Saturday, November 13, 2010

Competing with China's solar export subsidies: Push-Pull disparity

As someone completely new to the subject, I’ve been reading up a bit on China’s government strategies regarding CleanTech exporters. These are my initial impressions and thoughts.

China’s solar and wind manufacturers benefit generally from conditions in China (low labor costs, faster and cheaper construction, expanding engineering base through universities), but also specifically from government aid targeted at their industry: land grants to companies, cheap state-supported loans (from government run banks), streamlined permitting, restrictions on rare-earth exports (raising costs for their foreign competitors), and currency manipulation (making their exports more economically favorable). Additionally, Chinese manufacturers have benefited from rapidly falling silicon prices. The Chinese market seems to be dominated by first generation solar technologies.

On one hand, the Chinese government seems to be doing everything right in promoting its manufacturing companies, which are growing rapidly (nearly doubling capacity each year). On the other hand, their practices may be hurting worldwide innovation.

The Mid-Term Effect on R&D Funding

Now what for science and technology funding?

The situation was already rather mixed.  Democrats failed to make a case for a major innovation boom based on a serious increase in public funding.  They left public spending in the twilight zone of the last-resort safety net, and now a repositioning will come too late. The Financial Times reported that the Republican victory killed flagship elements of Obama’s innovation policy for at least for the next two years. In “Corporate America welcomes power shift" (print title), the FT observes that cap-and-trade and net neutrality are gone, to be replaced by coal-and-oil and the cable cartels.  The same goes for defense conversion, which would have helped research-and-development funding of the kind conducted at universities. The New York Times' Frank Rich has pointed out that neither party offered a coherent storyline in which clear solutions follow well-described problems. In spite of its favorable stance towards science, the Obama Administration does not have a serious innovation policy that aims at supporting the creation of both knowledge and middle-class jobs. And neither party has a plan for supporting and expanding public universities.

Is this what people voted for? There is no popular support for the abandonment of renewable energy, or for the economic inefficiencies of the inequality boom, or for a recovery limited to the top end of the financial industry, or for a recovery based on the Fed reinflating asset bubbles, or for tuition increases at double to quadruple the consumer price index.  But the funding news is not good. The AAAS has a useful comment (scroll down to "Post-Election Outlook on Federal R&D Funding"). This table shows that energy research at the DOE would take a particular hit if the Republicans make good on their pledge.

Our ASU and CSPO colleague Dan Sarewitz has a good comment on the general issue, which is that funding levels get too much attention and social purposes not enough.
Boosting funds for basic research is also safer politics than actually tackling a national problem. . . . Doubling the NSF budget makes good politics. But what about good policy? Although few would question the value of a robust basic-science enterprise, we just don't know how marginal increases in basic-research funding affect a nation's capacity to solve social and economic problems. On the other hand, decades of research on the links between science and innovation in areas ranging from jet engines to medicines show that basic research best contributes to economic and social goals when targeted at areas that can directly benefit from additional fundamental knowledge.

If Congress wanted to allocate scarce new R&D resources wisely during a protracted period of budgetary austerity, it wouldn't adopt a doubling strategy, but would instead take a more surgical approach to set priorities. It would focus investments where links between science and application are well established, to deliver short- to medium-term benefits. Alternative energy, for example, offers many technological options where basic research can improve performance.
Sarewitz is here pitching "Pasteur's Quadrant" in vital areas rather than basic research. I think he hammers basic research mistakenly at the end ("I know that such an approach would be fiercely opposed by the leading voices of the scientific community, who will never abandon the long-falsified belief that basic research is most valuable to society as a bottom-up enterprise driven only by inherent scientific interest.")  But I share his distress at the refusal of politicians -- and science policy leaders -- to articulate social goals and then fund R&D that addresses them.

The U.S. is the only major power where socially-beneficial tech development is hamstrung by a deep political phobia about industrial policy.  Our lunch is being eaten in solar energy and other domains by the country with the most systematic industrial policy in the world - China.  This is a bad time to push for science policy rooted in social development -- something only public agencies can do.  But it is also even more urgent now than it was when Obama was elected two years ago.