by Jonathan Rothwell and Mark Muro, Brookings Institution, in a repost
Several pundits and writers have recently suggested that the green economy is small and unlikely to be a major source of job growth anytime in the near future. So, the argument goes, it’s not a worthy investment.
As evidence for the first claim, some critics of green policies have cited the job growth figures from our recent “Sizing the Clean Economy” report while arguing that the bankruptcy of Solyndra, a solar photovoltaic manufacturer, illustrates both the failures of green policies and the weakness of the industry. We have discussed why we don’t interpret the Solyndra case, as one of over 120 solar PV manufacturers in the United States, to mean the industry is not worthy of public support.
But here’s another angle: In assessing the “green job” or “cleantech” debate this fall, we see intriguing analogies with the IT sector, which was also once a small nascent industry with somewhat obscure origins in the Defense Department. IT production is credited by many economists with causing the tremendous economic boom of the 1990s.
To develop the analogy a bit more, let’s look at IT’s role in the 1990s boom in more detail.
From 1992 until 2001, the U.S. economy created 23 million more jobs than it destroyed and enjoyed low unemployment. Economists consider the IT sector to be responsible for much of this because it was the source of productivity gains, especially in the late 1990s. And yet, “direct job” creation in the sector was not terribly overwhelming compared to national gains, and certainly not immune to closures and layoffs.
According to data from Moody’s Analytics, the IT-producing industries added 2 million jobs from 1992 to 2000, and computer and electronics manufacturing, one of Silicon Valley’s most distinctive industries, contributed just 113,000. At the same time, failures were prevalent. Even in some of its strongest recent years, like 1994 and 1998, when over 3,000 new establishments were opening each year, nearly the same number of establishments closed. Even in fast-growing service sector industries related to IT (like “other information services”), hundreds of establishments were closing every year in the most expansive period.
The aggregate green economy, which includes jobs in the public sector and waste management, is just under half the size of the IT producing industry, but measured by jobs, “cleantech” is similar in size today as the computer manufacturing industry (162,000) and roughly half the size of the semiconductor industry (370,000). As it happens, many solar producers are classified in the IT-sector as semi-conductor manufactures; smart-grid technologies are also heavily IT-based. It’s therefore not unimaginable that, with a few strong years of growth and innovation, cleantech could be large enough to fuel considerable increases in aggregate economic growth.
To extend the analogy further, investment in IT-producing sectors was famously fueled by venture capital. Since 2000, those investors are increasingly shifting their portfolios into cleantech with billions of investment now flowing annually to these companies.
The final lesson from the IT boom is that being a producer matters. Economists have found that U.S. productivity gains of the late 1990s were almost exclusively linked to states that produced IT goods and services and other manufactured goods, but were not found in states that were mere IT-users. Meanwhile, international research suggests that IT-producer countries like the United States, Finland, and Ireland experienced the strongest economic growth during the 1990s. It follows that the U.S. risks losing out on tremendous gains if decides not to invest heavily in cleantech and relies on imports. Such a position would also delay the development of urgently needed technologies.
In our report on green jobs, we called the green economy “modest in size,” and pointed to the very small but rapidly growing cleantech sector as a source of promise, provided we get the right policies in place. We may still be years away from a clean-energy boom, but it could certainly happen, especially with the right mix of policies and investments, as seen in the federal Energy Department’s ARPA-E program. Clean, abundant, and cheap energy, combined with efficiency-enhancing technologies, could unleash yet unimagined scientific breakthrough in technologies that need energy and would save consumers and businesses from the considerable environmental and health costs related to the use of fossil fuel energy. We certainly don’t think that the adoption of these policies would create millions of jobs in within the year or two of passage, but it would help the economy now, and set us on a course for much greater prosperity in the future.
Jonathan Rothwell is a Senior Research Analyst at the Brookings Metropolitan Policy Program and Mark Muro is Policy Director of the Brookings Institution Metropolitan Policy Program.