What Went Wrong with A123?

China’s largest producer of automotive parts is poised to purchase a controlling share of a US company, A123 Systems, which develops and manufactures advanced lithium-ion batteries and battery systems.  China’s Wanxiang Group Corp said on Wednesday they intend to invest up to $450 million in A123 Systems, taking an 80 percent stake in the company.

The purchase is an almost textbook example of the kind of issues America currently faces in an ever more competitive and global economy.  A123 is a startup company that was founded in 2001 based on the research of a duo of scientists at MIT.  The company’s unique nanophosphate technology is built on novel nanoscale materials initially developed at MIT and, according to the company, “enables customers to commercialize innovative products for the transportation, electric grid, commercial and government markets”.  The company has received tens of millions of dollars in grants from Chrysler, General Motors, Ford, GE, and defense contractors to develop lithium-ion batteries using their technology for hybrid cars, commercial trucks and buses, and components to electric grids.  A123 received more than $200 million from venture investors before raising $378 million in a 2009 initial public offering.  The company had also received frequent grants and investments from the Department of Energy and in 2009 was awarded over $200 million as part of the Stimulus Act, specifically under the Electric Drive Battery and Component Manufacturing Initiative.

Apparently all this was not enough to keep the company afloat.  It reported a second-quarter loss this year of $82.9 million, or 56 cents per share, and a 53 percent drop in revenue to $17 million.  Its cash pile was more than halved to $47.7 million at the end of the quarter, down from $113.1 million at the end of the first quarter.  The battery industry as a whole has suffered in the US, with some pointing to too much capacity and not enough demand for hybrid vehicles.  Essentially, A123 and companies like it invested heavily in the ability to churn out their batteries on a large scale, and then found a painful lack of consumers.

A123 Systems is exactly the kind of company Americans hear so much about as the way forward in this global economy.  Researchers at one of the country’s top universities developed cutting edge technology, were able to successfully commercialize it, created manufacturing capacity here in the US, and received both private and government support that is so often considered a necessity for innovative startups.  Energy Secretary Steven Chu said of A123, “It’s a perfect example of what’s possible when the private sector, government, and academia work together”.  And yet, that company is now owned by a private Chinese company.  It remains to be seen what kind of tangible effects this will actually have.  The company will most likely still allow for manufacturing jobs in the US and will still have domestic factories; in fact the bailout from Wanxiang might actually save some American jobs.  Of course, it is unlikely that any future expansion will occur in the US.  More generally speaking, the case of A123 Systems shows that there is no easy fix when it comes to creating high-tech manufacturing in the United States and that further discussion, research, and methods need to be explored if the US hopes to be the home of companies like A123 Systems in the future.

Posted by: Sean Norris

Sources: CNNMoney, Reuters, The New York Times, BusinessWeek, Fortune

Photo Credit: Energy Secretary Steven Chu and Michigan Governor Jennifer Granholm at the grand opening of an A123 Systems plant in Michigan entitled A123 Systems Grand Opening in Livonia courtesy of flickr user graham.davis

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The Global Economy’s Missing Piece

With China’s growth stalling and Europe fighting to stay afloat, the world economy is in desperate need of a superhero that will help it stabilize and prosper. In tough times of the past, markets could always rely on the monetary toolbox and the fiscal leadership of United States to prevent global catastrophe. However, in a recent article in Foreign Policy Journal, the German Marshall Fund’s Kati Suominen explains why this time the U.S. will not be there, and what implications that has for future global governance and economics.

Suominen discusses how following World War II, the United States was the global economy’s “quarterback,” leading the offensive with the Bretton Woods summit and the creation of the groups of five, seven and eight who would later establish the World Trade Organization (WTO). During that time, the U.S. dollar became the standard for much of the world’s reserve currency, and the effects of the Federal Reserve Bank’s decisions spanned far beyond Constitution Avenue. She deduces that globalization didn’t just appear out of thin air, but was rather a “U.S.-led order that generated prosperity unimaginable only a few decades ago.” And it was from this “American-led order” that the Asian Tigers boomed and G-5 became the G-20, with “emerging nations such as China and India demanding greater power at the table.”

Suominen notes that while this “U.S.-made” system brought prosperity it also brought more challenges and America saw its credibility around the world chip away facing great fiscal uncertainty and a massive trade deficit. While she does not blame this all on President Obama, she does criticize his administration for deflecting the responsibility of Europe’s debt crisis to Germany and leaving any promise of economic recovery in the BRIC’s hands. From her criticism, she makes four critical recommendations: impose fiscal discipline and promote long-term policy, better integrate the world marketplace with a freer exchange of ideas and resources, equip the IMF with the tools to solve financial risk, and incentivize the international community to enforce many of regulations and protections already in place. Suominen concludes that the “new world order arouse because of American strength, vision and leadership…today, American leadership is again essential.”

Posted By: Jonathan Sherman

Sources: NPR

Photo Credit: G-20 Summit in Pittsburgh courtesy of Flickr user International Monetary Fund

Can a City Sway the Global Economy?

In this age of globalization and faster communication, cities are finding more and more ways to reinvent and renew their image. In Tim Campbell’s recent book Beyond Smart Cities: How Cities Network, Learn, and Innovate he explores the recent vehicle of urban development and integration of “urban communication.” Cities are communicating with one another in increasingly intricate ways, traveling to one another’s locations and learning about one city’s innovative ways of solving the issues others may face. Campbell prefaces his findings by stating that the world has grown to 1,000 cities of between 500,000 and 5,000,000 inhabitants.  In 1995,  less than 700 cities fell within this range.  By 2020, over 1,200 cities are expected to fall within these parameters. Once cities fall within this range, Campbell explain, they begin to have what he describes as enough “sway” to impact major geo-political decisions around the world.

Campbell derives his conclusions from a survey conducted by 43 people in 165 cities that fall within the range of nearly 1000 with a population size between 500,000 and 5,000,000 people that Campbell describes as “knowing the city well, but not enough to speak for it.” In looking at how these people communicate with one another, he found that much of the international communication facilitated between these 43 subjects traveled north to south, and that major regional centers for trade and exchange like Paris and Singapore were where much of the study’s subjects communicated frequently. Examining the communications between cities of between 500,000 and 5,000,000 people, Campbell found over 10,000 exchanges, and found that people from larger cities study the work of smaller cities because they’re easier to understand.

Campbell then separates the cities into two groups which he categorized as “reformers” and “non-reformers,” and labeled cities as “reformers” if they had at least 3-5 major policy shifts in recent years to which he asked what their most pressing concerns were. He found the major concerns of the reformers to be policy-oriented, while he found the major concerns of the non-reformers to be more budget-oriented. He concludes his research and the book that derives from it by looking at number of “city case studies,” to which he codes three types of cities to be either “technical, corporate or ad hoc,” and identifies three varied forms of communication “tissue of remembering, cloud of trust, or a sponsor.”   Those that are “technical” cities bring on smart people to brainstorm and implement new ideas, while those that are corporate cities have a structured way of doing things. Likewise, those that build “clouds of trust” build networks and partnerships that they work with to bring out common reform, while those that are “sponsors,” support business and civic exchanges and facilitate forums that spur ideas for better urban planning. All in all, smart cities base their reforms in social capital and collective learning, facilitating what Campbell explains as Ikujiro Nonaka’s concept of “Ba,” the art of externalizing one’s learning experience to build a network of trust, confidence, cooperation and innovation.

 

Click here to check out Tim’s event at the Wilson Center

 

Posted By: Jonathan Sherman

Sources: Tim Campbell’s Presentation of “Beyond Smart Cities: How Cities Network, Learn and Innovate” at the Woodrow Wilson Center on May 24, 2012

Credit: Photo Courtesy of Beyond Smart Cities Official Website by Tim Campbell and Routledge/Earthscan Publisher

Is Austerity Coming to America?

Last week, Greek voters went to the polls for the second time in two months, acting out the climactic scene in the long-running fiscal drama playing out on the European continent.  The choice faced by voters was between the establishment center-right party which promised to cooperate with other European nations and Eurozone lenders with regards to onerous austerity measures that have been imposed and the country’s leftist party which has declared the austerity measures far too harmful and has vowed to leave the Eurozone rather than implement them.  The conservatives won a plurality of the vote and those begging Greece to tackle its debt exhaled. 

The victory in and of itself has done little to settle the question of austerity policies on a continent whose largest economies are burdened with debt and slow growth (save for Germany).  Voters in France and, prior to this election, in Greece have taken opportunities to elect socialist platforms that reject austerity measures in an environment of slow growth while others, such as Great Britain, have continued to insist that austerity in necessary to ease the burden of debt and to allow for growth in the private sector necessary for recovery in economies still crippled by the financial crisis.   In the United States, whose debt burden is not as severe as European countries but is still close to unsustainable, Republicans swept in to office in 2010 on a popular mandate to cut government spending drastically.  Governor Romney has promised to send a bill to Congress cutting non-defense discretionary spending by 5% (about $20 billion) on his first day in office.  President Obama in turn, has warned that austerity measures are “risky” when growth is slow and can lead to “a downward spiral” where instead of reducing the debt, austerity can grow it and hurt growth.  The so-called austerity experiment has not yielded a definitive answer although both sides of the issue insist that recent events have proven their theories correct.

Decisions about austerity will have to be made soon here in the US.  Economists are rightly starting to warn that the United States faces a worrisome “fiscal cliff” at year’s end. The blunt spending cuts mandated by the 2011 compromise on the debt ceiling — and the failure of the “super-committee” that followed — along with across-the-board tax increases (i.e. the expiration of the “Bush tax-cuts”) would essentially shave off at least 4% of GDP if Congress does nothing between now and December 31st.  Some of the biggest areas hit are sure to be education (at all levels), research and development, and spending on infrastructure.  All of these areas are considered key to job growth and start-up growth, and US economic competitiveness overall.  If the debate about austerity has yet to be settled, its importance has only increased and will continue to do so; austerity’s potential consequences and the consequences of allowing debt to grow both affect key areas of economic competitiveness in ways to serious to ignore.

Posted by: Sean Norris

Sources: The New York Times, National Public Radio, Forbes

Photo Credit:austerity” courtesy of flickr user 401K 2012

 

You Are Invited: OECD Economic Survey of the United States, 2012

 

 

The Program on America and the Global Economy (PAGE) and Organization for Economic Cooperation and Development (OECD) present:

OECD Economic Survey of the United States, 2012

 Tuesday, June 26, 2012

3:00 – 4:30pm

5th Floor Conference

________________________________________________________________________        

 Ambassador Richard Boucher, Deputy Secretary-General, OECD

Ambassador Karen Kornbluh, US Mission to the OECD

 Moderator:

 Kent Hughes, Director, Program on America and the Global Economy

 Discussants:

Patrick Lenain, Division Head, Economics Department, OECD

Wendy Dunn, Economist, Economics Department, OECD

________________________________________________________________________

The OECD’s 2012 Economic Survey of the United States is an in-depth analysis of the U.S. economy and offers policy recommendations to promote sustainable economic growth and employment. The Survey also explores policy options to reduce income inequality and poverty. A special chapter in this year’s report is focused on fostering innovation.

We invite you to join us at the Woodrow Wilson Center for a presentation and discussion on the findings of the report with OECD Deputy Secretary-General Ambassador Richard Boucher, US Ambassador to the OECD Karen Kornbluh, and members of the OECD Economic Survey team.

The 34-nation Organization for Economic Cooperation and Development (OECD) regularly assesses economic policies of its member countries and key emerging economies. OECD Economic Surveys are prepared as part of a peer review process and its recommendations are endorsed by all OECD member counties. They  provide timely analysis, guidance and options for policymakers to shape “better policies for better lives” and have proven to be essential reading in assessing global economic challenges and opportunities.

 ______________________________________________________________

 

Please RSVP acceptances only to page@wilsoncenter.org

Directions to the Wilson Center: www.wilsoncenter.org/directions

Senator Chris Dodd Addresses International Financial Regulation

On August 4, the Atlantic Council held an event with U.S. Senator Chris Dodd (D-CT) to discuss not only how the recently signed Dodd-Frank legislation will impact the financial services industry in the United States but how it could serve as a model for which other nations could build their new regulatory structures in an increasingly interconnected global economy.

“The debate is over as to whether or not we are in a global economy.” Remarked Senator Dodd, who currently serves as the chairman of the Senate Banking Committee.  And with that being the case, Dodd argued for closer international cooperation between large economies.  Dodd urged regulators from G-20 nations to meet regularly to develop and establish enforceable rules that could be as effective internationally as possible.

Posted by: Clark Taylor

Sources: The Atlantic Council

Photo Credit: The Atlantic Council