Thanks to Republicans, U.S. Leadership Is Eroding

China continues to make smart economic moves while the U.S., even with a Democratic president, continues to dither. In other posts I have discussed some of China's problems, including human rights failings, corruption, pollution and its growing nationalism. But, for twenty years, China has been making savvy economic moves that go beyond the cheap labor it supplies for the production of many products that once were produced elsewhere, including in the United States.

No one can argue that China's acquisition of oil has been one of its top priorities. The rise of China's economy is one of the reasons oil went up to $147/barrel in the summer of 2008. But China is also focusing on alternative energy, so much so that it is leading in areas where the U.S., by all rights, should be dominant. We are the inventor nation but we are no longer the industrial superpower we once were. For pennies on the dollar, we have been selling our ingenuity to the Chinese and others.

And it continues. The price of alternative energy is falling while the cost of producing fossil fuels is getting more expensive. Include the cost of pollution and climate change and the real cost of fossil fuels has been prohibitive for the last three decades. But facts hardly get in the way of know-nothing Republicans. Here's a story from Arizona:

Arizona was one of the healthy energy states, with a requirement for 15% renewable energy by 2025. But now a Republican state representative in the Arizona state legislature is challenging the right of the Arizona Corporation Commission to set a requirement that utilities add more renewable energy, with a bill that would strip them of the responsibility.

(snip)

The legislation the state lawmaker Carl Seel introduced is the next step in an anti-renewable energy campaign mounted by the conservative think tank; the Goldwater Institute, on behalf of several customers of the state’s largest utility, and is aimed at overturning the ruling on renewable energy.

Keep in mind that Republican policies have little to do with free enterprise. They love their no-bid contracts, monopolies, cartels and cronyism too much to practice what they preach. In reality, neither the Chinese nor Americans are practicing anything like true free markets. But there is thinking behind the moves the Chinese are making as opposed to the bizarre notions of Republicans and, unfortunately, a few Democrats. Although the Chinese will have to install conventional power plants for some time to come, they clearly have a long-term vision of not only using alternative energy but being the leading builder of such equipment:

Renewable energy industries in China are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association.

Yet renewable energy may be doing more for China's economy than for the environment. China is on track to pass the United States in total power generation in 2012 — and most of the added capacity will be from coal, which is forecast to represent two-thirds of China's capacity in 2020.

As China seeks to dominate energy-equipment exports, it has the advantage of being the world's largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing

$45 billion in 2009 alone. China's top leaders are focused on energy policy: On Jan. 27, the government announced the creation of a National Energy Commission composed of Cabinet ministers as a "superministry" led by Prime Minister Wen Jiabao.

Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.

China's biggest advantage might be its domestic demand for electricity, which is rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will. As a result, Chinese producers of generating equipment enjoy enormous efficiencies from large-scale production.

There's no guarantee that China's economic growth will continue at its current pace or that China can avoid a number of pitfalls in the next 20 years related to other problems it has. But given the behavior of politicians in Washington and our increasing reliance on China's products as well as its loans, I wouldn't bet against Beijing.

In category after category, U.S. leadership has been eroding for some thirty years. It's ridiculous that some 40% of our economy now depends on financial services that in turn largely depend on little more than our good name. Financing the purchase of fossils fuels from oil producing countries or financing alternative energy equipment built elsewhere only succeeds in killing American jobs. That pattern cannot be sustained.