May 3, 2006

Last week, I wrote a bit about Kevin Phillips’ attention to the U.S. debt in his book “American Theocracy” and asked—but didn’t answer—how that debt may impact cleantech marketing. (For a pictorial of debt in the real estate—‘rentier’—market, see the current issue of Harper’s magazine.) Along with debt, Phillips describes the U.S.’s dying manufacturing sector—another matter for cleantech marketers to consider.

Ø “The implosion of American manufacturing, while hardly planned, has manifestly been tolerated in the U.S. capital. Since the mid-1990s, as China has reemerged in the world economy, its massive, minimal-wage labor force has sat on any chance of a broad U.S. manufacturing reemergence.”

:: With a 2005 trade gap with the PRC of $200 billion, you’d think Washington could have coughed up a state dinner for PRC State Chairman Hu Jintao on his visit to the U.S. last month. ::

According to Phillips, the U.S. manufacturing sector is being replaced by finance, just as in the failing hegemonies of old.

Ø “In official statistics, the finance, insurance, and real estate (FIRE) sector of the U.S. economy swelled to 20 percent of the gross domestic product in 2000, jumping ahead of manufacturing, which slipped to 14.5 percent.”

The United States’ dying manufacturing base (see Phillips’ “the importance of hard industries”) looms large for marketers of cleantech. From a selfish perspective, it determines the size of opportunities for marketing U.S.-based cleantech—with real manufacturers, not those start-ups that flippity-floppity, floppity-flippity between patent ownership and manufacturing, all the while looking for a buyout from a large corporation that shelves the product.

Ø “Randall Isaac, former vice president for strategic alliances at IBM Technology, said, ‘You can’t do effective R&D if you don’t have the manufacturing to insure the R&D is actually relevant. If the United States loses its manufacturing lead, it will lose everything else with it.’”

:: If a large corporation uses its distribution channels and marketing to promote new cleantech product, great; otherwise, it’s just a FIRE game, and it does very little for those of us who want to market innovative cleantech and drive it to market adoption. ::

Companies like Sun Electric Systems of Colorado (which I mentioned last week) head to Germany to look at new solar technologies, because, as Phillips notes, countries like Germany, Switzerland and Japan have retained a manufacturing, and export, base.

Ø “Estimates [on exports] for 2004 provided by the CIA in mid-2005 put Germany first in the world with $893 billion in exports (mostly manufactured goods)—this from a population of 82 million.” The United States ranked second with $795 billion in exports, but “1) the United States had a population of 296 million and 2) these exports were dwarfed by $1.3 trillion worth of imports. The Japanese, chalking up the world’s third-highest export total, $538 billion, did so with a population of 127 million.”
Ø [Germany, Switzerland and Japan] have wages or overall production costs higher than those in the United States. All have reasonably successful financial sectors and postindustrial accomplishments (tourism, ecological awareness, and renewable-energy emphases—wind in Germany, solar power in Japan). However, they balance these with highly developed manufacturing industries. For Germany, machinery, vehicles, chemicals, metal products are the great exports; for Switzerland, chemicals, metal products, machinery, and mechanical-engineering products (especially clocks and watches); and for Japan, vehicles, electronics and computers. Each nation’s products command global respect for quality.”

One could argue that ‘renewable-energy emphases—wind in Germany, solar power in Japan’ are manufacturing, and they could become ‘highly developed’ in the U.S. It could happen…but count on the foreign companies first, reports Phillips, as they are more likely to invest in manufacturing in the U.S. than are U.S. companies. Phillips finds that U.S. investors see a more lucrative return on their foreign investments. He also finds that non-financial U.S. corporations have increased liquid assets but a fair amount is parked overseas in tax shelters—not invested in domestic manufacturing.

Ø “In 2004, for example, the total of U.S. direct foreign investment (ownership of plants, equipment, not local securities) was $3 trillion, roughly the size of foreign direct investment in the United States. The comparative returns, however, were a matter of night and day. Americans earned almost twice as much from their holdings, especially those in Asia, as foreigners did from their U.S. holdings.”

Debt and manufacturing losses raise questions for marketers (aside from ‘where are the cleantech marketing jobs?’—though it’s one I often ask myself.) If the endgame is mass market adoption, how will that market develop amidst the constraints of consumer debt and limited investment in manufacturing? Should the FIRE ignite, the bubbles burst (again), should mortgage foreclosures and credit card defaults be called in (without bankruptcy protection) what will it mean for marketers? In this down cycle, marketers will need to consider macro drivers bearing on micro differentiators, like the vast disparities between rich and poor, debt (for a select populace), loss of disposable income (for a select populace) and job loss (again, for a select populace).

Ø “In the words of Ray Dalio of Bridgewater Associates, a large Connecticut money-management firm, ‘The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around. Forty-four percent of all corporate profits in the U.S. come from the financial sector compared with only 10% from the manufacturing sector.’”

I could settle for selling Chinese solar PV panels, or German and Japanese cleantech, to a limited market of the wealthy segments of U.S. society, but I was kind of hoping it could be so much more than that.

* All quotes from “American Theocracy” by Kevin Phillips.

PS I’m coining a new term: FIREd! When someone in the FIRE sector shuffles a pile of money (and vacates to Nantucket or Aspen for a respite), and you’re left holding a pink slip or an eviction notice, you’ve been FIREd!

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