America's Green Innovation Problem

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That's not happening by chance. The Chinese government has aggressively employed a comprehensive technology-based investment strategy to attract private investment and encourage leading companies to locate high-value research operations in the country. They have also erected a host of global welfare-reducing mercantilist policies to spur green-industry production and exports. These include turning a blind eye to intellectual-property theft, making access to Chinese markets contingent on U.S. firms expanding R&D activities in China, and blatantly manipulating currency values so as to subsidize exports of green products.

China offers low wages, high science

China's policies are working. Major government investment has allowed China to attract more private investment in clean energy than any other nation. According to a recent Pew study, China attracted $34.6 billion in private capital in 2009. The U.S. came in a distant second, attracting a little more than half as much.

China doesn't need to develop strong domestic companies to have a more innovation-based economy as long as the country manages to attract innovation-based activities from abroad. Low wages (supplemented by an artificially low currency and significant other subsidies) and high science are a powerful combination.

These new developments are particularly troubling because they suggest, as Brookings' Mark Muro writes, "the impending lock-in of a powerful feedback loop of market creation, production, and innovation." Cleantech clusters are being created in China, but not in the U.S. That's why U.S. government officials who are supporting the importation of heavily subsidized Chinese cleantech products need to recognize that this Chinese "gift" is actually a Trojan horse—cheaper products now, dramatically fewer high-wage U.S. jobs later.

As such, the federal government must start the important work of facilitating the development of its own clusters of clean energy innovation in the U.S. To succeed, the U.S. must do two key things. First, it should prioritize major public investments in clean energy innovation, advanced manufacturing, and market creation, something it has been unwilling to do in any of the climate and energy bills currently before Congress. Second, it needs to significantly step up efforts to challenge Chinese mercantilism, whether in green industries or any high value-added industry critical to the country's future.

Without these measures, the U.S. takes a big risk that the clean energy technologies of the future will not just be produced abroad, but invented there, too.

Rob Atkinson is Founder and President of The Information Technology and Innovation Foundation, a Washington, DC-based think tank. He is also author of The Past and Future of America's Economy: Long Waves of Innovation that Drive Cycles of Growth. His focus is on IT and innovation and policy to support them. Devon Swezey is Project Director at The Breakthrough Institute and co-author of "Rising Tigers, Sleeping Giant" .

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