Wednesday, August 17, 2011

Evergreen Solar: Manufacturing’s last gasp in Massachusetts?

I’m a little skeptical when anyone declares a “new economy.” Back at the turn of the century (it’s interesting to say that now) the new economy was comprised of a slew of dot-coms that seemingly broke the golden rule of the old economy: “Cash is king.”

No longer was cash flow the critical factor in determining success of a company. Growth in subscribers had replaced cash flow as the most important metric that drove share prices. It didn’t matter that companies were paying huge amounts of money to obtain new subscribers or to subsidize purchases of goods and services online.

Unfortunately for this new economy, the promise of eventual success was not enough to buoy businesses that were losing millions of dollars month after month after month. Eventually the bubble burst, shareholders lost billions in stock value, and we recognized once again that cash is king.

At this point, I’ll skip pointing out that the mortgage crisis traces its roots to an unrealistic expectation of people without sufficient cash flow to repay their mortgages.

Now we’re watching the latest “new economy” take some uppercuts to the chin. The “green economy” is supposed to move us from the fossil fuel stone age to the renewable energy renaissance age. Green jobs will replace oil field and coal mine roughnecking. It’s the future.

What are green jobs, by the way? After you get past the cheerleading jobs of advocacy groups, lobbyists, think tanks, politicians and bureaucrats, the rubber meets the road on the manufacturing plant floor and the installation of renewable energy systems.

Installers will be electricians, plumbers, engineers, and other skilled people required to erect a wind turbine, assemble a solar array, etc. These will be jobs that go mostly to local workers.

Manufacturing is a different story, as has been demonstrated by Evergreen Solar, based in Marlboro with a mothballed plant in Devens and one on its last legs in Michigan. After receiving $58 million from the state of Massachusetts, Evergreen filed bankruptcy this week with the objective of reorganizing around manufacturing solar modules in China.

Wait a sec. I thought that the promise of green jobs included manufacturing plants sprouting up all over the country bringing us back to our heyday of “Made in America.”

It doesn’t quite work that way. For the same reasons we lost our textile industry to the southeast states and eventually to offshore plants; for the same reasons we lost our heavy and most light manufacturing capacity to Mexico and eventually to China; we cannot expect that renewable energy equipment manufacturing will magically buck the old economy rule: Cash is king.

Fully loaded manufacturing labor cost in Massachusetts—meaning wages, taxes, benefits and overhead—comes in at around $15 to $20 per hour. In China, it’s about $1. On top of that, land is cheap, buildings are erected with $1/hour labor, electricity from the one-new-coal-plant-a-week generation program is next to nothing, and the government controls the value of its currency to ensure that these cost advantages remain in place.

Do we want China-like conditions here in Massachusetts? Of course not.

That begs the question, however: How could we ever compete with China for manufacturing jobs? Green manufacturing jobs?

The answer is simple. We cannot.

Evergreen Solar’s advantage, for awhile, was that they had engineered solar panels that used less polysilicon. That reduced their cost of manufacturing and allowed them to be competitive as production was ramping up worldwide. When polysilicon prices dropped from $400 a kilogram to $55 a kilogram, Evergreen’s bill of materials cost advantage evaporated. At the same time, production of solar photovoltaic cells more than doubled in 2010 over the prior year’s output, pushing prices for solar modules down by about 30%, a typical result of supply starting to satisfy demand in a new technology arena.

All of this requires that we rethink the future of Massachusetts in terms of an economic model that will be sustainable in the long run. Yes, we still have some pockets of success in manufacturing, medical devices being one of the more prominent of them, but how long will we be able to maintain our appeal as a viable host to manufacturers?

10 comments:

  1. Randy, if you're wondering if there's anyone out here reading and appreciating your substantive comments, rest easy, I'm here really enjoying the exposure of effect, probable cause with catalytic curosity. Now what we need is a forum of people that will openly brainstorm executable solutions, or, we can just sit on our laurels. jd

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  2. To 1129 I would like to think that every one is reading the information being posted by our host.

    I would like to add that concerning another boondoggle comming down the road as to who gets the rights to put up gambling establishments.

    Put them all in a paper bag and let the governor pull out the lucky winner. Afterall what is gambling, but taking a chance on winning something. That is why we all gamble, so why should any one group have any more rights then another, including my native brothers.

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  3. Good evening,Mr. Hunt After rereading your above commontary I thought about some of the reasons we here in America are not able to increase the job market here at home.

    It all goes back to when the United States decided to allow manufacturing jobs to go oversees, under the pretext it was good for our economy. It was never good for our economy,because no one in this country can now compete in the open market for what ever they decide to manufacture. When a worker in Japan or China is still working under harsh working conditions with low pay and for the most part in some parts of the world jobs are under a slave mentality and the people are not free to decide the worth of there labor.

    Here in Massachusetts we were sold a bill of goods that would provide some very much needed relief in the jobs needed. All we had to do was put up the upfront money to get it off the ground. Well this done and the company turned a profit on taxpayers money, well the greedy company decided that they could make a better profit, now that they have all of the tool work paid for by the commonwealth. What a scam and those that made the deal should be hung out to dry . Why was, no long term arrangement made that would provide a sucured investment of tax payers money???? We are not speaking about chicken feed here folks, but millions of tax dollars from every citizen here in our state.

    I would like to know if a little backdoor handshake was given and those involved with this project actually were given some pay back for assisting in this scam on the people that needed these jobs to survive on??

    Before any restructuring is allowed or any move outside of Massachusetts is granted, every dime should be payed back by this company. They had a plan in place and so far it seems to be working for them , but not the folks that need the promised jobs as result off our assisting this company with the set up and tool and dye work to get it started.


    For your information the base is building four very large wind mills on the land and as far as I am concerned we should be doing the same thing here in Sandwich on the golf course with solar or wind powered units. Think about what kind of savings over the years that would generate and provide some great needed relief to our towns energy bills. We also might want to think about harnessing the power from the waters of the Cape Cod Canal.

    To finish America needs to charge all of the foreign countries that manufacure any product we once were doing here a very high tarrif charge to equalize the jobs we lost to this transferring of jobs oversees. Especially the oil company's

    Carl Johansen

    A concerned citizen of Sandwich

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  4. A more informed personAugust 19, 2011 at 1:09 PM

    Mr. Johansen, as an economists I am sure that you are aware of the Specificity Rule that comes to play when engaging in arguments in behalf of tarrifs. That rule would tell us that the social costs associated with high tarrifs may be more of a problem than private costs. An example might be tobacco product that is much cheaper imported as opposed to domestically produced. The private cost plus the external costs (lung cancer, heart problems etc.)will ultimately be higher as a social cost. Your explaination is rather uninformed and unresearched. You may be correct in the end, but you do not provide your economic reasoning very well.

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  5. To the poster of 109. If you reread my post it does not mention any agriculture product I was referring to manufacturing jobs that were sent over seas that put people to work here in America. Manufacturing jobs such as in the oil,computor,car,fields.

    So to be clear placing a tarrif on those companies that saw fit to displace American workers here, because they could increase the bottom line at the expence of our economy here in the United States is not the way to precede.

    A justified tarrif on those companies would offset some of this loss, perhaps not all, but provide a way to reduce the flow of this kind of logic that in the end has harmed every person that lost a job here at home, with no hope for any recovery into the future.

    I have seen more economic dispair from the way we in the USA have allowed those jobs to be done in other countries, with no replacment here at home to offset the huge profits that all of those companies that have taken this route,

    You are may be correct in how I explain my reasoning, but one thing I do know and that is nothing comes with out a price. If we as a nation support those countries that force many of there citizens to work at slave wages and slave benifit packages, just to increase the profit margins of all the large manufacturing moguls here in the United States.

    I ask you where is the justice for those that were promised a better life here in our country????

    How can we morally enforce this type of practice where are own citizens are put out of the American Dream at the expence of the bottom line for these Manufacturing Companies??


    We here in the USA must abide by many regulations to turn out any product manufactured, not so in the majority of the countries that these manufacturing jobs have be relocated to. Air and water quality issues abound in those countries and at some point in the future we here in the USA will pay the price of this. Those working under these poor environmental conditions will also be affected.


    It does not take an economist to see the implied cost of American dollars to rectify these impending problems comming down the road.

    After all we here in the USA are the protectors of the free world.

    So placing a tarrif on those companies to ofset financial losses is bad for the country??

    Is placing a tarrif on those countries to offset job losses here at home bad for the country????


    Perhaps you are correct in your world, so how about the USA take a larger bite from the profit realized to pay for the losses of American jobs and all the future costs to correct all of the environmental problems we have allowed to be created by the simple action of tranferring jobs to other countries that will affect each of us in generations to come.

    Who gets to pay for that in the end???

    Carl Johansen

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  6. To Mr. J: I read the posting of 109. He or she does not seem to disagree with you, rather he or she might be saying that your reasoning is too simplistic. High tarrifs can have a positive and negative effect. I believe the poster was saying that you must consider everything and weigh it and then decide if you want to put tariffs on manufactured goods. I hope that the poster does in fact take up your suggestion that he or she reread his or her post. I hope that he or she points out to you, that as usual, you don't tell the whole truth, just the part that supports your arguments. For instance, cigars from the Indonesia, Domonican Republic, and Phillipine Islands I believe are manufactured. His or her posting was not so adverse to your thinking as you, in my opinion think it may be. That poster is just making a simple point and does not take sides. Reread the postings yourself. You always tell posters who disagree with you to reread, but are almost always just trying to cover up your inacuracies, at least in my opinion.

    I think this could be a great thread as I don't think that an answer is clear. Engage in debate and we might be able to come to a better understanding of the issue. We better do it because it is going to be a great issue in the next 15 months or so, don't you think?

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  7. Mark, I can agree with you on severel points,

    An answer will never be clear, as so many points in any discussion may generate views that are completly opposite to the problems we all face.

    Being accurate or not being accurate depends upon ones view point and understanding what transpires does not allways come out the way it is stated.

    So to be clear for me a manufacturing job is not about agricultural jobs. Agriculture issues are in another whole catagory as far ss I am concerned. You may not agree and that is your opinion and I am ok with that. Rolling cigars unless we are speaking about funny stuff does not demand a great deal of man power to do and to my knowledge most foreign countries did not rely upon the USA to roll them.

    I am speaking about acctual jobs that a product other then agriculture was manufactured for the population as a whole.
    For example,
    Look at the automobile industry and many of the electronics produced, elsewhere, but used in our country.

    Why did that happen??

    Was it good for our nation??

    What impact did that have on our economic down fall??

    Where did the jobs go and what happened to those folks that got stuck between the cracks and are part of the unemployed army that has lost the American dream through no fault of theirs..

    If our country can support those that allowed these jobs to be transferred overseas then they should also be able to find a way to offset the effect of these actions.

    For me one way would be charging those companies a tariff charge based upon the profit of any American company that engaged in the process as a result of that relocation to another country.

    Another way would be to charge them a fee that is comparable to what was lost by American citizens when these companies took the route they did.

    I also think that jobs and the lack of them can be directly attributed to the present policy of allowing companies such as above, that the taxpayers of Massachusetts paid to get started can just find a loop hole and get themselves a better profit margin, by going overseas.

    Where is the justice for those that were part of the original tool and dye work, that were assured jobs into the future. What can they do about such a process?

    Carl Johansen

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  8. I must disagree with the isolationism and tariff talk.

    Like it or not, we must compete in a world economy. History teaches us that countries that try to isolate themselves by 1) doing everything themselves, or 2) “even the playing field” by establishing tariffs end up with expensive and short supplies.

    We can put Americans back to work building televisions as long as we’re okay with paying $5,000 for a 42-inch LCD TV.

    Free markets work when there is open competition by producers and choice by consumers. Tariffs artificially slant competition in the direction of suppliers that cannot or choose not to complete on an even playing field. That is, tariffs actually create an uneven playing field.

    Of course, the whole issue is hugely complicated by countries that do not compete fairly in free markets, subsidizing costs of producers that are not subsidized by other countries and allowing a virtual slave-grade labor caste to exist. China is a great example of this. We love the pricing of Chinese-produced goods but many, including me, take exception with their labor and monetary policies.

    But what are we to do? Throw tariffs on goods or, as Carl suggests, on specific companies to punish them for moving to a lower cost/lower tax country to produce their goods and services?

    Why not look at why dozens of companies have “moved” to Zug, Switzerland and make changes to our tax code and regulations to even the playing field? See http://www.cbsnews.com/stories/2011/03/25/60minutes/main20046867.shtml for the 60-Minutes story about this migration to Zug.

    Why not leverage those things that other countries want and need from the U.S. to encourage acceptable behavior in a free market?

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  9. Good afternoon Mr. Hunt.

    The conceptional idea of free trade in my opinion is not very fair to companies that choose to not go oversees to have a product made, How can that company compete on the open market? They must endure the challenge of pricing the same product here to be in compitition, with out the cheap labor force and environmental policies we face in this country.

    Most oversees countries do not have any resolve for the most part in producing a product that leaves a small footprint on our environment. Then when the situations get out of control we here in the USA get to bail them out.

    I understand the supply and demand issue , but when you punch in all of the numbers from a balanced veiw point any one that produed a manufacturing job here in the USA is at a distinct disadvantage from the same manufacture job created by going out to another country to be made.


    As I have indicated more then once if a tarrif is not the solution, then we still need to find the control that accounts for this disadvantage to make the playing field somewhat equal. Then we would have a fair trade policy in my opinion.

    Overall we still need to take into consideration the long term cosequence of the full impact to our present economy in jobs lost and a later bill to correct all the environmental conditions that will arise from this type of policy. Those companies need to be resposiable for what they are creating on the future economy of our country and the world as well.
    If it is taxes so be it, but an process needs to be established that hold all of these companies to some degree of a financial burdan for what they have generated to occur.


    Why do many countries not have recipical policys, with the USA? Yet we here, must have a fair trade policy, but they do not? How is that fair compitition?

    Carl Johansen

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  10. Carl, it sounds like we fundamentally agree.

    The underlying question is: Can the United States participate in a world economy while maintaining its wage base, generous social benefits, and life style?

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