Our story begins with M.I.T.’s lithium-ion battery research and then takes us to South Korea and China where the batteries are made. Next, in a surprising move, some of the manufacturing returns to the U.S. With $375 million in federal stimulus money and matching state grants, a battery maker, A123, decides to reproduce its Korean facility in Michigan.
And therein lies the dilemma…
Is government the solution or the problem?
Is Government the Solution?
Predicting a 5% electric car market by 2016 and orders for $14 billion of lithium-ion batteries, many people say domestic manufacture is a natural. It represents a “double pay-off.” You get jobs (about 350 per factory) and green. Government’s $2.5 billion support for advanced battery technology will lead to an industrial commons. Only then can manufacturing springboard further research, new industries, and a battery ecosystem in which scientists, mining companies, contractors, designers, engineers, and machine operators interact.
Is Government is the Problem?
Some say we need $7 a gallon gas to make people switch to a plug-in electric hybrid car. Until then, it will be a niche market that exists because of government incentives throughout the supply chain. As we describe in a past post, A123 suppplies Fisker Automotive, a hybrid car-maker that received loans from the Department of Energy. Stimulus dollars and state grants created the incentive to move a lithium-ion battery maker from Korea to Michigan. At the dealership, a Chevy Volt buyer can receive a government subsidy that reduces the price of a car from $41,000 to $33,500. With so much government funding, one industry participant predicts, “a lot of plants, and we will create overcapacity, and a lot of the companies will fail.”
The Economic Lesson
As George Washington’s Secretary of the Treasury, Alexander Hamilton wrote an economic development plan through which he sought a diversified economy with agriculture and manufacturing. For Hamilton, government was central to encouraging industrial development as the U.S. market economy grew. Today again, we are asking whether we need government to encourage manufacturing.
Here, in a past post, is another example of U.S. innovation becoming Asian manufacturing.
An Economic Question: Using lithium-ion battery manufacture as your factual example, do you believe government provides the solution for our economic future or creates a problem?