from Energy, Security, and Climate and Energy Security and Climate Change Program

The Not-So-Free Market for Clean Energy Technology

January 20, 2011

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China

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Labor and Employment

Competitiveness

The New York Times “Room for Debate” asked seven smart experts whether the United States can compete with China on green technology. Their responses, published yesterday, are well worth reading. I worry, though, that they reflect a peculiar, and increasingly unproductive, debate.

The four participants who aren’t academic economists all offer some variation on the claim that green energy can be a central driver of economic growth, and that the United States thus needs a green industrial strategy. I’ve explained on many occasions why I’m skeptical of both assertions. Green technology is important, but there isn’t compelling evidence that it will have big direct consequences for economic growth.

I suspect that’s what motivated the three academic economists who were invited to contribute to all offer variations on a similar theme in response: in a free market, countries specialize in areas where they have comparative advantage; as a result, everyone wins. If China’s gaining market share in certain technologies, they argue, that’s ultimately good for all.

Here’s the massive problem with that: The global economy is nowhere close to being a free market. Barriers to trade and investment abound. Governments frequently use their power to promote favored firms and discriminate against others. The current situation isn’t the consequence of the free market. Saying “the free market works” is no way to defend it.

I have a new article up at Foreign Policy that comes to more mixed conclusions. The central point of my piece is that we ought to stop freaking out so much about supposed Chinese strength in clean energy. Like the academic economists in the New York Times debate, I’m sensitive to the fact that a lot of cleantech migration to China is the result of genuine comparative advantage, and thus doesn’t deserve to be demonized. But I also argue that that’s not the whole picture: in some cases, the shift is the result of anticompetitive Chinese policies that are anything but economically beneficial for the world. That’s not the sort of behavior that should be supported or ignored in the name of free market sensibilities.

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