Green Technology Won't Create Jobs

There is no more fashionable answer to the woes of the global recession than "green jobs." Leaders including American President Barack Obama, Gordon Brown of Britain, Nicolas Sarkozy of France, and Hu Jintao of China have all gotten behind what U.N. Secretary-General Ban Ki-moon has called a "green New Deal"— pinning their hopes for future growth and new jobs on creating clean-technology industries, like wind and solar power, or recycling saw grass as fuel. It all sounds like the ultimate win-win deal: beat the worst recession in decades and save the planet from global warming, all in one spending plan. So who cares how much it costs? And since the financial crisis and recession began, governments, environmental nonprofits, and even labor unions have been busy spinning out reports on just how many new jobs might be created from these new industries—estimates that range from the tens of thousands to the millions.

The problem is that history doesn't bear out the optimism. As a new study from McKinsey consulting points out, clean energy is less like old manufacturing industries that required a lot of workers than it is like new manufacturing and service industries that don't. The best parallel is the semiconductor industry, which was expected to create a boom in high-paid high-tech jobs but today employs mainly robots. Clean-technology workers—people who do things like design and make wind turbines or solar panels—now make up only 0.6 percent of the American workforce, despite the matrix of government subsidies, tax incentives, and other supports that already exists. The McKinsey study, which examined how countries should compete in the post-crisis world, figures that clean energy won't command much more of the total job market in the years ahead. "The bottom line is that these 'clean' industries are too small to create the millions of jobs that are needed right away," says James Manyika, a director at the McKinsey Global Institute.

They might not create those jobs—but they could help other industries do just that. Here, too, the story of the computer chip is instructive. Today the big chip makers like Intel employ only 0.4 percent of the total American workforce, down from a peak of 0.6 percent in 2000. But they did create a lot of jobs, indirectly, by making other industries more efficient: throughout the 1990s, American companies saw massive gains in labor productivity and efficiency from new technologies incorporating the semiconductor. Companies in retail, manufacturing, and many other areas got faster and stronger, and millions of new jobs were created.

McKinsey and others say that the same could be true today if governments focus not on building a "green economy," by which they really mean a clean-energy industry, but on greening every part of the economy using cutting-edge green products and services. That's where policies like U.S. efforts to promote corn-based ethanol, and giant German subsidies for the solar industry (which is losing ground to China), fall down. In both cases the state is creating bloated, unproductive sectors, with jobs that are not likely to last. A better start would be encouraging business and consumers to do the basics, such as improve building insulation and replace obsolete heating and cooling equipment. In places like California, 30 percent of the summer energy load comes from air conditioning, which has prompted government to offer low-interest loans to consumers to replace old units with more efficient ones. Consumers pay back the loans through their taxes and pocket the energy savings, which can often cover the cost of the loan within a month or two. The energy efficiency is an indirect job creator, just as IT productivity had been, not only because of the cost savings but also because of the new disposable income that is created. The stimulus effect of not driving is particularly impressive. "If you can get people out of cars, or at least get them to drive less, you can typically save between $1,000 and $8,000 per household per year," says Lisa Margonelli, director of energy-policy initiatives at the New America Foundation.

Indeed, energy and efficiency savings have been behind the major green efforts of the world's biggest corporations, like Walmart, which remains the world's biggest retailer and added 22,000 jobs in the U.S. alone in 2009. In 2008, when oil hit $148 a barrel, Walmart insisted that its top 1,000 suppliers in China retool their factories and their products, cutting back on excess packaging to make shipping cheaper. It's no accident that Walmart, a company that looks for savings wherever it can find them, is one of the only American firms that continued growing robustly throughout the recession.

The policy implications of it all are clear: stop betting government money on particular green technologies that may or may not pan out, and start thinking more broadly. As McKinsey makes clear, countries don't become more competitive by tweaking their "mix" of industries but by outperforming in each individual sector. Green thinking can be a part of that. The U.S. could conceivably export much more to Europe, for example, if America's environmental standards for products were higher. Taking care of the environment at the broadest levels is often portrayed as a political red herring that will undercut competitiveness in the global economy. In fact, the future of growth and job creation may depend on it.