Tuesday, January 18, 2011

A Few Thoughts About Evergreen Solar's Eclipse in Massachusetts

Both Ed Glaeser and the WSJ in an unsigned editorial argue that Massachusetts should not have been investing public money in Evergreen Solar.  I agree with them but permit me to point out a couple of things.   First, Governor Deval Patrick was "putting his (our) $ where his mouth is".  MA has been an early signer of RGGI and he must have believed that Federal Carbon Cap & Trade legislation was on the horizon.   If Waxman/Markey had been signed, would the prospects for Evergreen have been looking better as electric utilities would be preparing to be under a cap?    Patrick may also have talked to the ex-Harvard Professor named Michael Spence who wrote a good Ph.D. thesis on "signalling". Perhaps Patrick believed that by establishing Massachusetts as a "leader" on solar that this would set off a domino effect and attract other firms to agglomerate nearby.  Clearly, this expectation turned out to be false but at the time, he might have convinced himself that this was a good bet.  

Missing in both the Glaeser piece and the WSJ piece is a retrospective look at what was MA's logic here?  At the time of the deep investment, how did they justify it to themselves?   Did the Boston Globe ask any tough questions about "picking winners" (a point in Glaeser's piece)?  Or did Wishful Thinking rule the day?
All economists know that you have to tell a powerful externality (positive spillover) story to justify strategic subsidies of industries.  Did the Governor commission such a study?  For the "researchers" who did the study, what evidence did they provide? MA has unique research universities.  Could Evergreen's productivity have really been significantly higher because of physical proximity to Harvard and MIT?  Can't their nerds get on a phone or Skype?  In this case, why could face to face interactions really make a difference?

Glaeser's piece highlights that he doesn't believe that MA has a manufacturing future.

"Manufacturing solar panels in Devens never played to Massachusetts’s core strength: the creativity that emerges naturally when smart people are clustered together. Forty years ago, greater Boston was suffering from the same deindustrialization that afflicted all older American cities. The region came back, buoyed not by renewed manufacturing plants, but by technological innovation, much of which was connected to the region’s rich research community."

But, MA has a lot of people living there who do not have elite degrees.  What should they do all day long?