Obama Comes to MI to Celebrate Korean Technology

/in , /by

Let me start by saying I’m thrilled the Obama Administration has focused stimulus and energy efficiency funds to support a number of new battery plants in and around Michigan. For all my complaints about the Obama Administration, it has used the auto bailout as an opportunity to support new technology for the auto industry. But I think Obama’s upcoming visit to Holland, MI (Crazy Pete’s hometown in West Michigan) to attend the ground-breaking of a new LG Chem-Compact Power battery factory offers a bittersweet lesson.

South Korea-based LG Chem is building the $300-million, 650,000-square-foot battery plant in Holland that is set to start operating in 2012. LG Chem and its Troy-based subsidiary Compact Power are behind the battery system to power the Chevrolet Volt, the nation’s first mass-market extended range plug-in electric vehicle, which will launch later this year.

LG Chem has received $151.4 million in grants from the Department of Energy for its Holland plant.

The factory, which will be able to make 15 million to 20 million battery cells a year, is one of at least five battery plants built in Michigan. Johnson Controls, through its joint venture with French battery company Saft, also is converting one of its existing factories in Holland into a lithium-ion battery plant.

No details were immediately released about the timing of the event and whether it will be open to the public.

The government has distributed more than $2 billion in grant money to advanced battery manufacturing to create a base for high-tech battery making in the United States.

Today, most of the world’s advanced batteries come from Korea, Japan and China.

Last month, the groundbreaking of Dow Kokam’s advanced battery plant in Midland attracted Vice President Joe Biden.

The preliminary coverage of the event has noted how unusual it is for a President to attend the groundbreaking for what is effectively a foreign firm. (h/t Leen) Yet no one–at least as far as I’ve seen–has faulted the White House decision to attend. That’s because, here in MI, we’re desperate for the jobs. And even those outside of MI point to battery technology as one of the many technologies in which the US lags–at its great cost.

There’s even a big benefit to the auto industry: in my meetings with GM on the Volt, they told me they’ll save $200 per car in battery shipping costs once they can source locally. It’s one of the places GM anticipates beginning, over time, to bring production costs down so the Volt and related follow-on cars will one day be profitable.

But the opening of these battery factories in the US should be read in tandem with this excellent article from Intel founder Andy Grove.

Grove’s article focuses on our inability to scale new technologies.

Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late — unless you are counting Asia, where American technology companies have been adding jobs like mad for years.

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Mythical Moment

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

Grove uses advanced battery technology as one example to show the problem with shipping all US manufacturing overseas because it no longer invests in scaling up new technologies. When we shipped our electronics production overseas, we shipped with it the evolving technology tied to it, which eventually included the all-important battery technology.

With some technologies, both scaling and innovation take place overseas. Such is the case with advanced batteries. It has taken years and many false starts, but finally we are about to witness mass- produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny.

That’s a problem. A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up.

So here we are today (or more accurately, Thursday) with the President celebrating the opening of a new factory–almost entirely subsidized by the state and federal government–owned by a foreign company.

Mind you, given both the employment and technological urgency, I’m not complaining. Inviting foreign companies and their superior technology into the country is how China has fast-tracked its auto industry, for example.

But I’m also aware that we need to be doing this proactively, not just reactively. And we need to invest in other technologies. I’m acutely aware that the plan Obama has laid out for Gulf recovery includes neither an industry to replace fishing (or drilling) until the Gulf recovers, nor a ready app like battery technology that the government can use as a hook for investment. I’m also aware that NV–which passed MI in unemployment rate for the first time last month–not only has no such industry (frankly, NV probably still is tops in the world in excessive tourism), but no one is even talking about looking for such an investment!

We’re finally doing what we need to do to play catch up in one of our base industries. At the same time, we need to be thinking of how to use government investment to help NV and the Gulf and–at the same time–restore American competitiveness.

image_print
  1. bobschacht says:

    Thanks for this great insight! How can the gov’t support the development of scale-up industries? Where’s the choke point? Availability of loans? Engineering? You’ve identified a critical area that needs more attention.

    Bob in AZ

    • PJEvans says:

      The demand from venture capitalists (and other investors) that the companies make bigger (and faster) profits, and cut costs at the same time, which pretty much forces them to expand overseas?

    • scribe says:

      There is no one magic thing which, once supplied, will magicaly poduce startups that scale to major employers/indusries. SAying “engineering” or better loans or anything misunderstands the nature of the problem.

      In short, the problem EW describes is what happens when a plant closes, but running in reverse. When the plant closes, the restaurants and bars and stores that support the workers’ immediate desires are the places the camera crews go to get the reaction. And they see how the burger joint is goingto go out and all that. You’ve seen it a million times. But what they don’t show is how, when the car plant goes out, the company cross-town that made screws or lockwashers, with its workforce of 50 or 60, goes out. And they don’t show how this is not just one plant, but a lot of other little plants that contribute one or another part.

      But the collapse of the big plant also takes with it all sorts of intellectual capital. The guys in the car plant supply chain who knew how to massage the assembly line to get the right parts to the right place, and who’d done that successfully for thirty years, are suddenly out of work, or out of town, and definitely out of touch. Their knowledge and experience is gone. Their relationships with the shipping guys at the screw and lockwasher plant- well, they might have a cup of coffee if they run into each other in town, but their ability to work together is gone forever. The same goes for engineers, only moreso.

      Most engineers have a general education in engineering and then, once they start working, become tracked into a narrow field in which there is a deep, deep knowledge base that they become intimately familiar with over a period of years. Once they’ve mastered it, they then can become creative in meeting new needs and in developing new products. By way of very personal example, before I went to law school I used my engineering degree and worked in foundation engineering. After a couple years, I could look at a piece of raw land and infer, based on my experience and a rough idea of what was going on (i.e., the general geology of the area), where the soft subsoil lay. I could look at the foundation pad for a slab-on-grade building and tell, within less than a half an inch, whether it was level, and where and how much it needed to be adjusted to be made level. (This skill made some of my colleagues ferocious putters, BTW, but I don’t golf.) I could tell, just by the sound of the equipment, whether the backfill for the pipe was going in too wet or too thick or was being done properly. One of my close friends and college classmates, who took the same courses as I, never developed those skills but instead went into propject management and developed a whole different set of skills that supported that line of work. That sort of engineering skill is also present, in spades, in the auto and electronics industries.

      It’s useful to think of the various industries as ecosystems. What happened to the US industrial base in the field of electronics and batteries (and many others) is no different than what happens to a forest which gets clearcut and left. The loggers come through, cut the big trees, leave piles of scrap, and move on. There might be a tree growing here or there afterward, sprouting from seeds or saplings left behind in an inaccessable place, but there will be no forest for many years. Similarly, the species and conditions which would be present in a fully-matured forest – the mosses and tree-canopy birds and stuff that lives in the rotting giant logs and the six-foot-thick topsoil that would soak up torrential rain after torrential rain and let it flow out in clean and clear streams through drought-ridden summers – all go away and cannot be readily replaced. I know of some plots of forest in Pennsylvania which were logged off in the 1870s and the subject of experimental tree plantings by Pinchot in the 1890s. The stories contemporary to the logging reported huge fires in the slash left behind the loggers, which would burn in the topsoil all winter and again the next year and the year after next, until the now-unprotected soil would wash away, down to the bare rock and cobbles left by the glaciers. Even today, while the forest looks great and the trees are kinda big, they and the forest are nowhere near what they once were. And this state of affairs will still obtain long after we are gone.

      That’s where our industrial base is: the loggers and raiders came through, cut the trees and used them to their own ends and profit, leaving slash and burnt-out rubble behind, which has burnt and the fecund soil which nourished it all is washing downstream. Rebuilding that economy will take three things: changing the paradigm so building productive industries (like, in this case, batteries for cars) is The preferred way for young people to structure their lives (As opposed to becoming the degenerate gamblers who’ve usurped the title of “investment bankers”); stopping the continuing erosion of what little we have left; and nurturing not only the industries but, more importantly, the people who work in them.

      Call it mercantilism, but that’s what we need to do. Given Obama’s predilictions, we won’t see it from him. We’re far more likely to see a forest fire named Palin or [wingnut], who will only make it worse.

      • bobschacht says:

        Thanks for your lengthy reply. I know what you’re talking about; in general, its the manufacturing infrastructure. But to use your ecology metaphor, a lot of that infrastructure is over-specialized, like the Spotted Owls whose special habitat was being decimated by logging: they had a hard time adapting to a new environment, and almost became extinct.

        I think what is needed is a kind of venture capitalism, which has the foresight to gauge emerging markets (and that’s not all that hard to do, what with Obama flogging new energy technologies every week), and the connections to hire the engineers and techies who have not fallen into making cosmetic changes to the same old widgets year after year, but who are problem solvers who welcome a fresh problem to solve. Before the problem of electric cars came along to solve, the previous big deal in automotive engineering, IIRC, was the effort to make rotary engines competitive with conventional piston technology.

        I think we need to take a whole new look at venture capitalism, and how it is working (or NOT) to produce not just prettier looking widgets, but entirely new kinds of things, or useful things that people already know about that are too expensive for lack of economies of scale.

        EW is right: its not what happened in the garages, but what happened when Apple was able to scale up from a garage curiosity to computers for the masses– which is the same thing that Henry Ford did for the automobile.

        But that reminds me: the untold story of Henry Ford’s triumph is something that happened, IIRC, during the Great Depression: Until the end of the 1920s, there were scores of automobile manufacturers. At the Henry Ford museum in Detroit they have a display about these. One of those scores of auto mfgs, btw, was the Schacht Car company of Cincinnati, OH. Up came the Depression and Smack-o! The number of car companies dropped from 50 or more small companies down to about 6 big ones. Some of that was about small companies going bankrupt. Some of it was about marketing. But some of it was also about a transformation in labor, I bet.

        We’re on the threshold of a similar transformation of the labor market, I think. What will it be? Solar panels? Wind turbines? Bio-fuels? (IMHO Ethanol made from corn is a brief diversion. We need a Back To The Future technology that creates ethanol or other bio-fuels from organic waste. We got plenty of that.)

        Bob in AZ

  2. earlofhuntingdon says:

    Heaven forbid that industrial or a broader economic policy should be part of US governance. Never mind that it is explicitly a part of Chinese, Indian, SE Asian countries and EU governance. We can’t let gubmint “interfere” with the private sector. That, we are told since birth, is the American way. It is, btw, an industrial policy. It’s just one that deprives the state and its public a say in what it is – other than voluminous contributions to individual politicians – while still using endless tax dollars to support it.

    Among your many points that deserve more coverage is this. The exporting of US jobs and manufacturing resources included the export of current technology; that’s a given. What’s lost in the quarterly reports is that it is also the export of research & design, the technology and products of tomorrow. What’s also missed, even encouraged by the gubmint and MSM, is that facilities such as this will be managed so as to pay very little, if any, US income tax, which further limits their economic benefit to the US.

    That cycle ensures that high-value add US jobs that are exported won’t be coming back. What comes back, as here, is local assembly and distribution. State and local governments pay handsomely even for those, reducing the net benefit considerably when the jobs of tomorrow remain offshore. This arrests temporarily the downward economic spiral we’re in, and lord knows we need it, but it’s not a long term solution for that spiral, especially when we don’t have an economic or industrial policy to which governments can hold investors accountable.

    • earlofhuntingdon says:

      Only sometimes, and it depends on who your lobbyists are.

      Germany’s recovering carmakers (recovering faster than GM and Ford) may find themselves subject to higher US tariffs, possibly as a US response to Germany’s failure to further subsidize Opel, GM’s top foreign subsidiary. That German decision came only after GM’s new phone company managers refused to go through with Opel’s divestiture, a move they originally backed and which would have been the result of a complex series of negotiations that involved considerable financial support from several EU governments, including Germany’s.

      If true, that proves that Mr. Obama and Congress know how to play industrial hardball; they just don’t do it for rational, public reasons. They do it to favor the corporations they love and admire, like BP. I assume that GM’s top lobbyists (one of its former ones was Andy Card, former Shrub chief of staff) were inordinately generous with their contributions.

  4. earlofhuntingdon says:

    Many thanks for the link to Grove’s article. Very good.

    One issue he talks about is “scaling”. In part, that is jargon for, you know, running a business. Refining designs (and coming up with new ones); sorting out how to make them affordably, with trade-offs that retain essential features but allow products to be made safely, consistently, and at a sustainable margin; hiring, training and retaining workers; getting products to market, and anticipating and responding to competitors’ actions.

    Sadly, a lot of managers today haven’t a clue; they know one piece or another, ignore or outsource the rest – especially that bit about hiring, training and retaining workers. They are joined in that ignorance or disdain by boards of directors, consultants, banks, and venture capitalists.

    It’s not just foreign competitors we have to worry about. We are reducing to the absurd the scope of issues a competent manager needs to know if she’s going to run a business rather than collect a whopping cash bonus to go away and STFU about her failures. (We even elect some of those failed managers to high office.) It’s not limited to the business world. We haved reduced to the absurd the competence we expect in those who give us the news or credible perspectives on it – Failin’ Palin’ comes prominently to mind, as does Rahm Emanuel and his team of “expert” political advisers.

    • emptywheel says:

      Oh, we haven’t elected Carlyfornia yet!

      Yeah, Grove’s article is very good. I particularly like it bc usually the tech guys (I’m thinking of Larry Lessig in particular) think they’ve got it all figured out. But Grove got into tech early enough he may well realize he benefited form a lot of govt support.

      And the scaling thing is the big reason why Silicon Valley isn’t going to be able to build a car.

      • earlofhuntingdon says:

        He’s certainly right about the limits on available money. Venture capitalists, for example, won’t lend to new ventures whose business plans don’t include considerable outsourcing – today’s magic wand of profitability, as if a formula could replace front-line management skills. Pshaw.

  6. lakeeffectsnow says:

    Prince family farmland in Holland may get battery plant for Chevrolet Volt

    A proposed $300 Million battery plant in Holland would be located on 80 acres of farmland on the city’s southeast side.

    The previously undisclosed site is owned by Elsa Prince Broekhuizen, matriarch of a prominent local family, and was annexed from Fillmore Township in 2003.

    Few details on the project have been released since it was made known when South Korean-based LG Chem Ltd. filed documents with its stock exchange in October.

    The filings said the plant would make rechargeable lithium-ion battery cells through a US subsidiary to power GM’s much-anticipated Chevrolet Volt.

    Land targeted for the project was annexed into the city seven years ago to use city water and sewer for some type of industry, though a specific project was not identified.

    The request was made representatives for a land holding company controlled by Prince Broekhuizen. She is the widow of local industrialist Edgar Prince and mother of Betsy DeVos, Michigan’s former Republican chairwoman, and Erik Prince, founder of the Blackwater War Crimes Mercenary gang.

    http://www.mlive.com/news/grand-rapids/index.ssf/2010/01/prince_family_farmland_in_holl.html

  7. Sara says:

    I think the profession everyone is looking for is Manufacturing Engineer. There are lots of reasons it has been a dying profession for a couple of decades.

    US really didn’t jump the divide between “precision” old style, and the much greater “precision” required by cutting edge modern manufacture. We fell well below the German Industrial Standard in tool and design making about the time digital tech emerged, and never made any effort to catch up. We had considerable machine tool capacity in companies that did advanced military work, and space work, but during the late Reagan/First Bush Administration, we sold most of that to the Chinese. It left a huge hole in the American tradition of manufacture — if you can’t execute high precision tools, you haven’t got much. The Manufacturing Engineer has to connect the output of high precision production with the actual final manufacturing process, based on equally precise design work completed by the design engineer. These are not simple skills — they require significant education followed by technical apprenticeships. American Companies wanted to shed these costs which were only recaptured in out years as experienced skilled workers matured.

    • bobschacht says:

      Sara,
      Thanks for this! As it happens, I have a friend who must be a manufacturing engineer. About 10 years ago, he quit working for a local manufacturing company in order to start his own business, which required just exactly the kind of precision engineering you discuss. How he got the equipment to do this work, I have no idea. His business is doing rather well, and he has all the work he can manage. But so far as I can tell, he’s not really scaling up significantly. Modestly expanding, yes. I’ll send this to him, and see if he can relate.

      Bob in AZ

  8. ecthompson says:

    I thought it was too expansive to build plants in the US. US labor was also way too expensive to ever make money so why would a South Korean plant build a plant in the US. many those foreigners are just stupid.

    • earlofhuntingdon says:

      In a lot of businesses, labor is a tiny cost driver. But shitting on labor, all employees, not just union workers, is such received wisdom that it controls more management decisions that it ought to. Rather like that U of M study that David Dayen posted about.

      What gets short shrift in the process is risk, such as in managing outsourcing, managing the technology cycle. Companies often no longer control their key resources, they assemble them from a variety of players and contracts. The assembly is virtual, and who’s left who understands what to do with the “assembled” resources? Managers sometimes reduce their businesses to bonus-generating machines and to hell with running a going concern.