Why the Federal Government Should Subsidize Green Jobs and Keep Americans out of Poverty

Authors: Melissa Bradley-Burns

Using Public Capital to Create More Equitable Private Markets

By Melissa Bradley-Burns, Senior Strategist, Green For All

Crossposted from Spotlight on Poverty and Opportunity

The role of government is to instill confidence in the American public and support citizens in their belief that our social and financial well-being is real. With respect to our current crises, it is the job of government to restore confidence in and stability to our economy and our country. This role is also an opportunity: strong government action now can help reinvigorate our economy, make our nation more environmentally friendly, and provide jobs to millions of poor workers.

The current credit and environmental crises cannot be solved by the private sector alone. First, the banking crisis has virtually dried up access to capital and thus constrains companies’ ability to hire, invest, innovate, and jumpstart the economy. Moreover, the wave of corruption within corporate America has caused mistrust of the private sector.

President Franklin D. Roosevelt once said “the practices of unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men and women . . . the money changers have fled from their high seats in the temple of our civilization.” Over 50 years later, this statement is still relevant. Therefore, the government must intervene to restore faith in the American Dream and create and catalyze markets that can create jobs and save the environment.

John Maynard Keynes argued for government spending as a vehicle for recovery. By using fiscal policy, the government can provide a stimulus and multiplier effect. This multiplier effect, initiated in the public sector, can be scaled within the private sector. This is our opportunity for today.

Subsidies are not new. In fact, this country has a history of subsidies, or investments, that have yielded significant social and financial returns. For example, the New Deal prevented the economy from decaying further by increasing regulatory functions of the federal government in ways that helped stabilize previous trouble areas of the economy: the stock market, banking, and others. Moreover, the New Deal spent $3.3 billion with private companies to build over 30,000 projects. One of the results of Roosevelt’s hard work over 12 years was an 8.5 percent compound annual growth of GDP—the highest growth rate in the history of any industrial country. Other successes included the consumer price index (CPI) increasing to over 100 from just over 90 in 1933. Exports increased almost fourfold from 1933 to 1940.

Another example of government subsidies are funds disbursed to “Small Business Investment Companies” (SBIC). Created by Congress in 1958, the SBIC was to bridge the gap between entrepreneurs’ need for capital and traditional financing sources. It started as a multibillion-dollar, government-sponsored “fund of funds” that invested long-term capital in privately owned and managed investment firms (licensees); truly a public-private partnership. Since its inception, the fund has put money in over 370 private equity partnerships and supported diverse private partners providing roughly $9.4 billion in capital resources to small businesses nationwide. In 2007, SBIC financings totaled $2.7 billion, with 2,057 companies benefiting from SBIC financing. Companies that were successful because of SBIC include: America Online, Apple, Amgen, Costco, Intel, Orbital Sciences, Sun Microsystems, and WebMethods.

Today, critical legislation and key sector investments can provide a similar stimulus to the economy. For example, the Green Jobs Act of 2007 is supporting training programs to create a pipeline of workers to efficiency, biofuels, retrofits, and renewables.

America has lost over 3 million jobs in recent months, with 600,000 lost in January alone. Last year’s fourth quarter unemployment rate was 6.6 percent, an increase of about 140 percent over the same period the year before.

Data shows that investing $100 billion in the green economy can create 2 million good jobs in the next two years. Therefore, the creation of green jobs – providing living wages for infrastructural and environmental work in our nation’s cities – is a great catalyst for rescuing the economy. But to create a green jobs economy, we’re going to need government help.

Jobs are based on market demand. In the case of subsidies, government can jumpstart demand that can be advanced and scaled by the private sector. Evidence of market demand and opportunities include:

  • Between now and 2030, 75 percent of the buildings in the United States will either be new or substantially rehabilitated.

  • In 2006, the “Green-tech” sector was the third largest represented globally and $3.6 billion was poured into companies last year.

  • In 2006, renewable energy and energy efficiency technologies generated 8.5 million new jobs, nearly $970 billion in revenue, and more than $100 billion in industry profits.

  • If 50 percent of the 128 million housing units nationwide are retrofitted at the modest rate of $10,000 per unit, it would create a retrofit market worth over $600 billion in revenues.

  • The United States’ solar energy market has seen fantastic growth over the last five years, and global solar market capitalization is well over $500 billion.

  • In 2006, the renewable energy and energy efficiency industries created 8.5 million jobs. With continued investment by the government, the jobs could top 40 million by 2030.

Now is a key moment to capitalize on this growing market. One element of the stimulus bill is to double clean energy production in three years, weatherize 2 million homes, and create a half million jobs in the clean energy sector. This is a pivotal opportunity to invest in green jobs and clean energy infrastructure, which will make our economy stronger and more stable.

Public officials have the opportunity and obligation to use tools at their disposal to catalyze certain industry sectors and hold employers accountable for creating good jobs. Subsidies are one of their tools. There are at least four comprehensive programs the federal government can initiate to spur green energy investment and put money in the hands of workers who need it most:

1. Establish an energy-efficient retrofits program for public and private buildings, which can jumpstart the construction industry.

2. Require all workers on projects or contracts supported by federal funds be paid a wage that will keep them out of poverty. This will stimulate local economies and ultimately increase local tax revenue.

3. Incentivize the development of a green manufacturing industry. Historically, manufacturing has always provided a key opportunity for growth in the United States.

4. Increase government contracting for goods and services as a means to jumpstart local economies. As municipal budgets spiral downward, the federal government can encourage local governments to maintain policies that support economic development, not outsourcing. For example, the federal government could require responsible contractor policies when federal funds pay for all or part of locally procured goods and services.

It is important to note that not all subsidies are new and subsidies are not the only source of funding or investment. In most cases, government subsidies are best when they successfully leverage additional investment. Examples include:

  • Clipper Windpower in Cedar Rapids, Iowa, where subsidies of just over $3 million supported $50 million of total investment.

  • Vestas America in Brighton, Colorado, received $8.5 million in subsidies toward a total investment of $240 million and created a minimum of 1,300 jobs.

  • Solar World in Hillsboro, Oregon, received $41 million for a total investment of $440 million and created at minimum 1,000 jobs.

It is important to note that subsidies are not intended to be a blank check for the public or private sector. Rather, subsidies are about making good investments that yield a return. Good investments will be measured through return on investment, and it is important for the government to establish benchmarks and guidelines to be sure it gets a good deal. Some of these stipulations should include:

  • Clear milestones with audit function and repercussions for failed opportunities.

  • Clear “return on investment” benchmarks to be mutually and explicitly agreed upon.

  • Use of “clawbacks” (money that can be recovered according to agreed upon terms) that provide accountability and enforcement, allowing government to recapture funds when contractors fail to meet standards.

  • Inclusion of a domestic sourcing requirement attached to subsidies so that American taxpayers can reap the greatest benefit.

Subsidies should be viewed as a tool for leverage and a means to catalyze private sector growth.

In the case of our current economic and environmental crises, the focus on improving efficiency and lowering energy costs of existing infrastructure while creating jobs is a smart investment. It is an opportunity to promote high-quality, family-supporting jobs in the United States, support low-income communities in accessing high-quality jobs, and create an inclusive economy.

The time is now for green jobs to help reverse the economic and climate crises in this country. However, like all major market transformations, this movement will require huge amounts of social, financial, and human capital.

Melissa Bradley-Burns is a Senior Strategist and directs the Business and Capital Access Program at Green For All.

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