It will be a great loss to the US if the lessons learned from the failure of the US investment in Solyndra are not developed beyond the predictable partisan debate that characterizes US politics. Certainly, in an election year the word ‘Solyndra’ will be used to conjure up emotional responses by candidates in voters, but that only makes it more imperative to examine the total phenomenon of the Solyndra investment failure, and elevate some of these lessons for future guidance. The lessons may be painful but are not always intuitively evident. Getting beyond the first blink or two, and the emotional reactions overall calls for a strategy often described as Root Cause Analysis.
Lessons Learned - After Action Reports - Root Cause Analysis
Failure has a vocabulary all its own. Engineers describe various types of failure - ‘test to failure’, ‘critical failure’, ‘failure rate studies’, etc. Unfortunately, nothing like this exists in the rest of our culture. ‘Success has a thousand fathers while failure is an orphan’ is the phrase that characterizes our naïve approach to failure. As consequence we will do almost anything to cover up or cede away responsibility for failure, often in a partisan arena, rather than own the failure, learn from it and overcome it. Solyndra’s collapse highlights the need to treat the financial impact essentially as tuition. We should study the root causes, all of them, and work to make the lessons learned effective teaching tools for our future course of action.
One Root Cause – Solyndra’s Factory was designed to Save Real Estate Agents
For several generations, the United States built communities around manufacturing; starting with factory towns and moving on to planned communities after WW II, the underlying social contract depended on a steady source of work in manufacturing for community stability. This was the foundation for extending home ownership – families knew that they would have a steady job, often with union-protected wages, and it was fairly easy calculus to see that new home buyers with middle class credentials would be good risks in the housing market.
The housing development, construction and housing finance institutions have had an enormous benefit that developed out of the stable manufacturing and factory environment of the mid-20th century. The US housing industry has been a vital force in building the infrastructure for the consumer economy, but their benefits to the country have waned as the saturation point has been reached in home ownership, and the mobility of manufacturing and jobs has undermined entire communities from Detroit to Las Vegas. A severe problem that reached its apex in 2008 has been the US industrial arc that has changed with the markets, while the domestic real estate industry stayed mired in an illusion of it’s halcyon days of the 20th century.
Manufacturing is Mobile – But Homeowners are not
The easy mobility of Boeing’s 787 manufacturing from Washington State to South Carolina, or General Motors manufacturing from Michigan to Mexico, highlights the phenomenon that Solyndra was really trying to overcome – jobs migrating where people cannot. American communities thrive on a notion that a couple can move to a town as newlyweds, buy a home, start a family and raise that family in relative stability through a large part of their lives. This concept of American nuclear family development is founded on home ownership, which in turn in is found on stable jobs within the community.
The Department of Energy and political supporters of Solyndra fed into the desire to use a factory as a community stabilization strategy without going all the way into also stabilizing the price of the units manufactured by Solyndra, and even further, creating a market for the units manufactured by Solyndra. Solyndra’s first mistake may not have been their choice of a technology, but their choice of a community to build their facility. But a guaranteed market is clearly not the course that Americans are taking or should take with some exceptions.
Real Estate Agents, Mortgage Brokers and Buggy Whips
The easy mobility of manufacturing and jobs contrasts starkly with the rapid losses in home values and the ongoing debacle of the foreclosure crisis. The low mobility of homeowners in the job market, and the volatile swings in home value both positive and negative, works against the interests of communities and the homeowners themselves. The continual drive of housing developers and banks to go back to the old days of the housing industry fails to recognize that those days are gone, that ship has sailed and we need to develop housing and community structures that are just as mobile as the jobs needed to fill them.
Mobility in Housing Needs to Match Mobility in Manufacturing
Housing needs to evolve beyond the simple equation of, (A) rental and (B) owned. Coops, shared housing environments and host of other housing alternatives need to be developed to keep pace with changing times. The nuclear family has changed radically over the decades, and multigenerational housing choices need to be available. Zoning laws can be at the forefront of this change, but communities will need to pull their zoning boards out of the hands of developers and put them back in control by the community at large if they want to make headway.
Housing needs to become a utility, and communities need to prepare for a radically different tax structure to maintain themselves sufficiently in this century. Just as gas taxes will be inadequate for maintain roads when a sufficient number of people have electric cars, or use alternative transportation, housing, both rental and owned, will not be adequate to fund a community that uses it.
Finally, this may seem to be a long way from the Solyndra failure, but it is completely in line with a Root Cause Analysis. Root Cause Analysis may result in several reasons for failure in review, but it is nevertheless a useful tool to get beyond the ordinary mayhem of partisan fighting and find a useful insight into the real reason for a failure. Success may have many fathers, but failure shouldn’t be an orphan – it should be the mother of invention.
Sunday, October 2, 2011
Wednesday, September 21, 2011
What Can a State Government Do to Increase the Pace of Job Growth?
What can Colorado do at the government level to help the state rebuild an economy that has now been stagnant for more than a decade?
First, recognize the limits, and understand what NOT to do.
Colorado has limits on its ability to directly affect the job market, and this has to be clearly defined. Although government sponsored utility and infrastructure construction can result in short term direct employment befits, the long term capability to generate growth through infrastructure alone is limited. Almost certainly the government should not attempt to boost employment through expansion of the government. Partisan drum-beating aside, bureaucratic growth does not truly represent an increase in productivity, and expansions of the state government should be carried out for need, and not for maintaining employment.
Next, plan around what the government can do in practical terms. Recognize that net growth can only arise from per capita increases in productivity, or increases in population, or both. Many ephemeral descriptions of the economy exist, but if legislators and economic development offices lose sight of the sources of net growth, they will fail to work toward effective job creating solutions.
Firmly understand that the state is not a qualified investor in new technology and startups; the lesson all around the world is that direct investment by the government sector in new technology does not work. CTEK is the latest example locally, but there are many other cases, and all of them point to keeping governments out of direct investment.
Limit tax breaks for new businesses, such as film industry subsidies or aid to new aircraft firms (both have been suggested in Colorado recently). Many of the subsidy programs have proven over time to be bad business, working as investor and tax avoidance schemes but not resulting in measureable tax revenue or job benefits to the states that have used them.
Finally, stop believing the EDO prevailing wisdom on the unexamined value of their efforts. Many of the personnel in EDO (economic development office) positions in Colorado have never worked in the private sector, and have no idea of the effort or strategies required to build business. They often default into developing business support for political objectives and will fail to separate business value from partisan expediency.
So what is to be done?
First and foremost is to take an approach that treats bilateral efforts as one of the key objectives of a state level economic development program. Anything worth doing is worth doing with support from both parties, and usefully moves the discussion from partisan politics to pragmatic effectiveness. Within this proposed pact is the need to establish planning horizons that reach beyond election cycles.
Second is to understand that the most that the government can do in most cases is to provide a favorable climate for development and growth. The private sector then needs to step up and do the rest of the job, and the government will need to live with the pace and scale of the private sector efforts.
Third is that the government can possibly accelerate its efforts by aiding other institutions such as universities, some non-profits, and developing relationships with other governmental organizations that are outside of the direct sphere of influence for the private sector.
One Specific Remedy- Enabling Access to the Capital Market
The state of Colorado has one crucial area where legislation and the state government can make a difference, and that would be enabling legislation that would encourage development of a new small cap stock exchange along the lines of the TMX. Small cap stocks hit the skids in Colorado in the wake of the Blinder Robinson scandal of the 1980s, and a promising source of capital for new and small companies disappeared from the Rocky Mountain West.
Building a mature and well regulated market takes time, experienced managers and a dedicated effort on the part of the legislature and Colorado's leading financial institutions. Potential abuses would need to be headed off with experienced and reliable non-partisan regulators, and the regulatory authority would need to be able to give their seal of approval ( or not) in a way that leads investors to count on investments in a regulated equities market based in Colorado.
Recognize that the equity markets are now largely electronic, and that many equity markets are developed now as franchise operation of larger markets. Make the market unique, and able to offer investors and specific types of businesses special features that aid investors in gaining access to good new investment opportunities, and give new business easier and more efficient access to the capital they need.
This one suggestion for a bi-partisan focus on economic assistance to small business does not engage the government in picking winners and loser, but instead provides for an enabling tool to help businesses help themselves – and the state.
First, recognize the limits, and understand what NOT to do.
Colorado has limits on its ability to directly affect the job market, and this has to be clearly defined. Although government sponsored utility and infrastructure construction can result in short term direct employment befits, the long term capability to generate growth through infrastructure alone is limited. Almost certainly the government should not attempt to boost employment through expansion of the government. Partisan drum-beating aside, bureaucratic growth does not truly represent an increase in productivity, and expansions of the state government should be carried out for need, and not for maintaining employment.
Next, plan around what the government can do in practical terms. Recognize that net growth can only arise from per capita increases in productivity, or increases in population, or both. Many ephemeral descriptions of the economy exist, but if legislators and economic development offices lose sight of the sources of net growth, they will fail to work toward effective job creating solutions.
Firmly understand that the state is not a qualified investor in new technology and startups; the lesson all around the world is that direct investment by the government sector in new technology does not work. CTEK is the latest example locally, but there are many other cases, and all of them point to keeping governments out of direct investment.
Limit tax breaks for new businesses, such as film industry subsidies or aid to new aircraft firms (both have been suggested in Colorado recently). Many of the subsidy programs have proven over time to be bad business, working as investor and tax avoidance schemes but not resulting in measureable tax revenue or job benefits to the states that have used them.
Finally, stop believing the EDO prevailing wisdom on the unexamined value of their efforts. Many of the personnel in EDO (economic development office) positions in Colorado have never worked in the private sector, and have no idea of the effort or strategies required to build business. They often default into developing business support for political objectives and will fail to separate business value from partisan expediency.
So what is to be done?
First and foremost is to take an approach that treats bilateral efforts as one of the key objectives of a state level economic development program. Anything worth doing is worth doing with support from both parties, and usefully moves the discussion from partisan politics to pragmatic effectiveness. Within this proposed pact is the need to establish planning horizons that reach beyond election cycles.
Second is to understand that the most that the government can do in most cases is to provide a favorable climate for development and growth. The private sector then needs to step up and do the rest of the job, and the government will need to live with the pace and scale of the private sector efforts.
Third is that the government can possibly accelerate its efforts by aiding other institutions such as universities, some non-profits, and developing relationships with other governmental organizations that are outside of the direct sphere of influence for the private sector.
One Specific Remedy- Enabling Access to the Capital Market
The state of Colorado has one crucial area where legislation and the state government can make a difference, and that would be enabling legislation that would encourage development of a new small cap stock exchange along the lines of the TMX. Small cap stocks hit the skids in Colorado in the wake of the Blinder Robinson scandal of the 1980s, and a promising source of capital for new and small companies disappeared from the Rocky Mountain West.
Building a mature and well regulated market takes time, experienced managers and a dedicated effort on the part of the legislature and Colorado's leading financial institutions. Potential abuses would need to be headed off with experienced and reliable non-partisan regulators, and the regulatory authority would need to be able to give their seal of approval ( or not) in a way that leads investors to count on investments in a regulated equities market based in Colorado.
Recognize that the equity markets are now largely electronic, and that many equity markets are developed now as franchise operation of larger markets. Make the market unique, and able to offer investors and specific types of businesses special features that aid investors in gaining access to good new investment opportunities, and give new business easier and more efficient access to the capital they need.
This one suggestion for a bi-partisan focus on economic assistance to small business does not engage the government in picking winners and loser, but instead provides for an enabling tool to help businesses help themselves – and the state.
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