM cut their Yorktown Heights site to a quarter, Siemens their ZFE.
Everytime these folks loose contact to the real production, they develop a life of their own, and forget to contribute to the revenue, and I don’t see how public research in Ireland would be any different.
Patents as part of securing research directed at real specific products have their place, but as primary product I fail to see this succeeding somewhere.
To build a “national strategy” on this, is lunatic, IMHO.
But I would like to hear of some specific examples, if there are any.
Francis I agree with you about the recent history of big corporate RDI labs. Go back further (early industrial revolution until 1870 – 190 or so) and you found that the core inventions underpinning many manufactured products were in-sourced from independent inventors, some mad, some bad, but some of them professional, productive and financially successful. In the late 19th century ‘industry’ moved to integrate invention in-house as a more reliable and cost-effective alternative, resulting in ‘design departments’, ‘drawing offices’, and similar language appearing. This growth in internal research, design and engineering functions continued until the 60’s or so, when the trend to ‘lean’, and later ‘business process re-engineering’ and ‘outsourcing’ led to the dissolution of such functions and a return to reliance on independent inventors and to licencing-in designs from elsewhere. But more often than not, independent inventors now operated through product design agencies, engineering consultancies and similar.
There are problems with both approaches. Reliance on outsiders for RDI and other aspects of IP is largely incompatible with building shareholder value in tech businesses through creating huge fortresses of patents, ‘tradecraft’ and proprietary knowledge (e.g. Apple, Intel, Samsung, Dyson). On the other hand, the cost of creating and running productive, cutting-edge RDI functions and of maintaining large patent portfolios is so large that only highly profitable and sustainable tech businesses can afford this, while nimbler more inventive outsiders often blindside huge integrated companies.
One of the many advantages of a focus on patents is the connection with the ‘real world’ that targeted patenting enforces. Sadly, targeted patenting (i.e. mandated invent-to-order within a field of relevance) is not recognised in the world of academic RDI where invention is still regarded as a serendipitous event rather than a systematic activity. The key here is that patenting is not about “securing research”. This is merely one part of a far larger activity – managing IP. This is done for leverage and influence, as a way of securing the ability to trade in certain sectors (e.g. smartphones and similar consumer telecoms), and most importantly to build shareholder value.