Wednesday, November 02, 2011

Democracy vs. Finance Capitalism: Greece and Solar

Hat tip to Brad for the headline that summarizes the whole "problem" created by the Greek government putting the Poverty Now plan-of-the-week to save-punish Greece to an actual vote:  "Democracy Wipes Out Gains for Stocks."

A nice analysis comes from Yves Smith on the "debtor that roared."  The rescue was only going to accomplish the continuing impoverishment of the Greek population without actually stabilizing the banking system, and forget about inspiring investment and recovery.

Thinking about the examples of recoveries in places as different as Argentina (early 2000s) and Signapore (late 1990s), it would be interesting to imagine an actually democratic alternative to the financial system we have now. The minimum elements would be much smaller banks and regulation around lending that would push them close enough to local needs for investment capital that it would be more straightforward to nationalize them.

We hear a lot about financial innovation, but finance is now of no obvious help to innovation in general.  The most important kind involves environmentally sustainable development, and solar energy is a perfect example of a mature technology whose rate of installation needs to increase by an order of magnitude in the next decade if we are going to avoid the International Energy Agency's prediction that current policy leads to 650 ppm of CO2 by mid-century.

Lehman Bros had a decent renewables portfolio before it collapsed in the fall of 2008 and precipitated the debacle from which our governments have not rescued us.  But the margins required by commercial banks are very high. Second and third generation solar technology is coming along fairly slowly, attracts very little venture capital, and depends on government support for both research and development that has been discredited in many political circles by the bankruptcy of one of the Department of Energy's pet loan recipients, Solyndra.  Meanwhile, China has tripled or quadrupled its market share in California and even in Germany, which still has one of the strongest solar industries in the world.  Investors have been staying away from solar, and this is going to continue as prices fall and existing technology is commoditized by volume players from Asia.

China exploits labor on a mass scale, and this, along with currency manipulation and related strategies greatly assists its power in a range of markets.  But American policymakers aren't thinking through the extent to which China's near-takeover of a socially-vital high-tech sector - silicon-based solar photovoltaic modules -- shows our innovation system to be obsolete. Venture capital is not so good at socially-useful technology development and great at generating large fortunes off of huge consumer markets in technologies like computer software that had been under development for decades before the big fortunes were made.  Leading VC guru John Doerr declared war on climate change in 2007.  In the four years since, Silicon Valley has lost any hope of leadership in PV solar, where its deep experience with silicon wafers might have been thought to give it a natural advantage.

In order to preserve both its working/middle class and something close to current global temperatures, the US needs to change its innovation system.  The Greek referendum offers an important hint.

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