Five useful insights into where the electricity industry is headed.
Much was made during the Presidential campaign of manufacturing jobs being “exported” due to unfavorable trade pacts. Yet when we look at the data since 1960, we don’t see evidence for this claim. If jobs were being exported, then manufacturing output associated with those jobs would be leaving to. Instead, as shown above, we see that manufacturing output (and value added which is the value added to production inputs, e.g., the car value after paying for the iron, aluminum, rubber and plastic) has grown steadily with momentary dips for recessions in 1981, 2001 and 2008. Meanwhile manufacturing jobs remained fairly stable from the peak in 1979 to 2001. And then the bottom fell out: employment fell one-third from 2000 to 2009.
So if those jobs weren’t exported (obviously since the output growth was largely unchanged), then what might have happened? The chart above provides one explanation: Technological innovation replaced those jobs. The chart compares a rolling five-year average of productivity gains (measured as output per job) to sector job growth. Productivity growth had an early peak in the 1970s that coincided with the flattening of job growth through the 1990s. Then in 2001 productivity growth begins to rise to a new peak just before the Great Recession and manufacturing job growth plunges to new depths. (Note that this contrasts with the decline in overall productivity cited by the St. Louis Federal Reserve Bank that I posted.) Only in the last couple of years has the sector brought back jobs in the recovery.
Data from the countries where the U.S. has supposedly “exported” jobs in fact reinforces this point–they are also losing manufacturing jobs. The simple truth is that, as happened with agriculture at the turn of the 20th century, increased productivity means that fewer jobs are needed to make ever more goods. We could never feed everyone in the world if we had stopped innovation in farming in 1900; change was inevitable and largely beneficial. We can never return to the “good old days.”
Instead of trying to stop the future, we need to turn our attention to how we help those left behind by these changes. In 1900, farmers were able to move to the cities and find jobs that paid better than their farmwork. This time around, that doesn’t seem to be the case–we can’t just “leave it to the market.”
A good overview of what drives productivity growth and why the U.S. is currently lagging compared to past periods. In essence, we have not had significant growth because we have not had technological innovations that translate into higher output. Bullard says that changes in monetary policy will not change productivity growth and suggests focusing on three areas (although he doesn’t have specific policy proposals.)
A detailed discussion about the successes, failures, and intent of these two federal programs.
This post seems particularly apt for the electricity industry. IOU CEOs typically are “executioners” not “visionaries,” and this is at the heart of their existential conumdrum.
What happens to a company when a visionary CEO is gone? Most often innovation dies and the company coasts for years on momentum and its brand. Rarely does it regain its former glory. Here’s why. Mi…
I was struck by the juxtapose of these two items:
- AquaMetal is building a new environmentally-friendly battery recycling plant near Sparks, NV. They considered California, but “In California, you put in your permit application, and six months later, someone tells you you filled out line 26 wrong.”
- “(T)he Governor’s Office of Business and Economic Development (GO-Biz) today awarded 23 state officials across various agencies and departments certificates of completion for the Lean 6-Sigma training program administered by GO-Biz which helps streamline permitting and make state government more business friendly.”
California has many progressive and necessary regulations, but the state does an awful job of administering them. Too often, the bureaucrats are too wrapped up in believing the process is actually important. Instead, they should be thinking about how they can ease the permitting and compliance process so that businesses can focus on achieving everyone’s goals.
A bureaucrat should be filling in the missing blanks rather than waiting for months to kick back an application. A friend noted the all too common “NIGO” response–“not in good order.” Being NIGO’d is not conducive to good business.
Improvement in new and existing technologies’ performance and costs is a function of responses to a mix of market and regulatory signals. Finding empirical measures of differing innovation influences is difficult due to confounding influences. Yet we may be able to look at broader economic trends to discern the relative merit of different approaches.
The most salient example could be the assessment of comparative performances after the fall of the Berlin Wall. The Allies conducted a 45-year experiment in which Germany was first split after World War II with largely equivalent cultures and per capita endowments, but one used a largely market-based economy and the other relied on central economic planning. When the two nations reunited in 1990, the eastern centrally-planned portion was significantly behind in both overall well-being and in technological innovations and adoption. West Germany had doubled the economic output of centrally-planned East Germany.
More importantly, West Germany had become one of the most technologically-advanced and environmentally-benign economies while East Germany was still reliant on dirty, obsolete technologies. For example, a coal-to-oil refinery in the former East Germany was still using World War II-era technology. West Germany’s better environmental situation probably arose from the fact that firms and the government were in an adversarial setting in which the firms focused on the most efficient use of resources and were insulated from political interest group pressures. On the other hand, resource allocation decisions in East Germany had to also consider interest group pressures that tended to protect old technologies and industries because these were state-owned enterprises.
The transformation of the West German economy, both technologically and institutionally, was akin to what we will need to meet current GHG reduction goals and beyond. This more clearly than any other example demonstrates how reliance on central planning, as attractive as it appears to achieving specific goals, can be overwhelmed by the complexity of our societies and economies. Despite explicit policies to pursue technological innovations, a market-based system progressed much more rapidly and further.